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Wednesday, June 21, 2006

TD Ameritrade Outage Generates Outrage

Over the weekend, TD Ameritrade implemented a security upgrade as part of their integration campaign to bring together the Ameritrade and TD Waterhouse platforms.  Unfortunately, the upgrade caused new problems, some of which prevented a bunch of former TD Waterhouse customers from logging in to their accounts

As usual, what happens as soon as an outage at a large online broker occurs, Barron’s readers notify me of the situation.  The notification is usually worded in a business-like manner, but some of those affected get frustrated by long waits on hold at their broker, and just cut loose when they write to me. 

What happened with the upgrade, according to TD Ameritrade’s Donna Kush, was that the TDW customers were sent to a different login page.  At their former login, they could opt to store their user ID, but that was not automatically stored at the new site.  So folks who were used to having their computer enter that long string of numbers had to dig out the account number and type it in again.  And again and again, since the new system, for security purposes, doesn’t store their account numbers.

During the process TD Ameritrade also experienced what Kush calls “some technical issues,” which resulted in some former TDW clients not being able to log into their accounts.  Kush reports a backlog of customer support calls on Monday, but says that volumes dropped off Tuesday and today. 

Kush says that TD Ameritrade fixed the problem ASAP, is implementing a software change tonight, and will continue to monitor the situation.  “We expect that that will help improve the situation as soon as possible.  We’ve also contacted affected clients by email and phone to apologize and explain the issue.  We’ll continue to give them updates on the situation,” Kush says.

I took a look at some of the message boards that discuss TD Ameritrade at Yahoo Finance and saw a lot of anger.  I’m getting emails asking how long it takes to get an account moved to another broker.  That process takes long enough that it shouldn’t be done lightly or in anger, folks.  And some brokers charge a fee to move your assets away, though others will pick up the cost upon request.  Hmm.  Sounds like a good excuse for part of a column sometime. 

Posted by twcarey on 06/21 at 11:44 AM
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Saturday, June 10, 2006

Nasdaq's Live Floor Show

THE NASDAQ IS MORE THAN JUST a high-tech all-electronic stock exchange.  Thanks to all the transactions processed on the board, it’s also a place that collects a great deal of data about price movements and volume. 

The NASDAQ now offers a variety of data products such as TotalView, which displays every quote and order at every price level on all Nasdaq National and Capital markets stocks available for execution at the Nasdaq Market Center. That way, traders get a better idea of what the actual market is for these stocks. Several online brokers, including Scottrade and a number who utilize the RealTick electronic trading platform, now offer TotalView to their customers. It is otherwise available for $70 a month for professionals and $14 per month for non-professionals.

To see what Nasdaq (ticker: NDAQ) has cooking, check out its experimental data page at http://emi.nasdaq.com. Its newest real-time offering is Market Velocity, which is designed to give investors who aren’t working on a live trading floor access to information that a floor trader could glean from the surrounding action, according to Nasdaq executive vice president Adena Friedman. Instead of hearing the buzz about a stock or seeing others gathered at a certain location on the floor, Market Velocity aggregates current arriving orders, and compares them to the average activity in that stock over the prior three months. As a result, a trader is alerted to shifts in market direction, momentum or liquidity in individual stocks that might suggest future price moves.

“We look at this particular point in time, relative to the base and see whether there is more activity or less, says Friedman. “It’s comparable to traders running around with tickets on the floor.”

Market Forces, another recent Nasdaq entry, breaks Market Velocity data up into buy or sell interest, which can suggest whether the heightened activity is about to move the stock price higher or lower. A real-time feed, Market Forces is most useful for frequent traders who focus on a particular set of stocks and want to know the intra-day dynamics of certain shares.

“This is the start of a new genre of market data that we’re creating,” says Friedman. “It’s meant to be more analytical in nature to take advantage of things coming in to our system that will help traders determine trends in stock pricing.” Both Market Velocity and Market Forces are part of Nasdaq’s Market Analytix data package.

Check with your data provider or online broker to see if they have Market Velocity or Market Forces available (they aren’t being offered independently by Nasdaq) and at what, if any, cost.

INTERACTIVE BROKERS (http://www.interactivebrokers.com) sponsored a Trading Olympiad for college students earlier this year ("Get With the Program,” Nov. 7, 2005) in an effort to identify some of the best and brightest up-and-coming techies.

Starting with an account of $100,000 in phantom money, University of Texas graduate student Patrick Christmas earned an additional $120,000 in 10 weeks using computer algorithms he developed for Interactive Brokers’ Trader Workstation Application Program Interface.

