Platforms grapple with outages and prospective declines in interest earnings
The coronavirus crisis has hit all sectors hard; as reported cases and death tolls continue to rise, protracted lockdowns and travel bans have affected many businesses’ ability to operate. In the financial world, technology has been a saving grace, allowing companies to adjust through remote work arrangements.
But in one segment of the financial industry, cracks are starting to show.
“Retail brokerages have suffered sporadic outages this month amid unprecedented volatility and volume in markets amid the coronavirus crisis,” reported CNBC.
In the most high-profile example, RobinHood was overwhelmed by traffic on several days, with one outage causing users to miss out on one of the Dow’s biggest upswings. In the same vein, Morgan Stanley, which last month announced plans to purchase online brokerage E-Trade, experienced an hours-long interruption in its online trading platform for affluent clients.
The issue is not isolated to online brokerages in the States. Financial Post columnist Victor Ferreira noted that Canadian platforms WealthSimple and Questrade, along with a few operated by Big Six banks, have been struggling with massive traffic and transaction requests.
“TD Direct Investing said recent volumes were nearly three times the average, while BMO InvestorLine said activity has hit record levels,” Ferreira said.
He cited examples of retail investors who experienced glitches firsthand. Some lost thousands as system failures delayed their trades; others reported lags in bid and ask prices, portfolio updates, and stock charts and market data.
Many clients of WealthSimple have also posted complaints on the company’s social media pages, airing grievances about delays in transferring funds to accounts.
And emergency rate cuts meant to help ease conditions for businesses and economies hit by coronavirus could be another challenge. A recent report by Zacks Equity Research noted a number of brokerages in the U.S. that earn interest income on their clients’ brokerage cash.
“They reinvest brokerage clients’ cash in higher-yielding securities and bag the difference between the interest they receive on securities and the yield they dole out to clients on their cash,” it said, citing examples such as Charles Schwab, E-Trade, and TD Ameritrade that are expected to take a hit to their interest-related income in upcoming quarters.
Such a hit would be especially painful to those that have already seen declines in revenue from decisions to move toward commission-free trading, the report added.
