Investor Brain

Monday, May 22, 2006

Monday Musings

Thanks to the publication of my most recent Electronic Investor article, From Info to Insight (currently available at Barrons.com to subscribers; I will have it posted here next week), I’ve heard from quite a few former Brown & Company customers who have been transmogrified into E*Trade customers this month. 

Overall, this transition has gone significantly more smoothly than the Harrisdirect transition, which began in January and dragged on for several weeks.  I received about 400 emails complaining about the Harris takeover, and have only (only??) received 35 about the BrownCo transition.

Harris had more customers—approximately twice as many—as BrownCo, but the 90%+ reduction in complaints tells me that E*Trade was considerably more cautious this time around.  One of the biggest mishaps I heard about had to do with a stock split that happened the day the transition was being completed.  The customer in question promptly entered an order to sell off his post-split shares, but the transaction got seriously muddled, resulting in short sales, margin calls, and a variety of other problems.

I forwarded this customer’s complaint to my contacts at E*Trade over the weekend, and I’m happy to report that an E*Trade senior vice president called the customer and fixed everything personally today. 

Another customer complained about the way E*Trade Pro displays tick-by-tick changes in stock prices, but we can chalk that one up to a preference.  The remaining complaints are relatively minor in comparison to the horror of the Harris takeover.  (For details, see “Lost in Translation,” “Conversion Trouble Part 2,” and the last three paragraphs of “Seek and It Shall Find.”

IMAGINE THIS: You’ve just come into a rather significant sum of money.  What would you do with it?  The publishers of SixWise.com have created a quiz entitled, “What kind of SUPER rich person would you be?”

The site contains ideas about health and wellness, love relationships, identity theft protection, career advice and enjoying life.  I like to read through it every now and then.  Check it out at SixWise.com. 

Wednesday, May 17, 2006

Greetings, Apex Live Attendees

This morning, I gave the welcoming keynote talk at the TD Ameritrade Apex Live event held in San Francisco, California.  For those attendees who wanted some of the links I mentioned, I’ve prepared this entry. 

Regarding closed-end funds, please read my entry from July 18, 2005, entitled “Closing In on Closed-Ends.” I abbreviated the content of that column considerably, and all the links I mentioned in the talk are included, plus several others. 

I’ve reviewed quite a few currency trading sites in the last year.  Here are a few columns that include those reviews.  Click on the title to read the story. 

Currencies, Anyone? (April 24, 2006)
Not-So-Foreign Exchange (January 9, 2006)
Day-Trading Currencies, 24/7 (August 1, 2005)

Regarding exchange-traded funds as a way to provide international diversification, check out these columns:

Online Hand-Holding (October 10, 2005) (Includes a discussion of Ameritrade’s Amerivest product)
Over There, Online (June 20, 2005)

It was exciting for me to see so many people who are interested in becoming better-educated investors.  This site will be developing over the next few months—be sure to come back and visit. 

Monday, May 15, 2006

Welcome to Investor Brain

Welcome to Investor Brain, brought to you by Theresa W. Carey. 

Interested in news about online brokers?  Do you want to find the right broker for you?  You’re in the right place. 

Theresa W. Carey has been writing “The Electronic Investor” column for Barron’s since 1995, and is the author of all 11 annual reviews of online brokers.  This site will expand on the information printed in Barron’s.  The goal over the next few months is to give you the ability to search for the broker that fits your investing style.  Another goal is to produce a page for each brokerage offering, which will include copy from my articles as well as links to other reviews elsewhere on the ‘net.

Coming soon: Interactive forums.  Stay tuned. 

As we pull that database together, we’ll give you access to an archive of Theresa’s columns as well as up-to-date news about the industry.  In addition, Theresa will be posting items that generate a spark in her head that may or may not have anything to do with online investing.  Stick around. 

Saturday, May 13, 2006

Automated Forecasts

IF YOUR CRYSTAL BALL NEEDS some polishing, Greenlight Stocks (http://www.greenlightstocks.com) offers an algorithm that uses statistical and mathematical methods to forecast prices for North American stocks. The site lets you check a 12-, 24- or 48-day forecast for individual stocks or a portfolio and issues a recommendation.

This forecast is based on pattern recognition, which enables the model to identify stock-purchasing trends that might be hidden from the naked eye, and estimates the probability that such patterns will continue in the future.

If you set up a portfolio to track, recommendation changes—for example, from Hold to Sell or from Buy to Sell—will be sent to you via e-mail.

We found this site intriguing, although the layout needs some work. Once you type in a stock symbol, a densely packed page of data appears. Near the top is a recommendation for the stock that you’re examining—Buy, Sell, Overbought or Oversold. You’re shown forecast details, which describe how the model believes the stock will perform over the specified periods.

The model also lets you know how its forecasts have worked over the past month. By clicking on “Historical Prediction,” you can check its accuracy for the past year. The tables also display the average gains or losses the model is forecasting over the various periods. If you’re a swing trader, the data is interesting, although the presentation needs to be cleaned up.

You can try the site free for 30 days. If you sign up, you pay $9.95 per month to track up to 30 stocks. Use the trial period to see how well the predictions work.

LIKE TO CHANNEL Benjamin Graham and David Dodd? Checklist Investor, a program published by Sollee Solutions (http://www.checklistinvestor.com, $49.95) was created to help individuals make better investment decisions. It offers checklists, based on the book The Intelligent Investor, the value investor’s bible by Graham and Dodd. The lists guide you through an investing decision in a systematic way. We examined version 4.03.

The program ships with 14 checklists built in, plus a method for creating a checklist of your own. The lists also can be customized. Patrick Sollee, the program’s author, recommends creating a checklist based on any good book you may have read about investing.

Checklist Investor is easy to install and to begin using, but it requires quite a bit of manual data entry. Some of the items in the checklists, which query the user about the historical performance of a stock or mutual fund, could be automated via the Internet.

You can store all your favorite online investing sites in the “Internet Research” area of the program. The author recommends using Checklist Investor as a repository for all your investing decisions, as well as ideas and additional research. You can grab Web images, such as stock charts, and associate them with a particular stock or mutual fund. There’s even a way to enter your notes from company conference calls, which would be much more valuable if it also linked you to a list of coming calls.

Some of the checklists are extremely lengthy, though they’re full of good ideas for a long-term value investor. This program also is valuable for a novice or an intermediate-term investor, but won’t be much help for the short-term trader. It also needs more robust ties to online data to minimize manual-information entry and make it easier to use.

WHILE THE PACE OF DEALS among online brokers has slowed recently, the integration of last year’s combinations continues apace. We’re keeping an eye on the merger of Ameritrade and TD Waterhouse into TD Ameritrade (http://www.tdameritrade.com), which recently cut commissions to $9.99 per online trade for stock transactions, regardless of the number of shares.

Customers continue to log in through the same public sites as before—Ameritrade clients at http://www.ameritrade.com and TD Waterhouse clients at http://www.tdwaterhouse.com. The two sites still have separate clearing operations, so they aren’t yet integrated. “We’re starting to close product gaps now. Those pieces will keep rolling out over the next few months,” says Katrina Becker, TD Ameritrade’s director of corporate communications. The gaps in question are research offerings that are now available to both platforms. The pricing is the same, regardless of which site you use. The final integration is expected by the end of the year.

Meanwhile, BrownCo customers were to be integrated into E*Trade (http://www.etrade.com) following last year’s acquisition of the former by the latter. We’ll be curious to see how this goes, in view of the problems seen by former Harrisdirect customers when they were integrated into E*Trade a few months ago.