The victorious Christmas won a very real $50,000, which IB will match in a donation to his grad school in Austin. The electronic brokerage paid out a total of $307,000, including $1,000 each to 100 participants. “Anybody who entered and made a penny won $1,000,” says executive vice president Steve Sanders. To top it off, the company hired the fifth place winner, Li Zhiyan, of the University of Toronto.

Any IB customer can open a paper trading account and test to their heart’s content, says Sanders. “We simulate whether there would be a fill or not (whether an order would be filled), so when someone puts in a limit order we simulate the fill based on whether that price and volume were available,” Sander says. Recently, IB added all of its global products to the paper trading platform as well.

New features include Volatility Trader for options traders, and SpreadTrader for futures spread trades. More on these features in a future column.

JUST ARRIVED FROM optionsXpress (http://www.optionsxpress.com) is Xtend, which brings streaming quotes and many features of direct trading to the browser. To launch it, click on Streaming Quotes, then customize the screen to your specifications. Unlike many software-based trading applications that are stored on a single computer, this one allows the user to set up layouts that are accessible wherever he or she logs in.

Right-clicking on a bid or ask brings up a quick way to enter an order, displaying three prices near the market if you want to enter a limit order. Click on one of the prices to generate an order ticket. Options-spread information is built in, as is real-time futures pricing and order entry.

A trader can use some of the Xtend screens, plus favorites from the optionsXpress browser-based tools, such as StrategyScan and Dragon. “That’s why we call it Xtend—it extends your browser,” says optionsXpress President David Kalt.

Published in Barron’s, June 5, 2006.

Posted by twcarey on 06/10 at 01:04 PM
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Wednesday, June 07, 2006

T+0 and Real Time Everything by 2015?

By the year 2015, the widespread implementation of straight-through processing is expected to happen, including T+0 settlement, according to a new worldwide research study issued today by BearingPoint, Inc., a McLean, VA-based management and technology consulting firm. 

I’m not sure it will take that long. 

According to the study, the stock exchange consolidation happening today – as demonstrated by groundbreaking developments such as the NYSE-Euronext merger proposal – is a precursor to the migration by exchanges into the traditional world of investment banking, driven by the exchanges’ need as public companies to identify avenues for continued growth.  The study is entitled, “Shifting From Defense to Offense: A Model for the 21st Century Capital Markets Firm,” and it was based on surveys of top executives from leading capital market companies to find out how these firms are already transitioning their operations in preparation for the challenges of the next decade.

The study also found that capital markets firms will need to establish an organizational structure that maps to their clients’ “investment DNA? with a centralized view of client data across all business lines and products. This will allow banks to provide a consolidated risk and finance profile of each client, as well as the information needed to design custom products for each client’s portfolio.  This “investment DNA” idea is an outgrowth of the ongoing customization and personalization we’ve been seeing in the online brokerage and banking industries over the last five years. 

E*Trade takes the idea of an investor’s “DNA” to the max, but they use it primarily to cross-sell other products that they offer.  It’s hard to move from one part of the E*Trade site to another without being offered mortgages, credit cards, and shopping opportunities.  I’ve gotten complaints from investors who were recently Borged into the E*Trade system due to the BrownCo takeover about this incessant cross-selling.  “Can I turn it off somehow?” asks one new E*Trader. 

The BearingPoint study, which you can read by clicking here, also cites the key technology issues that should be considered as the capital markets industry looks to the future, including:

· The role of emerging markets:  Emerging markets will represent an important growth engine for the global capital markets industry, as their upper and middle class grows.

· 21st Century data infrastructure:  By 2015, all forms of data, including unstructured data like email and messages, will need to be stored for internal and external audiences.

· Strategic risk management: Impending market restructuring legislation is causing the leading capital markets firms to take a different approach to managing risk.

· Enterprise client management:  Middle- and back-office functions will be reconfigured into massive processing utilities, leaving capital markets firms focused on the front end.

“We have seen the list of the top ten investment banks and brokerages change every ten years, with new players breaking in and others fading away through consolidation and competition,? said Peter Horowitz, managing director of BearingPoint Financial Services and global markets lead.  “We can expect to see an even more dynamic shift over the next ten years as exchanges, which are searching for profits and growth more aggressively than ever before, muscle their way onto the playing field.  As a result, sell-side firms must begin preparing immediately to use technology to both capitalize on alternative revenue opportunities and identify new ones.? 

I believe that the biggest drag on this push to real-time everything are the legacy systems still in use by many of the larger banks and brokerages.  If you know where to look, you can see the transition from one system to another as you move around a website. 

Some brokerage executives have told me that upgrading their hardware is difficult with the constant regulatory changes.  They fear switching to a new system only to have to deal with another set of regulations that would render it unusable, or immediately obsolete. 

I think that waiting until the regulatory landscape levels out is not a wise business decision. 

Posted by twcarey on 06/07 at 10:07 AM
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