England's Financial Services Authority (FSA), which oversees the United Kingdom market, has begun monitoring retail firms and is requiring some to make daily reports on their activities.
The reason, according to the FSA, is that the number of daily trades by retail investors doubled during October and November, driven by interest in technology stocks. The surge has hit hard at Barclays Stockbrokers, the U.K.'s largest retail broker, and at Charles Schwab's U.K. operations, which depends on people, not the Internet, for the bulk of its business.
An FSA spokesperson says many callers have been forced to wait almost two hours to get through to brokerages.
While the FSA would not release the names of firms being monitored, many say that Schwab is at the top of the list. Its success in the U.K. market has brought rapid growth, with the number of daily trades it handles doubling in November alone.
Schwab, while not admitting to any huge problems, does acknowledge that customers have complained about an inability to get through on phone lines. The firm is actively seeking more staff to handle calls.
"What we have here is an avalanche," a Barclays broker says. "It's 1986 all over again." In 1986, commissions were deregulated in the U.K., setting off a wave of investor interest that clogged front and back offices.
Further intensifying the pressure on operations is an archaic back office. The U.K. went to T+5 two years ago, but some firms still follow the traditional 10-day settlement cycle. The London Stock Exchange and CREST, the settlement depository run by the Bank of England, said in December that they want the industry to get to three-day settlement by Feb 2001.