Published in Barron’s, May 8, 2006
Direct link:  http://online.barrons.com/article/SB114687153382445484.html?mod=Electronic+Investor

Sunday, May 07, 2006

A Policy Change at Greenlightstocks.com

My current Barron’s column, Automated Forecasts (link requires a Barron’s Online account), features a site called Greenlightstocks.com, which I found interesting with a few caveats.  When I wrote the piece, the publisher offered a 30-day trial period. 

But between Tuesday, when we fact-checked, and Saturday, when the article hit print, Greenlightstocks.com changed their free trial policy, much to my dismay.

Several readers wrote me on Saturday with emails similar to this one:

“Theresa W. Carey’s article on Greenlight Stocks’ algorithm that uses statistical and mathematical methods to forecast prices for North American stocks has an error in it.  The trial period is not 30 days, as stated in the article, but rather for 7 days for 3 stocks.  This certainly made me change my mind quickly about trying this service, as I am sure others have decided to do also. “

I sent a note to the site publisher, Gideon Vigderhous, Ph.D, who responded with this explanation:

“Hello Theresa:
I do apologize for the complaints you are getting since we changed the 30 day free-trial to 1 week.  The reason we did that is because many people used the free-trial and then tried to get an additional free-trial period using a different e-mail address.  At the time we were giving the 30 day trial, we had a different fee schedule (we were charging as much as $29.95 per month).  Since we lowered our subscription to $9.95 per month, we also lowered the time for the free trial.  Nevertheless, we will gladly give anyone who complains the 30 day free-trial.  Please direct them to us and we will gladly extend their free trial time.

Again, we apologize for any inconvenience this may have caused and thank you for your efforts on our behalf.

Gideon Vigderhous, Ph.D”

One of the reasons I enjoy writing for Barron’s is the short lead time before a piece hits print.  Back when I primarily wrote for monthlies with long lead times, there were often many changes between the time an article was filed and when it was finally printed.  Fielding those complaints—“Your article is way off base!  The price is $49.95, not $34.95!” and so on was annoying.  I can’t think of any other instance in the 11-plus years I’ve been writing for Barron’s when there was a change of this magnitude between the time a story was filed and when it ran. 

Sure, a month from publication, there are often changes.  But in 5 days?  When the site publisher knew I would be covering his technology?  That’s just bad marketing on the part of Greenlightstocks. 

Grr.

Thursday, May 04, 2006

SEC Cuts Fees -- Will It Matter?

Yesterday, the SEC gleefully issued a press release entitled, “SEC Announces Billion Dollar Fee Cut to Benefit Investors.” Well happy day!  But will it matter?

I got my hopes up on this one, anticipating something that would cause commissions to drop even further. After all, the SEC clearly said that they didn’t want the brokers to pocket these cuts in fees.  The cuts happened to benefit investors!  It’s right there in the title!

With the help of several of my contacts in the online brokerage industry, I learned that the fees in question are currently quite small, and just get eaten by most brokers.  One of the fees, called a Section 31 fee, is charged to the seller of a security (stock or option) at the rate of $30.70 per million dollars.  So if you went out tomorrow and unloaded $100,000 of stock, the SEC Section 31 fee would amount to $3.07.  In October, that fee will drop to $15.30 per million, or $1.53 for our hypothetical $100,000. 

Whoopee.

The other piece of the fee cut involves registration fees for new issues and other actions related to IPOs (Section 6(b), Section 13(e) and Section 14(g)), which is dropping from $107.00 per million dollars in sales to $30.70.  That may affect new offerings, but it’s unclear how much it will cut costs. 

I’m disappointed by the headline the SEC used to trumpet these fee cuts.  My first reaction was, “Hey, there’s got to be a great story here!” But after a little digging around, and a very informative phone call from Tom Sosnoff of thinkorswim—Thanks, Tom!—I learned that there’s not much of a story. 

Tuesday, May 02, 2006

A Blast from the Past

While doing an archeological dig through an old computer, I found this transcript of a Wall Street Journal Live event that featured Yours Truly as the guest speaker.  This was an online chat format, with a moderator from the WSJ, Ravina Khosla.  As I vaguely recall, it ran from 8-10PM New York time, and since I was living in Tokyo at the time, that made it just before lunchtime for me. 

My online broker story had just run; in 1999 it was 8 or 9 pages and was also featured on the cover.  This event had about 300 attendees, and I remember typing furiously for the entire time with few breaks.  I was thrilled by the level of interest, and by some of the great questions. 

March 16, 1999

Voices Events With ...
Theresa W. Carey

Barron’s contributing editor Theresa W. Carey participated in a Voices Event on Monday, March 15, 1999. The following is a transcript of that event. It has been edited for clarity.

Hgold: Hello, this is Howard Gold, editor of Barron’s Online, welcoming you to our discussion with Theresa Carey, who has been doing the Barron’s survey of online brokers for the last four years. Theresa joins us from Japan. How are you, Theresa

Tcarey: Tokyo kara ohayoo gozaimasu, Howard-san. (I’ll do the rest in English, I promise.)

Hgold: Theresa, this is the first question. What was different about this year’s survey of online brokers and what does it say about the industry and where it’s going?

Tcarey: The big difference I noticed this year was the maturity of the brokers themselves. Most of the sites had been spiffed up and the amenities and research links much improved. I think that with 30% of retail trades being conducted online, the brokers have to appeal to the newcomers to the online world now. I visited ten of the brokers in person, and unlike past years, they are all operating out of nice offices and they look like they have some money to invest in their services.

Aditya: It seems your list of online brokers is incomplete since at least one, “Scottrade” is not listed.

Tcarey: I’m really glad you asked that, aditya. There are about 100 online brokers out there right now. I contacted 35 for the story; many of them declined to participate. Scottrade was one who declined. To be included in the survey, the broker had to provide me with an account with which I could place some trades. Scottrade wouldn’t do that, so they aren’t in the survey. Same with Dreyfus and several others—I asked, but they said no.

Era: Would you consider an “online broker” as a totally different broker or just a broker with different tools?

Tcarey: Era, when I started surveying online brokers for Barron’s, the brokers who operated online didn’t have other ways to reach them. Now that online trading has hit the mainstream (with a vengeance), I consider online trading just another way to reach a broker. It’s a good way for the self-directed trader to keep tabs on an account, and to quickly make trades ... . provided the broker’s servers are running!

Hgold: Theresa, this is Howard again. DLJDirect was the number one online broker for the first time this year. Why did they get to the top and why did Discover slip to number two?

Tcarey: Howard, regarding DLJ Direct they got to the top this year by really improving their trading screens. Discover slipped a touch because some of the services they offered last year for customers are now either unavailable, or fee-based. Also we considered the commissions on limit orders, which knocked Discover down a point on that score. I was really impressed with DLJ’s new trading screens.

Msgven: How do you think the growth in online brokers would influence the overall market?

Tcarey: Msgven, my theory is that we’re going to see a decline in mutual fund investments as the baby boomers—who are pumping their retirement money into the market right now all start to decide they can out-perform the folks at Fidelity and other funds. I see it as a way to get new capital into the market. Many of my friends—and I’m your typical over-40 thinking-about-retirement and investing like mad sort of person—... (Howard, stop laughing) ... don’t want to hand over our money to fast-talking brokers. We want to handle it ourselves. So online trading appeals to independent investors.

Pmll: What percent of all trades are online?

Tcarey: Percent of all trades, including institutional? Piper Jaffray’s latest figures show 17%. Of the trades placed by individual investors, 30% were accomplished online in the second half of 1998.

Harmony4: After a trade is placed how long does it take to execute?

Tcarey: Harmony4, that depends on the trade. If it’s a market order, it can go through remarkably quickly. Some of the executions I watched occurred in less than a second for market orders. If it’s a limit order, it will depend on the price you set. Mutual fund orders are executed at the end of the day.

