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Dec 7, 2020

Interactive Brokers, Robinhood outages leave day traders furious

BNN Bloomberg's mid-morning market update: December 7, 2020

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On Friday afternoon, Interactive Brokers bragged on its Twitter account: “Not to brag, but @benzinga named us the Best Trading Technology of 2020 based on our cutting-edge, global trading platforms.”

By early Monday morning, however, those platforms were having technical trouble, effectively locking individual investors out of their brokerage accounts.

Leonardo Cruz, a 34-year-old purchasing manager from Ajax, Ontario decided this morning that he was closing his main account, which he has held for the past two years. He says he spent three hours trying to log into the platform but was unsuccessful.

“I’m definitely frustrated, I base my transactions on market research and pre-market trends,” said Cruz, who estimates the disruption cost him US$300. “Mornings like these make the whole day unproductive, I can’t recover the missed opportunities.” Another glitch last week lost him US$3,000, he says.

Interactive Brokers Group Inc. apologized to clients and said it “experienced a significant failure in multiple segments of a highly resilient data storage system.” The company, with more than 1 million customers, said in an emailed statement that its systems had “mostly recovered.” Shares of the Greenwich, Connecticut-based company slid 2.9 per cent.

The outage appears to have been caused by a hardware problem from a third-party vendor in a Secaucus, New Jersey-based data center called Equinix NY5, said a person familiar with the matter, who spoke on the condition of anonymity because details haven’t been publicly shared.

The company is still investigating the issues, which prompted many customers to take to Twitter with their complaints. It’s the latest in a series of disruptions at firms large and small that have received more scrutiny amid a boom in retail trading during the pandemic.

Some customers were frustrated by a lack of help. Eric Ince, a 37-year-old business owner from East Moriches, New York, was in the middle of a trade when his Interactive Brokers account froze at 6:48 a.m.

“I got nervous, and I panicked,” Ince said. By 9 a.m., he was down US$2,700.

He called the customer service line, but it sent him to voice mail. The company’s online chats weren’t working either, Ince says, and he couldn’t locate an email address to ask for support. He had to wait until 9:50 a.m. for the issue to be partially fixed.

“I still can’t get on their website,” Ince said. “It was the worst time for me.”

The breakdown at Interactive Brokers coincided with a brief and apparently unrelated outage at Robinhood Markets, the one-click trading app that has surged in popularity during the pandemic and drawn millions of customers. A spike in individual investing this year has buoyed the entire brokerage industry. Retail equity orders accounted for 20 per cent of U.S. stock trading in the past quarter, up more than five percentage points from the prior year, according to Bloomberg Intelligence research.

But as much as the boom in stock trading by individuals has been a hallmark of this year, so has service disruptions at the online brokerages. What’s more, customers have also reported hacks into their brokerage accounts. Access to more than 10,000 email login credentials allegedly tied to Robinhood accounts were available for sale at one point, Bloomberg reported in October.

There’s “an active, secular shift toward retail trading,” which means platform operators should invest in more capacity to keep up with demand, said Rich Repetto, an analyst at Piper Sandler & Co. The influx of new clients using trading apps can strain capacity on busy days, he said.

Robinhood said it had resolved Monday’s problems with its own platform. A spokeswoman for TD Ameritrade Holding Corp., meanwhile, said it wasn’t experiencing any disruptions even though some customers had logged complaints about the service on Downdetector’s website.

“These providers have got to provide a consistent experience to the user or they will lose that big surge in growth they’ve had,” said Eric Diton, president of the Wealth Alliance, an investment advisory firm. “They’ve got to fix those technology issues.”

--With assistance from Claire Ballentine, Lananh Nguyen, Katherine Greifeld and Matthew Leising.

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