TODAY's NEWS - GLOBE and MAILInvestors get on-line angst
by Karen Howlett - Friday, March 10, 2000
TORONTO -- Bill Catalano says he has missed out on $16,000 in trading profits in recent days, all because
Toronto-Dominion Bank can't handle the volume of business going through its discount brokerage arm.
On Tuesday afternoon, for instance, he put in an order at 12:36 to sell a stock at $137 each. It was trading at
$131 at the time, the same price he had purchased it for a few days earlier.
By the time his order cleared 30 minutes later, the stock had jumped to $136, so he changed his order to
sell at the market price and was put back on hold. When a trader was finally ready to sell the stock at 1:40
that afternoon, the price had fallen to $119, so Mr. Catalano cancelled the order.
+I'm just sitting there, watching my profits slip away,+ he said.
Mr. Catalano and his wife Paulette, a retired couple in Sudbury, Ont., work full time managing their
investments. They each spend several hours a day at their computers -- she does the charts, looking for
stocks with momentum; he does the trading -- and the television is constantly tuned to one of the cable
business programs.
They are far from alone. Thousands of individuals are jumping into the stock market as technology spawns a
new breed of self-reliant investor. This is in stark contrast to only a few years ago when institutional investors
dominated trading on the Toronto Stock Exchange while individual shareholders sat on the sidelines.
+The Internet has changed the world,+ said Paul Bates, chief executive officer of brokerage Charles
Schwab Canada and a pioneer in this country's discount brokerage business. +We are locked in a path
that will inextricably lead to 24-hour, round-the-clock, follow-the-sun markets.+
Last year at this time, the TSE was handling an average of 69,300 trades a day; on Monday, a record of
249,000 trades was set.
The explosive trading growth has caught the bank-owned discount brokerages off guard. Bank executives
say no one could have anticipated such a huge invasion of individual investors.
At Action Direct, Royal Bank of Canada's discount arm, executives anticipated increases of 30 to 40 per
cent this year in trading volumes. Instead, activity has tripled from a year ago.
But the banks' critics, including dozens of unhappy discount brokerage customers, counter that these
institutions approached the business with a typical +me too+ bankers' mentality. With the exception of TD
Bank, the banks were latecomers to the industry. They offered the service without really thinking about what
is required to make it work, the critics said.
As a result, with volumes far surpassing their capacity, customers face delays of up to two hours some days
to do Web trading or use a broker's automated phone trading system. And once they get through on the
lines, they often face further delays to have a trade processed.
+Nothing works,+ said Montreal businessman Daniel Borches. He thought he would get around the problem
by trying to place an order late one evening. But he fell asleep on the phone after waiting two hours to talk to
someone at TD Waterhouse Group Inc., TD Bank's discount broker.
On Tuesday, when unprecedented trading volume caused the TSE's computers to crash twice during the
day for more than 2½ hours, Mr Borches gave up after he couldn't even get through on either the Internet or
the phone lines.
And what was he trying to do? Short TD Waterhouse stock -- the time-honoured practice of selling shares
you don't own in the hope that the price will fall and you can replace them at a lower price.
Mr. Borches said he thinks the delays are not only a problem for TD Bank's image but for the bottom line as
well, because the bank has to spend money upgrading its computer systems and is also losing money on
client orders it can't handle.
+Each call costs them money if I'm on hold for two hours on a 1-800 number,+ he said. +I feel that stock's
going to go down.+
Steve Sparrow, senior manager of trading at TD Waterhouse, would not comment on any potential impact
on the bank's profitability. TD Bank made a record first-quarter profit of $458-million or 72 cents a share,
largely fuelled by the stellar performance of TD Waterhouse.
Meanwhile, frustration among clients is growing to the point where security guards had to be called in at
Royal Bank's Action Direct centre in downtown Calgary after one unhappy client vented his frustration by
threatening the vice-president for the western region, according to a source.
A Royal Bank spokeswoman declined to comment beyond confirming that there was +an incident+ in the
discount brokerage branch located in the Royal Bank tower.
She also said the bank is addressing the situation by +aggressively+ hiring new staff. Action Direct has 660
employees today, up from 396 at the end of 1998 and wants to hire another 300 to 500 workers, she said.
Mr. Sparrow said TD Waterhouse hired 275 people in September and October and is running three to four
training classes at a time, including on weekends and evenings.
+But we need more and we're looking at different ways of attracting people,+ he said. For instance, six
months ago, the bank would not have considered hiring anyone who had not passed the Canadian
Securities course, which is mandatory for anyone who wants a brokerage licence. Today, however, the
bank is hiring individuals before they pass the course.
TD Waterhouse is Canada's biggest discount brokerage with 750,000 customers and $40-billion in
customer assets. Mr. Sparrow said the bank upgraded the computers and computer systems in the fall to
handle more volume. +But the volumes keep going to new levels.+
Frustrated customers, however, have little sympathy for the banks' explanations and say they should have
had the staff and the infrastructure in place to handle the volumes.
In an ideal world, a discount broker should be able to process a customer order in less than a minute. Any
longer than that amounts to an eternity, especially when markets are volatile.
+It would seem to me if you could not foresee this day coming, you had no business getting into it,+ Mr.
Catalano said.