Kippesp: Which on-line brokers make switching convenient and without fees?

Tcarey: Kippesp, I have to admit that I didn’t study that issue carefully. I have horror stories in my mailbox about people trying to get OUT of certain brokers, but I wasn’t able to follow up on those stories so I’m reluctant to share them. Kippesp, before you sign up with a broker, be sure to look over their commission and fee schedule. Most of the brokers had a $25-50 fee for moving an account out.

Dcole: What about trading foreign stocks that don’t have adrs or after hours?

Tcarey: Dcole, some of the brokers are able to handle foreign exchanges. Web Street Securities is going into cahoots with several European brokerages, and Schwab is setting up a unit in Japan. They’re tippytoeing into foreign markets. I expect to see a lot more in the next year, DCole.

Hgold: Theresa, let’s talk about E*Trade. They’re a big success, with a huge marketing budget, but they’ve never been near the top of our survey, and they always seem to be having problems. How do they rate, and what are their strengths and weaknesses?

Tcarey: Ah, E*Trade! They offer a great product line. It’s just that they’re growing beyond their current infrastructure. I’d love to see E*Trade slow down a bit and get their technology caught up with their customer base. I think they have a good line of products that’s got a lot of “baby boomer appeal” but they’re overloaded right now. I had a few problems with their trading screens, and navigating the site is difficult in comparison with DLJ and Discover.

Sthubbins: What is your opinion of the “day trading” phenonenon, especially the courses offered to the amateurs?

Tcarey: Sthubbins, my personal feeling about day trading is that it’s crazy. It’s gambling. The courses make me think of the saying about “a fool and his money are soon parted.” I have to credit my husband with the line in the article about get-rich-quick schemes turning into get-poor-quicker realities. I’ll close this question by saying I’m extremely uncomfortable with using capital markets as a slot machine.

Daniel29: For a more serious day trader, which online broker is recommended—speed of execution being critical and reliable?

Tcarey: Daniel, I liked Web Street and the AB Watley Ultimate Trader for day traders, even though I think they’re nuts… Serious day traders should invest in Level II quotes and some technical analysis software as well.

Hgold: You mean, day traders are nuts, Theresa, not those brokers, right?

Tcarey: Yes, the day traders are nuts, I think (Thanks for the clarification). Howard, I’m trying to get a copy of a financial statement I saw from one broker that caters to online traders—they said they have 7% customer turnover EVERY MONTH.

Shakil: Hi, I just wanted your opinion about Citicorp Investment Services.

Tcarey: Shakil—I’m sorry but I haven’t looked closely at them yet. I want to cover some of the bank’s online trading offerings in my Website of the Week column on Barron’s Online in the near future.

Jwschneck: Did you get a chance to understand the internal structure (e.g., how many people in the different functions)? If so, did you learn anything about the brokers’ structures that would signify success in the future?

Tcarey: Jwschneck, when I visited the brokers in person I got to tour their main facilities I was especially interested to see how many people were working the phones, the help desk, etc. at the various brokers. Some of them have dozens of associate brokers all sitting in one big room taking phone calls. Some of the others are spread out to the point that I couldn’t see everything without taking 2 or 3 days to travel around the country ... . I got to see the computers that some of these trading systems are running on too. The technical staff at Discover has always impressed me.

Daygecko: Could you compare the criteria for rating brokers in your survey with the Gomez site. Do you in general think the Gomez results are as useful for investors as the Barrons survey?

Tcarey: Gomez’ ratings are interesting for a number of reasons. I have to admit a slight reserve about them though. Unlike Barron’s, Gomez Advisors consult to many of the online brokers. So they’re ranking their customers and some non-customers too. I’m really uncomfortable with this. Though Barron’s accepts advertising from online brokers, I have never been told to adjust my rankings based on advertising dollars. I don’t know that that’s true about Gomez’ clients. Anyway, I do check out his reports, but they don’t affect my rankings.

Jwschneck: Do you know of a good, inexpensive way to get analyst reports on the different online brokers?

Tcarey: Hi again, JWSchneck. If you mean financial reports on the brokers that are publicly traded, I’d set them up on a Company Sleuth watch list (http://www.companysleuth.com) and check out the reports as they’re updated. Company Sleuth is free.

Chris Johnson: Are there any online brokerage firms offering yearly flat- fee prices?

Tcarey: Chris, someone did that last year… Now I’m racking my brain to try to remember who it is. Some of the brokers reduced fees, or waived them completely, depending on the number of trades executed. AB Watley Ultimate Trader does that, and Fidelity’s fees drop by 50% when you’re considered a frequent trader. Chris, I’m looking at my notes and I don’t see any annual fee figures jumping out at me. I have a vague recollection that SOMEone offers that, but I don’t know who, sorry… Chris—Wall Street Access and All Street Electronica offer reduced fees for heavy traders.

Hgold: This is Howard Gold again. I’d like to remind everyone that Theresa Carey writes regularly for Barron’s Electronic Investor column, and she will be doing reviews on online brokers for our new Website of the Week column ...

Tcarey: You folks are giving me some great ideas for the new column. Thanks!

Hgold: The Website of the Week column debuts March 18th, and runs every Thursday in Barron’s Online. Also, check out our new Electronic Investing page, with everything Barron’s has on electronic investing in one place!

Spynne: I’ve noticed that several online traders have opted to display a “certification” seal such as Web Trust at E*trade etc… Do you have an opinion on these?

Tcarey: Spynne, those certification seals have to do with online security. The brokers who display that seal have passed some tests regarding encryption and hacker defense. It’s a nice thing to see on a broker’s site.

Greenler: I currently use Web Street, however I have major trouble keeping their quotes from freezing up, are there any other brokers with similar formats?

Tcarey: Greenler, you’re probably having trouble with the intense Java usage on Web Street. Datek also has a rather lively, Java-based site, though you can turn the Datek ticker off. How much RAM have you got on your computer? Bump it up to at least 64MB if you’re going to be hanging around Java-based sites a lot. (128 is even better!) The new NDB site, which will debut soon, also uses Java, but it’s not as lively as the Web St. site.

Vcf2jlc: Which of the companies that you rated is the best in giving you instant confirmation of your trades?

Tcarey: Instant confirmation? The new NDB site has a screen that pops up on top of everything else running as soon as a trade executes—I liked that. Datek and Web St. do a nice job, and Discover’s trade confirmation is snappy too. The non-browser based programs like Watley’s Ultimate Trader and the Web Street Java trader also pop up an execution box. I don’t like the ones that make you click repeatedly on an “Order Status” report, like Schwab and Waterhouse.

Blaine: Why has Datek fallen from grace?

Tcarey: Blaine, mostly because of customer complaints, filings with the SEC, etc. They’ve got a back-office mess that I think needs to be cleaned up. I wouldn’t say that 3.5 stars is a huge fall from grace though!

Nicole: What brokers offer executions in other international exchanges?

Tcarey: Nicole ... wow, deja vu all over again. Dang, my earlier answer has scrolled off the screen. Ameritrade currently allows Canadian exchanges, and quite a few other brokers are in the midst of putting together some international alliances. Schwab, Discover, DLJ Direct and Web Street will have international access in the next six months, I think.

Dcole: Which online brokers offer charts of mutual funds to users?

Tcarey: Charts of mutual funds? I’m unclear on this question. Do you mean analytical reports? I’ll answer the question as though that’s what Dcole means. Fidelity, DLJ Direct, E*trade and Discover have some very good mutual fund screening tools. Fidelity’s are probably the best.

Prodyot: Are there any online brokers who have set a minimum standard by when a client can activate an order when the online or telephone service is down? Should this be regulated or will the market determine?

