| BUSINESSWEEK ONLINE : FEBRUARY 1, 1999 ISSUE | ||||||||
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| NEWS: ANALYSIS & COMMENTARY
The Net Bubble Is Bothering Brokers Driven by new deals and investor frenzy, Internet stocks continue their rise. Also on the upswing is the number of alarms about the swelling Internet-stock bubble. On Jan. 19, Charles Schwab & Co. more than doubled, to 75, the number of highly volatile stocks it warns investors about. The firm alerts would-be buyers that they could see rapid price changes on the stocks, and it has boosted margin requirements on those stocks from 35% to 50%. On Jan. 22, Schwab planned to post on its Web site a letter from Chief Executive Charles Schwab that outlines his concerns about the stocks and warns that clients will not be able to trade online in certain particularly fast-moving stocks. Schwab also offers clients a brochure, ''Guide to Understanding Fast Markets.'' Other brokers are even more leery. Ameritrade Inc. now refuses to take pre-opening orders on initial public offerings unless investors include price limits. And Merrill Lynch & Co. says it urges brokers to caution clients to set price limits, rather than placing market orders, when they bid on hot IPOs. Merrill says that when brokers issued warnings of possible risks to clients seeking shares in the recent IPO of theglobe.com, about a third of them dropped their orders or used limit pricing. POT OF GOLD. In mid-January, market maker Bernard L. Madoff Investment Securities actually stopped making markets in four of the six Net stocks it handled: Amazon, Infoseek, Egghead, and Yahoo! Says Chairman Bernard Madoff: ''We wanted to send out a message that we didn't want to take part in this risky investment strategy.'' Madoff is a member of a National Association of Securities Dealers committee that is debating whether to come up with measures to deal with the gyrations caused by individual investors piling into volatile Net stocks. The group, with members from Morgan Stanley Dean Witter, Instinet, and Merrill, has considered curbs such as halts in trading, but has rejected them as unwieldy, Madoff says. More likely, other members say, are stiffer rules requiring online firms to educate clients about market risks. The committee will meet again Jan. 25. Investors may be seeing a pot of gold at the end of every Net IPO. But the firms that would be left dealing in the shares if the bubble bursts see things a little differently. By Heather Green in New York, with Mike McNamee in Washington _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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