Expansion in Online Trading Moderates

The number of stock transactions by individuals over the Internet rose 15% in the second quarter, returning to mid-1998 growth rates after two quarters of above-average increases.

Investors made a daily average of about 575,000 trades over the Web in the latest quarter, which comes to about 1 in 6 U.S. stock transactions, Credit Suisse First Boston said in a report released Wednesday.

The growth rate is down from 47% in the first quarter and 34% in the fourth quarter of 1998. It’s closer to the 17.7% average quarter-to-quarter expansion for the six quarters through the 1998 third period, Credit Suisse analyst Bill Burnham said.

“This is pretty much the long-term growth rate for this industry, the high teens,” said Burnham, who described the two previous quarters as aberrations.

A 15% quarter-to-quarter growth rate translates to 75% annual growth, which Burnham called “not shabby at all.”

The industry is now three times bigger in transaction volume than it was 15 months ago, since widespread advertising and increasing Internet access helped persuade more individuals to use the Web to buy and sell stocks at commissions far cheaper than those of full-service brokerages.

Online trading growth exceeded that of the industry overall in the second quarter: Volume on the Nasdaq Stock Market and in Standard & Poor’s 500 stocks both rose less than 1% in the period.

A “blowout quarter” like the first quarter will “probably be the biggest sequential growth we ever have,” Burnham said. “As the industry gets bigger, it’s harder to grow that fast.”

Shares of online brokerages were mostly lower Wednesday. National Discount Brokers fell $2.13 to $53.75, E-Trade Group slipped 13 cents to $40.94, Charles Schwab eased 50 cents to $53; and Ameritrade Holding dropped $1.44 to $39.81.

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Online Trades

After two quarters of extraordinary growth, the increase in online trading returned to more moderate levels in the last three months, according to Credit Suisse First Boston. Quarter-to-quarter percentage increases since the fourth quarter of 1997:

2nd-quarter 1999: 15%

Source: Credit Suisse First Boston