Pandemic-fueled day trading crushes online brokers – and traders are furious

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The trouble began about 9 miles northwest of the New York Stock Exchange, in a squat, run-of-the-mill building.

There, inside a critical data node in the US financial system, a critical piece of hardware failed. Like a power line fallen in a distant corner of the power grid, this blackout effectively turned off the lights for a bunch of investors across the country. Angry traders woke up to find they had been kicked out of their accounts with one of the nation’s leading electronic brokers, Interactive Brokers Group.

Mondayevents—From failure across the Hudson River, in a windswept part of New Jersey, to Interactive Brokers’ desperate race to identify and resolve the problem – points to new growing tensions that trading systems suffer when people enter the markets like never before.

The changes brought on by the COVID-19 pandemic have fueled a surge in retail, which now includes 20% of US stock orders – a 5 percentage point increase in the market of $ 42 trillion in just one year, according to a Bloomberg Intelligence study.

Interactive Brokers and rivals, including Charles Schwab and Morgan Stanley’s E * Trade set records this year for accounts receivable and activity as day traders, many of whom are stuck at home with few distractions, soared the surge of more than 60% since the lows in March. But it has put more emphasis on how businesses operate and serve their growing legions of customers.

“As retail brokers become a more important aspect of this business, the quality of a retail broker’s technology becomes more important,” said Larry Tabb, analyst at Bloomberg Intelligence. “When they are down, they frustrate a greater number of traders, who have very little patience when they want to trade.”

When problems arise, the feedback is quick. Websites such as Downdetector.com allow any brokerage client to report issues with their trading platform and calculate the number of reported issues. Clients also air their frustration – and, in some cases, plan to change brokerage firms – on their Twitter or Facebook nourishes.

As if to highlight the new environment for Interactive Brokers, 42, clients bombarded him with complaints Monday on Twitter and threatened to shut down their accounts.

“The system was specifically designed to minimize the likelihood of the kind of technology failure we’ve experienced,” said CEO Milan Galik, who apologized for the disruption in a note to clients. “It didn’t work out as expected today.”

While the outage was far from the first for a retail brokerage, the fallout has been more widespread due to this year’s successes. Interactive Brokers had over one million accounts at the end of November, an increase of 52% over the previous year, and reached a record 1.8 million average daily transactions in the third quarter, or more than double the same period in 2019.

Steve Sanders, executive vice president of marketing and product development for the company, said Tuesday that all systems were “back to normal.”

Monday’s issue was caused by a hardware malfunction at a Secaucus, New Jersey-based data center called Equinix NY5, according to a person familiar with the matter. Part of any campus of warehouses that house the plumbing of the modern financial system – as well as servers for social media, telecommunications, and streaming companies – the site is the unglamorous side of trading. actions today.

It is the real backbone of Wall Street and, like all technology, is vulnerable to occasional outages. Exchanges, for example, experience similar problems, although the safeguards and the fact that there are more than a dozen exchanges usually prevent any disruption in the market.

But for non-professionals who expect instant exchanges from their computer or phone, outages are a shock and potentially costly.

“Talk about exasperation,” said user Dale O. Hays, who was unable to access Interactive Brokers’ trading systems at around 11 am New York time on Monday. Hays said the system didn’t restart until around 3 p.m., and even then it crashed three more times.

“They seem to have the mentality of not being proactive, of not communicating the true status – as shown in their various emails, complaints and ‘status boxes’ – and of letting their customers blow in the wind,” he said. he declares.

Interactive Brokers are not alone in dealing with new and recently irritated clients. Robinhood Markets, the app-based brokerage that may have benefited more than anyone from the retail boom in 2020, has been criticized for his lack of support when the going gets tough.

“We’ve seen blackouts from Robinhood to TD Ameritrade to Schwab,” Tabb said. “They lose customers when this happens. Customers get angry and if the problems persist, they go elsewhere. “

More to read absolutely financial cover of Fortune:

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