Tcarey: Prodyot, I asked this question of a lot of the brokers. Most of them said that they have a notice up on the Web site if service is blocked for all customers, and some can tell when a server that affects just a group of customers is down. Most of the brokers are relatively good about extending the online commissions to those who say they had trouble getting into the Web site. BUT!

WSJ_Host: Uh-oh, there’s always that “but” ...

Tcarey: Some investors are new enough to the game that they can’t tell the difference between a problem with their own ISP and a problem on the broker’s side. That’s where many of the disagreements with the online brokers originate. Customer says, “I couldn’t get in!” Broker says, “Hey, everything was fine here.” Then what do you do?

Janix500: In your report you did not talk about how different discount brokers execute customer orders. From customers’ point of view, would you say that some are better than others. Which ones? Please discuss.

Tcarey: Are we having fun yet? I’m going to need a sushi break in an hour or so. Janix, you just asked a question that I could answer by filling an entire issue of Barron’s. Whew. Let me see if I can do this one quickly. Some of the brokers handle an entire trade electronically. Others have a human do a quick review of each trade to make sure it doesn’t violate any rules.

WSJ_Host: Audience, Theresa Carey is live from Tokyo.

Tcarey: Quick and Reilly, for instance, passes each order by a broker. Some others, like Web Street and DLJ Direct do most of the error checking during order entry, so your order goes straight to the market. AB Watley does that as well (puts order straight to the market.) Now the next question is, what happens next? Does it go to a market maker or what? That depends on the trade—the block size and the issue being traded. Muriel Siebert says she likes to pull the large orders out and handle them with a live broker to give better service and improve the price… Well, as you can see, I could babble on about this one for another 2,000 words or so. Another future column topic—thanks. I hope this answer was good enough for the live format.

Coconuts: As a financial advisor, eager to go on my own, I am currently looking for an online firm that might be able to support me with a multiple account management system. In your research have you studied any online brokers that offer such capabilities?

Tcarey: Yes, there were several that had multiple account management facilities. Wall Street Electronica is actively pursuing independent financial advisors, for instance. So is E*Trade and Net Investor. I asked Muriel Siebert about this, and though her site doesn’t state it explicitly, she’s willing to work with IFAs. Coconuts, if it was me, I’d want to work with an online broker I could go visit in person to drop off checks and deal with technical difficulties if I was handling multiple customer accounts. Just an idea.

Crstyn: It appeared to me as though only AB Watley was covered as far as level 2 brokerages. Will Barron’s ever cover those in detail as trading escalates, and what made you choose AB Watley as your primary L2 covered broker?

Tcarey: Crstyn, I’d like to cover them in more detail soon. Putting Ultimate Trader in the piece this year was an experiment. There are a few others out there I’d like to test, but technologically it’s a major challenge. But look for that kind of coverage in the next year. I really want to do it. Ultimate Trader snuck in because I was already reviewing Watley Trader, by the way. (Speaking of Java-heavy—Watley Trader has LOADS of it.)

Alejandro: During your survey, did you hear of any case of stolen passwords or things like that?

Tcarey: Alejandro—no I haven’t heard of any stories like that, but I did make note in the text of the sites that didn’t have a “Log Out” button. There Are Two Issues With Security—One Is Server-Based: can a hacker get in and intercept my information? There’s no sign of that happening yet. The Other Is User-Based: Does the user leave a piece of paper with the password scrawled on it sitting around on the desk at work? Can someone else hit the “back” button a few times on your computer and get to your online brokerage account? In the case of the latter, I STRONGLY recommend (please note, I’m jumping up and down to emphasize this) that you CLOSE YOUR BROWSER when you’re done with your account, just to be sure.

Gctseng: Some of the online Brokers provide service for mutual fund exchange. What’s the difference between exchange and “sell and buy,” if the commission is low?

Tcarey: Gctseng, in an exchange, you directly swap shares of Fund A for Fund B. It’s a clean transaction, includes the fractional shares, and at a minimal fee (usually zero, can’t get much more minimal than that). In a sell and buy, which is necessary if you’re going to go outside the universe of funds available to exchange, you just end up with the commissions and possibly some fractional shares left laying around. I was thunderstruck at the way the DLJ Direct mutual fund screens work now. Really a nice site.

Lisaleft: What is the NDB site?

Tcarey: Lisaleft, National Discount Brokers—http://www.ndb.com. They’re putting the finishing touches on the new site, which is much improved over the one you’ll see if you go there now. Go look at it in about 2 weeks. They’ve made some fabulous improvements.

Daygecko: Do you have an opinion of GroTrader, a day trading firm somehow connected with Telescan?

Tcarey: Daygecko, sorry—I haven’t seen them yet. We’re trying to figure out how much interest Barron’s readers have in day trading to decide whether to investigate those guys in depth.

Msgven: Do you think that growing numbers of online brokers are likely to generate enough volume through individual investors to seriously tilt the market in face of “investor panic”? Is this likely to happen more often now than, let’s say two years back?

Tcarey: Msgven, great question. The huge jumps in volume from online trading in the last year have been focused in Internet-based stocks. On the good side, as we’ve seen during market meltdown days, the online broker’s systems all crash and burn so the amount of panic is somewhat ameliorated. (I can’t believe I’m using words like that live. What’s come over me? OK back to the question) ... Anyway, as the infrastructure for online trading improves, more trades will be executed that way by self-directed investors but I doubt that an overall market panic will be started/executed online. I think individual stocks will be greatly affected though. Especially those that are favorites of day traders.

Lampadare: How do you rate Fidelity as an online broker? There have been a few complaints about partial filling of an order and then filling the balance at a higher price. Lampadare, my personal feeling about Fidelity is that I’d use them for mutual funds, but I don’t like their site for equity trading. Too slow, and they don’t do much in the way of price improvement. But if you hold any Fidelity funds at all, like in your 401k, it’s great for that sort of thing.

Tcarey: Anyone for shiro maguro? Ano, akagai o tabetai desu yo! We have temporarily lost our host. Oh, she’s back!

WSJ_Host: Uh ... English, please.

Tcarey: Sorry, when I get hungry, I lapse into Japanese.

Jts: Do you know of any online brokerage firm working forward emerging markets?

Tcarey: Jts, I’ve gotten some info on that I can’t write about yet because it’s under NDA. I’ll let you know as soon as I can talk about it!

Devin: Should online brokers be held responsible for tech failures?

Tcarey: Devin—I believe they should. I’ve had the opportunity (and the bully pulpit) to hold a few feet to the fire. We ran an e-mail address in the Electronic Investor column for a few months and I got hundreds of e-mails. Some of them detailed horrendous problems, and in the worst cases, I contacted the brokers to say, “What the are you going to do about this one?” It was interesting. Sometimes it’s hard to figure out exactly where the technical problem originates. For instance, Schwab blamed their outage on supplier ADP. Who pays? I said I don’t really care—the customers deserve some relief. It’s comparable to a customer sitting at a broker’s desk and having the broker completely ignore a series of reasonable requests.

Lisaleft: Is there a survey we can fill out to let you know how we feel about our brokers?

Tcarey: Not yet. I’d like to put something up on the Electronic Investor page. I had a very informal survey, done via e-mail, during the course of the article.

Daygecko: Any comment on the turmoil at FarSight? I have an account through the Lindner association and everyone has been notified that they have three weeks to liquidate the account of have it transferred.

Tcarey: Daygecko, I had about half a dozen calls in to FarSight and none of them were returned. I’d like to know more about that situation too—making note of that idea for an online column! (Thanks again!)

WSJ_Host: Well, folks we’re nearing almost two hours of this session so we must let Theresa go ... or she’ll break out in Japanese again.

