There are many risks involved in investing, but there’s a big new danger that needs to be addressed in the era of free trade. Just when you need to enter the market the most, you don’t stand a chance.

On August 31, the TD Ameritrade (AMTD) Charles Schwab (SCHW) E*TRADE Financial (ETFC) Vanguard and Robinhood online brokerage platforms were all down or down for hours on August 31. The same thing happened during the February and March market crashes.

This is clearly a recurring problem and you should be concerned if you don’t have access to a professional trading platform that doesn’t experience similar problems. This concerns many of us. I will discuss some useful workarounds below. But first, we know what’s going on and why it’s a huge problem for investors.
It’s not just a “trader’s problem”, the old cliché reasoning goes like this “If you’re a long-term investor, losing half a day’s market access shouldn’t be a problem. And shame on you, as a greedy trader, for wanting continuous access!” This answer is insufficient. Long-term investors like Warren Buffett patiently sit with cash for months or years waiting for their favorite stock to go public because of what they consider to be an unreasonable fear. If the account closes just as that time comes, you can’t go through with it.That’s what happened to many investors, when the retail brokerage platforms froze, likely due to a huge increase in trading volume for Apple (AAPL) and Tesla (TSLA) after those companies split their shares and an increase in traffic of related market data on those platforms. Many of us have no interest in trading these two stocks. But as a result, we were unable to buy the other companies at a reduced price.

Investors were not the only ones affected. Monday’s accident came at an inopportune time – the end of the month. Anyone who wanted to check direct deposit or cash levels at Vanguard and elsewhere to pay their bills couldn’t do so.
This situation is worrisome for four reasons:
1) If a transaction as innocuous as a stock split leads to the closure of a brokerage platform, we can assume that this will happen again in the next stock market episode, especially during a major crisis caused by a terrorist attack or natural disaster.
2) Professional trading platforms have not been affected. “I haven’t heard anyone say that they had problems with their order management system”, said Joe Saluzzi of Themis Trading, referring to the professional platform”. The only thing I have heard is a problem with the retail system”. It’s a Main Street problem, not a Wall Street problem. Robinhood’s slogan – “Our mission is to democratize finance for all” – has thus been undermined.
3) The brokers did not tell us what happened or how they were going to fix it. Even though overall trading volume is not high, brokerage platforms are overwhelmed by the flow of trading and market data, he said. This may have caused an overload in one part of their system, which stopped everything.
4) CEOs of companies that disclose their salaries because they are publicly traded spent between $6 million at E*TRADE and $16 million at Schwab last year. The annual salaries of directors range from $215,000 to $544,600. This is largely “performance pay”. Clients may wonder why they get so much for managing trading platforms that don’t work when they need them. (As private firms, Vanguard and Robinhood do not disclose compensation).

Broker’s Responses

In its response, Vanguard stated: “We have reinvested significantly in our business and technology infrastructure to continually deliver a better client experience on the web, mobile or phone.We will continue to carefully review our technology systems to avoid any future disruptions”.

Robinhood said it has been increasing system capacity since March and to keep pace with growth, its team of engineers “has been working diligently to further strengthen our infrastructure, improve reliability and increase capacity. We are aggressively expanding our engineering team.

Schwab responded that as of Monday, its “customer management systems were fully available nearly 99.9% of the time this quarter”. It said it was continuing to investigate the root cause of Monday’s outage”. We will not publicly disclose the specific measures we are taking to ensure safety and reliability”.TD Ameritrade did not say anything about the cause of the blackout, but said its countercurrent swimming application was running all day.

What You Can Do

Use the broker’s phone app or get their direct phone number if possible. Schwab told us that its mobile app works on Mondays and that it successfully directs its customers there to access the market. Margaret Farrell of Ameritrade said her desktop and mobile apps continued working on Monday. It makes sense to enable all of your brokerage’s applications as backups. The other alternative is to use a professional platform, if you trade enough and it’s important enough for you to have a higher level of support.

2020-09-01