On-line and telephone share traders are hastily taking on staff and adding new computers after the recent trading boom caught them off guard - and left furious small investors hanging on the phone for up to an hour to place, buy or sell orders.
Since last November the number of trades on the London Stock Exchange has ballooned from around 50,000 a day to an average of 100,000 and on some days it has hit 140,000. Almost every one of the new share traders - whose cheap dealing fees have fuelled the boom - buckled under the phenomenal rise.
Many internet dealing sys tems slowed to a crawl, which was a disaster for "day trading" investors in hi-tech stocks such as Pacific Media or Baltimore Technologies, where prices have yo-yoed dramatically in the space of a few hours. Many small investors abandoned internet trading sites for telephone services instead, hoping for a faster response, but found that they were held in call queues lasting 30-60 minutes.
Anger among investors has spilled over into the chat rooms and bulletin boards at net sites such as iii and hemscott. At times the boards have been jammed with investors messaging each other with complaints about which internet or phone dealer is currently worst. All the big stockbroking names have suffered, with Charles Schwab and Barclays Stockbrokers in particular taking a roasting.
The problems are still not fully ironed out. The Financial Services Authority stepped in before Christmas to monitor the situation and this week said service was improving, with 75-80% of calls now being answered first time. Yet a check by Jobs & Money this week found that many brokers are coping only by closing their doors to new customers and, even for existing customers, severe problems can still arise on Monday mornings and Friday afternoons when trading volumes are at their most intense.
Callers to Halifax's Share Xpress service are greeted by a message that the company will not accept new registrations. Halifax jolted the market by offering trades at just £5 a go when it opened for business - but was then overwhelmed by the volumes. It says now that it is monitoring the situation daily. This week, for example, it allowed new registrations on Tuesday and Thursday.
Charles Schwab refuses to take new "certificated" business, where the investor wants to trade using paper certificates, but will open accounts for 'nominee' business, where certificates are 'dematerialised' and held by Schwab in a nominee account instead. Barclays Stockbrokers also admits to continuing delays with certificated telephone dealing. NatWest Stockbrokers has avoided the worst of the problems by a slow roll-out of its internet service.
The brokers have also tried to stem volumes by blacklisting certain shares, predominantly small hi-tech stocks, which have created huge back-office problems because they are not tradable over Crest, the electronic settlement system. The list includes popular stocks such as Geo Interactive Media and BATM Advanced Technology.
Schwab and Barclays, who with NatWest are the biggest brokers for small traders in the UK, both say they are racing to build up capability to deal with the trading surge. Schwab spokeswoman Jane Drew says: "We have opened a new customer service centre with 100 people and increased by 60% the number of people answering phones to 170. We are also doubling the capacity of our net service."
Barclays, which says that it is now transacting more than 10% of all share trades in London every day, says it is looking at increasing its internet capability to handle 40,000 trades a day. Spokesman Justin Urquhart Stewart says: "In the worst case, telephone delays were up to 45 minutes, but now the queues are about 4-5 minutes."
Other on-line stockbrokers are hoping to take advantage of the big brokers' embarrassment. A recent favourite among the chat room investors is Stocktrade, part of the Brewin Dolphin group. "It's been very busy, and volumes are extraordinarily high, but our response times have been good," says director Robert O'Riordan. Call queues are in the seconds rather than the minutes, he claims. NatWest, although admitting to some "growing pains", also says that its call answering is now "pretty much instant."
The real test will be if the systems are able to cope with a crash in internet stocks, when everybody wants to get on the phone or on-line simultaneously to sell. "There will inevitably be some big delays" warns Barclay's Urquhart Stewart.
He admits to being astonished by the stocks which currently top the trading volume lists and which have displaced the privatisation and demutualisation favourites.
• Investor 2000, the UK's largest private investor conference, is taking place at the Queen Elizabeth II Conference Centre, Westminster, London, on March 3 and 4. There is a special Jobs & Money readers' offer- the first 50 people to call 0845 605 2001 will receive a one-day ticket for £25 instead of £75, a two-day ticket for £39.50 instead of £110, or an exhibition-only ticket for £5 instead of £30. Quote reference number 166.