Tcarey: Nihongo ga sukoshi jozu ni narimashita. I really appreciate the interest of all the participants. This is obviously a hot topic and I love being right in the middle of covering it. If you have any comments for me directly, please send them to electronicinvest@hotmail.com . Randy Forsyth and I keep an eye on that account.

WSJ_Host: We try to answer as many questions as we can but unfortunately the time limit of the Voices Event doesn’t enable us to answer all of your questions ...

Tcarey: I told Ed Finn I could fill the entire magazine with online trading coverage! Looks like I could sit here all day and talk to you folks.

WSJ_Host: Thank you for joining us tonight, Theresa. We’d love to have you as our guest again soon to cover other areas of this topic.

Tcarey: Any time, Ravina ... you know where to find me! Thanks for coming, everyone. Mata ato de. Dozo yoroshiku onegaishimasu. See you all in cyberspace, or in Barron’s every four weeks. Good night to those of you in the U.S.!

WSJ_Host: Audience, thank you for all of your questions. And Sayonara to those of you in Japan !

Tcarey: Sayonara is good-bye ... mata ato de is see you later!

WSJ_Host: This is your host Ravina Khosla saying good night.

Saturday, April 29, 2006

Currencies, Anyone?

ONLINE TRADING ISN’T JUST FOR FOLKS WHO TRADE STOCKS and options. Some Web-based brokers appeal specifically to those with an interest in trading currencies, commodities and other instruments.

OANDA (http://fxtrade.oanda.com), which was launched as a Website that provided exchange-rate quotes in the late 1990s, morphed into a foreign-exchange platform called FXTrade in 2001. Based in New York City, it has about 15,000 customers, but more than 100,000 have “demo” accounts that allow them to trade currencies with model portfolios, not real money. The platform makes extensive use of price/time graphs.

Late last year, OANDA introduced an options contract called FXBoxOption, which allows a customer viewing a price chart of a particular currency pair, such as the U.S. dollar and euro, to indicate via a box on the chart where the price, or exchange rate, is likely to be at a subsequent time, be it five minutes or six months later. The system then calculates the payout that would accrue if the price of the currency pair in question reaches the level stipulated. Lower-probability price targets have higher payouts, and vice versa.

Once the payout is calculated, the customer can decide whether to purchase the option and, if so, how much to invest. If the price hits its target by the prescribed time, the customer receives the payout. If it misses, there is no payout.

This option is intriguing, though risky, because it is priced in real time after the customer defines it. As noted, it can be held for minutes or months. BoxOptions aren’t traded on any exchange; they are a contract made between the customer and OANDA. You can learn more about BoxOptions at http://fxtrade.oanda.com/boxoption/.

Like most forex-trading firms, OANDA doesn’t charge commissions. Instead, it collects the spread between bid and ask. Spreads are relatively tight; the U.S. dollar (USD)/euro spread is 11/2 pips, though some pairs have much higher spreads. (A pip is 1/100th of a cent.) The pound/yen spread, for instance is 6-to-6 1/2 pips. The spread is the same whether you’re trading a lot of $1,000 or $1,000,000, which is somewhat unusual. Many other forex firms tighten the spread as the size of the transaction increases.

Another key component of forex trading is utilizing leverage. Stock and option traders know this practice as trading on margin, but their use of margin is significantly less than that employed in foreign-exchange trades. OANDA lets customers enter a trade with 50-to-1 leverage, and lever up to 100-to-1 to maintain the position. If the price moves against them, they either have to liquidate the position or put up more money to maintain it.

OANDA has no minimum for opening an account, and you can trade lots as small as $1. Interest accrues by the second, rather than on a daily basis, which is customary.

SOME BROKERS LET YOU TRADE COMMODITIES ONLINE, though most restrict you to electronically-traded contracts such as S&P 500 futures. Xpresstrade (http://www.xpresstrade.com) offers 24-hour trading of electronic and open-outcry futures products, including crude oil and gold, around the world. Customers also can trade 20 currency pairs on the same platform. The firm provides access to more than 25 exchanges and more than 300 products. Based in Chicago, it has customers in more than 100 countries.

The Xpresstrade platform, developed in-house, runs from a browser using Java. Dan O’Neill, Xpresstrade’s principal, says the site aims to offer a full suite of trading tools and resources, including conditional and trigger-type orders. Many electronic-futures platforms operated by the exchanges don’t accept GTC (good until cancelled) orders, so the platform simulates one by maintaining it on the broker’s computer and on the exchanges for you. You can also place time-directed orders, which might, for example, work for 20 minutes and then be canceled, or activated, two hours after the order is placed.

All the quotes on the Website are real-time, offered at no additional charge. O’Neill says, “It’s a huge expense for us, especially the overseas exchanges, but our customers can’t afford to trade off delayed quotes.” The platform allows customers to trade futures/options combinations, such as butterflies, condors and spreads.

If you’re wondering how the commodities and futures markets work, Xpresstrade offers 11 self-study courses on its site that can be accessed at any time. Topics include Oil Market Basics and How to Trade Futures.

Commissions depend on what you’re trading. Futures commissions range from $5 to $11 per contract. Options on futures are $10 per contract. Currency trades don’t carry a commission. Like OANDA, Xpresstrade makes its money on the bid/ask spread, which ranges from 3 pips (USD/euro) to 15 pips (euro/Australian dollar).

Published in Barron’s, April 24, 2006

Friday, April 28, 2006

In Search of Java

I purchased an espresso maker back in 1994 that did the job for me for over 11 years.  That included 2 1/2 years in Tokyo, where the machine had to be plugged in to a step-up transformer to work.  It typically took 2 1/2 to 3 minutes to make my favorite caffienated beverage, a wet cappucino. 

Still, it served me well, until that fateful day early last summer when an internal seal blew.

I sadly retired my faithful machine and went searching for a new one.  I drank drip coffee for a few weeks, but it just wasn’t the same.  My work suffered.  The level of caffeine in my system fell to dangerously low levels. 

Finally, I purchased a shiny Italian job for around $230 that promised a great capuccino.  As some of you might guess, I’m a bit of a gadget freak, and am able to follow directions even if they’re badly translated into English.  This machine’s instructions were so badly written that I ended up having to email the seller several times, only to find that they had failed to ship an important part.  Once the part arrived, I struggled with the machine for a few months, cranking out my two daily cappucini.  It would take about 5 minutes to brew each cup, which seemed excessive to me.  The attachment to steam milk was especially cranky. 

Then some internal part made a loud POP, and the machine stopped working.  So there I was, in mid-October, having killed a rather expensive piece of equipment. 

I did some more research, and picked up a cute little French number, which set me back a little less than $200.  Again, its workings were a little complex, and it would take almost 5 minutes to brew up a cappucino.  This one broke just before Christmas. 

Santa came through with another espresso machine for me that cost him/her about $150.  This one was somewhat more efficient, brewing up a cappucino in about 3 minutes.  After extracting the liquid gold through the coffee grounds, I would push a second button that heated the water up for steaming to a higher temperature.  One morning in March, shortly after finishing my annual review of online brokers, the machine made a loud popping noise, and spewed hot water all over the counter.  Fortunately, in spite of the low caffeine level in my bloodstream, my sprinter’s reactions got me out of the way of the geyser.

After several email exchanges with a nearly-illiterate technician, we discovered that the problem with this third machine was a small rubber ball that was supposed to be seated inside a spring.  Following the tech’s instructions, I disassembled the machine and found that the former ball had turned into rubber rubble.  The tech sent me a new one, apparently made of a better material, but the re-assembly process was not a success. 

This left me feeling that I had turned into a very efficient murderer of cappucino machines.  I felt deep despair at the thought of having to shell out big bucks every day so that my young pal Crystal at Peet’s could make me a couple of wet cappucini.  After killing 4 machines in only 8 months, I figured I should probably give up.

