Glitch Idles E-Trade Customers

Thousands of customers of E-Trade Group were frozen out of thestock market during peak trading hours this morning, when the start-up trading house that rode technology to become a major player in thesecurities business was frozen by a software glitch.

At 10:15 a.m., customers trying to buy and sell stocks online andthrough an interactive voice-recognition system were informed that"system enhancements" were blocking access to their accounts. Afternearly an hour, customers were able to make trades through theautomated phone service. But problems persisted off and on all dayfor the World Wide Web service, which processes nearly 80,000 tradeson peak days.

Many angry traders spent their unwanted sabbatical blasting thebrokerage online, swapping tips on which competitors to go to, how tocomplain to the Securities and Exchange Commission and even broachingthe subject of lawsuits.One customer said an order to sell $100,000 worth of a stock couldnot be processed, resulting in more than $1,000 in losses. "It isclear that Etrash continues to suffer from technological deficienciesand trade mistakes that are costing customers untold losses," thecustomer wrote on a popular message board. "I would encourage allshareholders to contact the SEC to report this potential egregiousviolation of securities law."The crash underlined the foibles of high-tech trading even asonline investing skyrockets. Credit Suisse First Boston estimatesthat online brokers' customer trading volume rose 25 percent inJanuary, and now accounts for one in four trades.Among the biggest gainers of the trend was E-Trade, a Palo Alto,Calif., company founded in the early 1980s by inventor Bill Porter,who wanted to trade stocks for himself. Two years ago it launchedelectronic trading directly on the Internet, taking out full-page adswith bold letters proclaiming, "Your broker is now obsolete."E-Trade, with 676,000 customers, now has $88 million in revenue.In three months, it has processed 2.8 million trades.But for a time today, the only way to work with E-Trade was theold-fashioned way, with live brokers taking orders -- over thetelephone. Many observers likened it to the woes America Online Inc.faced when a burst of new customers tied up telephone lines andcrashed its system."I think they're a prisoner of their own success," said PhilipAidikoff, a securities lawyer.Shares of E-Trade, which soared from about $6 in October to a highof nearly $63 this month, fell $3 today to close at $55.25.The setback occurred just a week after SEC Chairman Arthur LevittJr. disclosed 330 complaints about online transactions that could notbe processed, blaming much of the problem on firms accepting morebusiness than they could handle. An SEC spokesman declined tocomment on E-Trade's woes today.E-Trade attributed the problem to a malfunction of new "tradingfunctionality" software installed Tuesday night. "It was not relatedto volume or capacity," spokesman David Murray said.Many customers were not happy with the explanation. Calling E-Trade the "Bill Clinton of online brokerages," one customer asked ina chat group: "Who upgrades any major computer system during normalbusiness hours?"