Buying and selling shares online - using the Internet - is cheaper and faster than giving orders by telephone or in writing to a stockbroker.
But the execution-only service is not yet widely available to Irish investors, particularly to investors who want to buy Irish shares.
Irish stockbrokers will not offer an online service to investors until at least the autumn - they cannot provide the service until the Irish Stock Exchange moves on to an electronic trading platform, a move planned for June.
Even then, not all brokers intend to offer this service. And the Central Bank has had no applications yet from foreign brokers either seeking authorisation to offer the service in the Irish market or informing it that they intend coming into the market under EU rules.
But there is nothing to stop Irish investors who want to buy foreign shares online from dealing through a foreign online broker. This service is now well-developed in the US and in the UK but not so common in mainland Europe.
Using foreign online services is not common yet among Irish customers. No figures are available but one industry source suggested that it was still mainly confined to people who worked for technology companies or were involved in the technology sector.
Some Irish brokers have websites which allow clients to email their buy/sell orders to those brokers. But none yet provides a full online share-dealing service. The difference between the email service and a full online dealing service is that with the email service a broker in the stockbroker's office will have to execute the deal for the client. In a full online service the client patches the order straight through to the broker's computer which then verifies the order and passes it on to the stock-exchange computer for execution. There is very little human involvement. For that reason the service is considerably less expensive for the client and deals on liquid stocks can be executed almost instantly.
Online clients will often be given a price for the deal and about 15 seconds to decide if they want to proceed to buy or sell the shares. The process of registering with an online broker is simple. Potential investors can go to the website of a broker - the websites are usually found by using the name of the broker and appending the usual Web codes such as .co.uk or .com.
Potential clients should check out a number of broker websites to get an idea of the charges and conditions, before registering with any one broker.
To register with a broker, the procedure usually involves clicking on the registration icon on the broker's website and following the instructions.
Potential investors will be required to fill in a registration form on screen or they may be offered the option of printing the form out and mailing it back to the online broker.
Before a client is accepted, the broker will carry out a credit check, often using a credit-rating agency. This will mainly involve establishing that there are no court judgments against the client and that the address and banking details given are valid.
If the client clears these hurdles then she/he will be given an identity code or number and is then free to trade. Some online brokers operate a pay-as-you-go service while others require a new client to lodge a minimum deposit into a trading account.
In Britain, Barclays Stockbrokers is one of about 14 firms offering online trading. The firm had a number of Irish clients who had been placing orders by telephone, but many of them were now transferring to the firm's online facility, a spokesman said.
Commission charges for online dealing is 1 per cent with a minimum charge of £11.99 sterling (€19.78) and a maximum of £39.99 sterling. Clients must pay for the first deal by cheque within the settlement period - usually three days - but a direct-debit arrangement will be put in place to pay for subsequent purchases, he explained. The company does not look for deposits from clients and Irish clients are covered under the UK investor compensation scheme, according to the spokesman. Barclays' Irish clients usually dealt in UK stocks or Irish stocks quoted on the FTSE and companies quoted on the Alternative Investment Market, he said. The European operation of US online brokers, Charles Schwab, was currently only accepting orders from UK and Swiss residents a spokeswoman said. At this stage business could not be accepted from Irish residents for regulatory reasons, she said.
The company has about 180,000 active investors in the UK and says that this business is expanding rapidly. Its commission charges start at a minimum of £12 sterling per trade to a maximum of £50 per trade.
Charles Schwab is a major online broker in the US. On the day the Schwab US website was accessed by The Irish Times, the broker was offering an incentive to open new online accounts - $75 (€82) off a $150 purchase at Banana Republic.com. The broker has five million investor accounts. For a standard account, a client must make a minimum deposit of $5,000 and the broker offers access to margin loans - clients would not be required to pay for the full purchase but would be loaned funds by the broker which could be paid when the shares were sold. Among the advantages of being online which it extolled, were 24-hour, seven-day-a-week access to share information. Fees quoted were $25 per quarter on accounts under $5,000; $15 per quarter on accounts between $5,000 and $20,000 with no quarterly fee where an account balance was more than $20,000 during the last five days of a calendar quarter.
Also in the US, the DLJ Direct website said clients could be approved to trade up to $15,000 immediately without deposit if they passed its credit-rating checks. Payment would be required by deal-settlement date. Some clients may only be approved to deal "cash-on-hand" - they would need cash in their accounts before they started to trade.
Outlining the trading procedure, the DLJ website tells clients to select the security (share) they want to trade from the online trading menu and enter it on the order page. Before the order goes to the market there will be a check where necessary that there are sufficient funds in the client's account. The client will be sent a summary of the order and a trade reference number which is a confirmation that the order has been received and is being executed.
In the US, online dealing has brought down the costs for customers of dealing in shares as competition among brokers has intensified. In the UK competition has not yet reached US levels so charges vary fairly widely and some brokers offer clients a commission-free introductory period.
Some brokers charge only commission while others add additional charges such as account maintenance charges. Industry sources say charges can range from as little as a flat fee of £10 to £12 sterling per trade to £25 sterling per trade plus 1.5 per cent commission.
These execution-only online charges compare with current charges from Irish brokers ranging from minimums of £20 (€25) to £60 per trade and commission charges ranging from the cheapest of 1 per cent on the first £5,000 to 1.65 per cent on the first £10,000.
When Irish brokers start to offer online services later this year, charges are expected to fall significantly for customers who opt to trade electronically.
Web Link
www.ise.ie (Irish exchange)
www.barclays-stockbrokers.co.uk
www.charlesschwab.com
www.dljdirect.com