While wandering aimlessly, and in a low-caffeine state, around downtown Palo Alto last weekend, I noticed a board outside the Palo Alto Toy Shop advertising ... a coffee maker.  ?!???!  This seemed like an odd thing for a toy shop to push.  It turns out to be an invention of a local firm called Aerobie, which makes fun things to throw around, like the Squidgie Disc. 

One of their inventors came up with a brilliant device called the Aeropress Coffee and Espresso Maker.  I picked one up, figuring that a $30 experiment was worth my time.  This thing is nothing short of amazing.

First and foremost, it makes a great cup of coffee with very little fuss.  There are no fancy pumps or springs or internal seals to break.  The pressure that creates the flavorful brew is supplied by the user.  The device looks like a huge syringe, but without the needle on the end.  It takes about a minute to actually make the coffee; a total of two minutes if you count in setup time.  To create a nice foamy milk top for my cappucino, I bought a milk frother, so technically I am out about $55 for both pieces.  The frother is very simple—I heat up the milk in the glass container in the microwave, then whip up the heated milk.  I don’t have to generate steam in a machine that I will certainly just break in the very near future. 

I don’t think I can break the Aerobie very easily.  It simply doesn’t have the pieces that turn me into a Fatal Attraction.  It’s made of a hard plastic, so even if I drop it I can’t break it.  It’s very easy to clean, with no risk of scattering wet grounds all over the kitchen ... uh, no, I don’t know ANYone who would EVER do that .  The downside is that it makes one cup of coffee at a time, but most cappucino makers have that same restriction. 

I expect my productivity level to rise significantly now that I can efficiently caffeinate myself.  If you become an Aerobie Aeropress user, please let me know what you think. 

Saturday, April 22, 2006

Brilliant! Send This to EVERYONE You Know!

Don’t those emails that start off, “This is completely true!  Send it to everyone you know!” irritate you?  I find them a colossal waste of time.

So imagine my delight when I came across this delicious post from the Personal Tech Pipeline.  It starts:

“I’m repeatedly amazed that I still get e-mail hoaxes, always sent earnestly by relatives who have been suckered in. Give-away hoaxes ("Bill Gates"), sympathy hoaxes ("Little Girl Dying of Leukemia"), warning hoaxes ("Stay Out of the Mall on Halloween!"), chain letters ("Hawaiian Good Luck Totem"), urban myth e-mails ("Flesh Eating Bananas")—I’m sure you’ve gotten your share.”

The author, Mike Elgan, encourages readers to end email hoaxes by participating in one themselves.  He says, “I received yet another e-mail hoax yesterday, and thought: There has to be some way to educate the public. Millions have been educated about hoax e-mails—you almost never see technical people, for example, passing these around. The victims tend to be less computer savvy.

“So how do you reach these people?

“Then it hit me: E-mail chain letters! Why not write an ‘e-mail hoax to end all e-mail hoaxes’?”

I encourage you to read his entire article by clicking here:  Email Hoax to End All Email Hoaxes. 

Send this to everyone you know!! 

Monday, April 17, 2006

Back from NY

I’ve been traveling with my high-school-age daughter the last week, and haven’t been around to update the site.  We went to New York with my mom, had a wonderful time playing tourist, and saw three plays, all of which I would recommend for very different reasons.

Two of the shows focus on mother-daughter relationships, which I thought would be appropriate given the traveling party of grandmother, mother, and daughter. 

The first show we saw was “The Light in the Piazza,” at Lincoln Center.  The staging is innovative; I like the “stadium seating” in the theater, which puts the stage below the audience.  Victoria Clark has the main role as the mother, and her range is incredible.  I think the part is written for an alto, but at one point she is singing the higher harmony part in a duet with the actress playing her daughter, who is a soprano.  The sets are minimal, more suggestive than substantial, and the music is gorgeous. 

The second play we saw was very very different.  Lisa Kron’s “Well,” which is described as “a seriocomic investigation about wellness and the mystery of parent/adult child relationships.” This one breaks the fourth wall in several different ways.  It’s performed without an intermission, and you won’t want to miss any of it, so I suggest avoiding liquids with your pre-theater meal.  Kron weaves together stories of her childhood in an integrated neighborhood and her difficulties with allergies as a teenager, and questions why she is healthy now while her mother is afflicted with a variety of ailments. 

The press release describing the play says, “WELL opens with Lisa Kron’s mother sitting on a La-Z-Boy recliner in the middle of the stage.  As the play goes on to deal with Kron’s personal experiences of healing, a comedic coup d’état breaks out.  The actors critique the script, her memories conflict with her flashbacks, her mother interrupts with her own opinions, and Kron finds herself in danger of losing control.  The result is a hilarious and brazen piece that questions our thoughts on the conventions of both theatre and wellness.” That sums it up. 

Pieces of this show keep running through my mind.  It’s funny as well as thought-provoking.  I highly recommend it.  Website:  http://www.wellonbroadway.com

We also saw a classic Broadway musical comedy, “Dirty Rotten Scoundrels.” I have a particular liking for shows with gratuitous dancing and senseless bursting into song.  Norbert Leo Butz is amazing, especially while performing the energetic “Great Big Stuff.” I’d love to bottle whatever he’s on and take it home with me. 

My older daughter is a junior at the University of Delaware, and is very involved on the production side of a lot of student-run shows.  Right now she is stage manager for the Harrington Theater Arts Committee’s production of “Jekyll and Hyde.” This show depends heavily on the actor cast in the dual role of Dr. Jekyll and Mr. Hyde, and they cast this one right.  Here is a clip of the very talented Chris Saltalmacchio singing “This Is The Moment." This song takes place right before Dr. Jekyll first drinks the potion that turns him into Mr. Hyde.  My daughter Colleen opens the curtain and organized the crew that moves the lab table into place—I’m so proud. 

We saw “Jekyll & Hyde” both Thursday and Friday nights, in an effort to be supportive, but also enjoyed it a great deal.  Unlike “Scoundrels,” this one does not have a happy ending, but it asks the musical question, “How does an individual integrate the good and the evil?”

Saturday we visited the gorgeous Longwood Gardens in Kennett Square, PA.  It was a beautiful day and the gardens were nothing short of stunning.  We saw gazillions of tulips, walls covered with orchids, banana trees ... wow. 

Then Saturday night we saw yet another show—UD’s Professional Theater Training Program’s production of “Rosencrantz and Guildenstern are Dead.” Very well performed rendition of a play I last saw in the 70s when it was being staged by the American Conservatory Theater in San Francisco.  The actors playing R&G (or is it G&R?) did a terrific job with the banter and the layers of language Stoppard writes.  The theater PTTP uses is tiny, but the production values are very high. 

Now it’s time to get back to work!  I have big plans for developing this website over the next couple of months.  Stay tuned.

Monday, April 10, 2006

In the Bargain Bin

IN OUR ANNUAL RANKING of online brokers ("Different Strokes for...,” March 6), six browser-based sites and three software-based sites earned less than four stars because of significant shortcomings, which include trade-execution problems, below-average design, loosely integrated research amenities, weak reporting or above-average costs. Even so, one of them may suit your needs, especially if you’re looking for rock-bottom commissions and can live with some of the shortcomings.

Browser-Based Brokers

TradeKing (http://www.tradeking.com) is the new kid on the block, offering very low prices ($4.95 for stock transactions, and $4.95 plus 65 cents per contract for options) and a slick Website. We also like the Probability Calculator, which gives TradeKing clients the ability to estimate the probability that a trading strategy will be successful. On the downside, you have to enter an additional password to place a trade, which seems to be an artifact left over from the late 1990s, and the order-routing technology is weak; it doesn’t get the best pricing. It’s the cheapest of the browser-based brokers, however, undercutting Ameritrade’s Izone by a nickel.

