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Tuesday, 30 November, 1999, 20:27 GMT
Online share dealing - is it safe?
Account security is needed to maintain investor confidence
Buying and selling shares is a risky business.

As online trading looks set to boom in the UK, fear exists that trading shares could become even riskier.

On Friday, the Halifax suspended its internet-based share dealing services after customers were able to access other people's accounts.

Halifax trade was back to normal on Monday
As proof that there is no such thing as bad publicity, by Monday, trade was busier than ever on the Halifax site.

About 800 people registered for the service for the first time, twice as many as on a normal day, Halifax said.

Even if the punters are calm about the risks, the Halifax case served as a wake up call to the online broking industry, still in its infancy.

But what is more worrying than technical security, say some, is not being able to buy and sell shares when you want to.

Security risks

Any online business knows that security could be what makes or breaks them and when it comes to e-business, consumer confidence is still pretty fragile.

"Everyone is taking the Halifax problem as a timely reminder," Julian Costley, chief executive of E*trade UK told BBC News Online.

Many services include separate password protection for access to both services and every trade.

Charles Schwab
The Charles Schwab site is heavily encrypted
Indeed, Charles Schwab boasts that their website is the most heavily encrypted consumer website in the world.

Some say it is a red herring to focus on the technical security of the internet, what is more important is the financial probity of the brokerage.

"Overall, security is an issue, whichever channel you go through," Guy Knight, vice president of European marketing at Charles Schwab Europe said

Problems can be avoided just by checking if the site is genuine.

"The Financial Services Authority regularly comes across websites that are bogus," Jonquil Lowe, author of the Which Guide to Shares, said. "If you have any doubts, then don't."

Not all online brokerages offer the same service. Some online sites are just shop windows, some are order placing services, while others are real time dealing sites. It is usually only the latter that allow you to access current share prices as well as place and execute orders.

Sell now

Many believe that the key thing is to be able to buy and sell shares when you want to. When share prices are falling, every moment lost is potentially money lost.

"The only breach of security I am aware of is with Halifax. Most online investors find their greatest problem is availability and lack of speed," Philip Ross, a Halifax user from Inverness, said.

This view appears to be supported up by the experience of US investors.

Of the 2000 and more complaints the Securities and Exchange Commission received this year about online trading, the highest number, 504, were from people who had difficulty accessing their account.

Many internet dealers offer telephone back up.

"We don't hide behind the fact that we have had occasional problems (But) all clients were able to conduct the trades...There is no client that hasn't our helpdesk number," Mr Costley said.

"At all times, even by telephone, you can trade with the client, and help them unwind their position."

Jonquil Lowe, author of Which Guide to Shares said this could yet become a more serious problem.

"As more and more people come on to the net, there may well be a lag as the providers try to keep their computers and telephone networks apace with the growth in internet demand. If you go on to the internet, there are all kinds of hiccups that can occur. You can't always tell where the glitch is occurring," she said.

US takes the lead

In the US, online trading has met its critics.

A surge in complaints about online trading prompted two separate reports on the industry.

The report by New York attorney general Elliot Spitzer concluded that firms should tell the truth about their technology and services but stopped short of calling for regulation.

The report by SEC Commissioner Laura Unger said that firms should improve records of outages, conduct regular systems testing and disclose more problems to customers.

Not such a good deal

Online trading's big selling point is that it is cheaper than going through a broker.

But, argues Ms Lowe, online dealing isn't always value for money.

Cheaper fees are offset by the cost of surfing the web and the fee structure - often a flat rate - often favours larger investors.

"It is not necessarily cheaper, by the time, you have wandered around the internet, checking share prices, trying to access a bit of research," she said.

See also:

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