TradeKing’s CEO Rich Hagen contacted me after the article was published in Barron’s to say that the additional password is no longer necessary when placing a trade.  He also states that the order routing technology is in place, with the aim of getting customers the best price, but that he could not provide me with statistics backing that up since the company is so new.  We’ll keep an eye on TradeKing’s price improvement strategies as they develop a track record. 

Charles Schwab (http://www.schwab.com) has greatly improved its marketing, but the Website feels crowded, disjointed, and difficult to navigate. Schwab also fell considerably behind the pack in terms of trading technology this year, as customers can’t place trigger orders—orders that get automatically executed when a specific price or other target is reached—nor can they direct their orders.

Still, the site’s research capabilities are terrific, although they may not link easily to a customer’s portfolio holdings—you may have to do some spelunking through a series of tabs and tickers. Its stock picks also have been among the best of major brokerage firms ("Picking the Top Stockpickers,” Feb. 13). For investment neophytes looking to assemble a portfolio of mutual funds, Schwab’s research provides worthwhile guidance.

Balance and position reports are delayed for households with less than $100,000 in their accounts, and margin fees are on the high side. The firm recently stopped charging account-maintenance fees, and improved its portfolio-reporting capability—welcome news.

Ameritrade’s Izone (http://www.izone.com), another relative newcomer, was rolled out in early 2005 and ended up supplanting the late Freetrade. It’s cheap, but there’s no phone for customer service, as Izone is designed for those who are self-directed and self-sufficient. E-mail queries usually are answered promptly, however. In return for this no-frills approach, you get low commissions for stock trades—$5 for market or limit orders. There’s no online bond-trading capability, yet you get access to Ameritrade’s order-routing technology for stocks and options. Many Ameritrade tools are available—but at extra cost.

Wall Street*E (http://www.wallstreete.com) used to be one of our favorites, but the site has seen little updating in several years. We still like the prepopulated trade tickets and real-time account information, and the changes implemented last year for entering spread orders. The firm offers three levels of service, depending on how much your hand needs to be held. There are services for Spanish-speaking customers and for non-U.S. residents.

TD Waterhouse’s (http://www.tdwaterhouse.com) site has been cleaned up considerably this last year, and includes improved research and charting tools. It doesn’t offer smart- order routing or customer-defined order routing, however, and its options-transaction fees are on the high side. Margin rates are very high. We do like the new research layout; some of it can be viewed without logging into an account. TDW lets you access your account in many different ways—online, touch-tone, wireless, or by walking into one of its offices. The site will be rolled into the new TD Ameritrade later this year as the result of a merger of the two.

Firstrade (http://www.firstrade.com) has a promotion running through the end of April that gives new account holders 2.99% margin fees for 90 days. After that, they revert to their usual rates, which are currently in the middle of the pack. As with TD Waterhouse, Firstrade’s trading technology is weak, but its fees are much lower ($6.95 market and limit orders). Another plus for cheapskates: no extra fees to buy mutual funds online, provided you hold them at least six months. You can’t trade complex options online, but its bond and CD inventory is easy to search and trade. There are Chinese-language links available as well.

Software-Based Brokers

Here are three software-based offerings, two of which are from brokers that are primarily browser-based.

Power E*Trade (http://www.poweretrade.com) is a software application, but there also is a Web component. A recent redesign gives customers a complete view of their accounts, plus access to spiffy new charting tools. We like the Prepared Orders feature, which lets you create a list of up to 25 orders, which you can execute singly or all at once. There are some strange holes in the software platform, however, such as an inability to trade complex options. As with E*Trade’s regular offering, margin fees are high, while interest payable on cash balances is low.

ScottradeELITE (http://www.scottradeelite.com) offers a great introduction to software-based trading for the relatively active trader. But to run with the big dogs, it has to have better order-routing technology and the ability to trade complex options online. It’s got low barriers to entry compared with other software-based platforms, and could work out great for the newcomer to the field.

AB Watley (http://www.abwatley.com) lets users trade stocks and simple options online through its trading platform, but everything else must go through a live broker. Commissions range from $6.95 down to $1.95 per transaction depending on your trading volume. Watley definitely caters to active traders in OTC Bulletin Board and pink sheets, including Level II quotes for pink sheets. AB Watley also lets you access your account via a browser in case you’re away from your main computer.

Pairing Up and Bulking Up

Consolidation continues to be a major theme in the online-broker industry. Terra Nova Trading was thought by industry insiders to be on the block, and they were right.

RushTrade Securities announced that it has agreed to acquire 100% of the outstanding membership interests of Terra Nova Trading, which includes Market Wise Securities and Market Wise Stock Trading School. Both Rush and Terra Nova have been marketing themselves to day traders and hedge funds. According to a press release, the combined companies will have approximately 20,000 customer accounts and over $500 million in customer-account assets. Chris Doubek, Terra Nova’s president, says the rationale for the merger is to combine RushTrade’s proprietary trading software with Terra Nova’s back-end processing and clearing operation to create an entity that owns its own technology “from soup to nuts.”

Terra Nova now licenses Townsend Analytic’s RealTick software, which Doubek admits is “a little much” for the average retail investor. Doubek says that RushTrade’s trading platform offers about 70% of RealTicks’ functionality, but will be much less expensive to offer. It will continue to offer RealTick to its high-end customers.

Doubek adds that the combined firm plans to offer “very competitive” commissions, but will avoid the low end currently occupied by Interactive Brokers and MB Trading.

Thursday, April 06, 2006

Avian Flu -- Are You Ready?

The following post is way off (what I consider the) topic for this website, but I found it interesting anyway.  What follows is a press release from Accenture, a management consulting firm (formerly Andersen Consulting). 

It’s food for thought.  I wonder how many online brokerages have implemented an avian flu continuity plan? 

Are Businesses Prepared for the Avian Flu?

The thought of a global virus like the avian flu affecting more than a quarter of the world’s population is an unpalatable, but not impossible prospect. Such a pandemic would pose a very real and unprecedented threat to lives and livelihoods.

“The impact on human life could be catastrophic, but the potential economic impact to organizations across the world also cannot be ignored,‿ said Robert Dyson, Business Continuity Practice Lead in the United States for Accenture, the global management consulting firm. “It could have a personal impact on every person in the world.  If companies cannot sustain operations then they fail which means that people are put out of work.  When people are out of work they don’t get paid which has a direct impact on the individual’s standard of living as well as the economy.  This is why our governments have this issue on their agenda and are looking for full participation from the business community.”

A report by the US National Intelligence Council’s 2020 Project, Mapping the Global Future, identified a global pandemic as the single most important threat to the global economy.  Meanwhile, the London Chamber of Commerce reported that only one in five businesses would survive a 12-week outbreak of avian flu.

Of course, no one knows when or indeed if avian flu will transmute into a form that can be passed from human to human.  Yet, awareness of the possibility is already roiling health organizations, governments and businesses throughout the world.

Most importantly, according to Dyson, organizations must ensure that business continuity considerations are embedded in their general operations.  Its processes and activities, he said, must be considered in terms of how the organization would continue should a significant portion of the workforce become incapacitated.

“For businesses, anxiety levels should be rising fast,” said Dyson. “Companies would most likely face severe restrictions on international and possibly local travel, significant disruption to their supply chains as increased inspections disrupt logistics, and a potential general slow-down in business.  This would be particularly true for companies in the travel and hospitality sector, but it has the potential affect virtually every industry.”

Preparing for the worst

Businesses, said Dyson, need to understand the realities of a pandemic. 

“If people are too sick too work, they will still be too sick to work at home,” he said.  “In addition, school closures will force many employees to remain at home to look after children, and overwhelmed health systems will mean that many people diagnosed with the infection will have to be cared for at home, again limiting otherwise-healthy employees’ ability to work.”

Additionally, remote working will result in segregation of the workforce, convincing employees to avoid areas of mass congregation – such as an office environment – as well as situations like air travel where large groups inhabit confined spaces for long periods of time.  However, said Dyson, remote working is only part of the solution. Organizations should also consider identifying “skeleton” teams of key staff who would be the only ones to come to work in the event of a pandemic.  Primary and backup teams for key activities should be identified and organized on a split-shift, split-site basis to reduce the risk of cross-contamination.  Implementing a change freeze on all systems development will allow IT development staff to be redeployed into support positions if required.

Measures will also need to be taken within a company’s facilities, including the careful monitoring and maintenance of air conditioning, and additional antiseptic cleaning of key “at-risk” office facilities (e.g. telephones in a call center, consoles and desks in a data center operations bridge, etc.).  Even measures such as closing the site’s catering facilities and providing pre-packaged food must be considered.

Communication

Dyson and other business continuity experts believe that companies must keep employees aware of a pandemic threat, and up-to-date on developments and procedures followed. 

“The most effective way to maintain operations is to optimize the use of existing resources – particularly in the case of global companies, where scale and spread of operations can provide some protection,” said Dyson. “This includes making sure that methodology and approaches are consistent wherever the business operates, so that similar skill sets can be employed around the globe to service different clients. Work can be transferred from one location to another while maintaining consistent standards and results. 

“Clients should not notice any degradation in the service received. This approach is not just good business practice, but goes to the heart of a sustainable approach to business continuity.  The business continuity strategy must become part of the business-as-usual operating strategy.”

Many businesses - particularly in the financial sector - have already taken steps to ensure that an embedded approach to business continuity is a part of their operations. This required detailed planning to ensure that skill sets and capacities were matched, and that the impact of additional work flowing from one center to another did not critically impede the ability of resources in a new location to carry out their own work. 

Avoiding common problems

A common mistake that many companies make, said Dyson, is that they invest in continuity on a one-off, project-basis. 

“This means that continuity is assigned to a particular team of managers, who conduct a review, make recommendations and, maybe, implement plans and solutions,” he said.  “In this case, continuity fails to become part of the lifeblood of the organization and, as such, does not receive the attention and support it requires from senior management to ensure plans remain fit-for-purpose and up-to-date.”

To address the emerging threat of an avian flu pandemic, he said that organizations must first assess the ability of existing plans to cope with a significant disruption to the workforce.  Once any necessary updates have been made, an individual should be assigned to track developments with all emerging threats, and to determine any further plan updates that may be required.

“It is revealing to ask companies what they spend on business continuity,” said Dyson. “Often, the response will be that - in the absence of a specific project –little or nothing at all. However, data backup and storage, for example, are daily activities and most businesses maintain a redundant network. These are all business continuity-related activities, but are not often thought about in that way. To change this, senior management needs to move the issue of business continuity on to their permanent agenda. They must ensure that they can achieve an integrated view of all the activities and processes taking place within the business that relate to and support ‘business-as-usual’ operations in the face of unexpected and adverse events.”

A Preparation Checklist

Here is a checklist for businesses to consider in preparation of such an event.

1 – Assess specific risk. All companies are different – the environment in which they operate, their structure and their processes will determine the extent and relevance of specific risks to their business.

2 – Place a value on the disruption to particular processes and activities. How critical to business performance are the availability of particular functions, and what are the costs of downtime?

3 – Sort in terms of priority and investment in continuity the impact on high-value areas of the business.

4 – Develop business continuity strategies that make the most of existing resources and locations, and investigate how to take advantage of a global operations network.

5 – Ensure that business continuity plans assume at least a 25% reduction in available workforce, and liaise with local public bodies to identify appropriate response plans if a pandemic is announced.

6 – Deploy exercises and simulations of components within the business continuity plan to ensure such plans will actually be effective.

7 - Think the unthinkable. While operating in the hope there will be no cause to implement a business continuity plans, organizations need to make sure that should the worst happen, disruption is as brief and isolated as possible.

Source: Vicki Garfinkel, Andover Communications, 201-947-4133

Wednesday, April 05, 2006

More on the Terra Nova / Rush Merger

Yesterday, I had the opportunity to talk with both Chris Doubek, Terra Nova’s president, and Rusty Moore, CEO of Rushtrade, about the upcoming merger. 

Chris Doubek, Terra Nova’s president, says, “At a high level, the plan is to merge the two firms and increase the level of service.‿ According to Doubek, the rationale for the merger is to combine RushTrade’s proprietary trading software with Terra Nova’s back-end processing and clearing operation to create an entity that owns its own technology “from soup to nuts.‿

Rush is smaller, but publicly traded.  They were looking for a way to go self-clearing while Terra Nova had been quietly on the market for several months.  Doubek says, “The way this worked out, we looked at the opportunities of merging the two entities that creates one firm that has our back-end and their front-end.”

Terra Nova has been self-clearing for two years, while RushTrade has cleared through Penson Financial Services.  Doubek says the combined firm plans to implement self-clearing for RushTrade’s customer base in the very near future. 

Terra Nova at present licenses Townsend Analytic’s RealTick software, which Doubek admits is “a little much‿ for the average retail investor.  Doubke says that RushTrade’s trading platform offers about 70% of RealTicks’ functionality, but will be much less expensive to offer.  They will continue to offer RealTick to their high-end customers, but will encourage their “average” retail traders to use the RushTrade platform, which will result in lower costs for those customers. 

Rusty Moore, Jr., Chairman and Chief Executive Officer of Rush is enthusiastic about Terra Nova’s back office proprietary solution, which he says, “gives us a low cost solution in the marketplace since we’re not licensing the technology from someone else like some other self-clearing firms are.‿

Doubek indicated that the combined firm plans to offer “very competitive‿ commissions, but will stay out of the low end currently occupied by Interactive Brokers and MB Trading. 

Friday, March 31, 2006

Consolidation Continues

While writing this year’s broker story, I asked quite a few people what they thought about the ongoing consolidation in the industry.  I also asked the various interviewees to tell me, off the record, which brokers were obvious takeover candidates.  Several mentioned that they thought Terra Nova Trading would be on the block, and as it turns out, they were right.

This morning, Rush Financial Technologies, Inc., dba RushTrade Group (OTC.BB: RSHF) announced that it has agreed to acquire 100% of the outstanding membership interests of Terra Nova Trading, LLC (“Terra Novaâ€?), Market Wise Securities, LLC and Market Wise Stock Trading School, LLC.  Both firms have been operating in the frequent trader space, marketing themselves to day traders and hedge funds. 

According to a press release, the combined companies will have approximately 20,000 customer accounts and over $500 million in customer account assets. Mr. D. M. “Rustyâ€? Moore, Jr., Chairman and Chief Executive Officer of Rush said, “We are very excited about the combination of Terra Nova’s ‘back-end’ technology with RushTrade’s proprietary ‘front-end’ platform.”

Terra Nova has long offered Townsend Analytics’ RealTick trading platform to its clients.  Terra Nova has been self-clearing for two years, while RushTrade has cleared through Penson.  Penson’s back end technology is quite rigid, from what I’ve seen, and a move to self-clearing would be in the interest of Rush’s customer base. 

The release indicates that the RealTick platform will continue to be offered, and includes a comment from Stuart and MarrGwen Townsend, the founders of Townsend Analytics, Ltd.  “We will continue to work together with Rush and Terra Nova to provide their customers with the best possible trading solutions,â€? they say.