Just as the gravity-defying Kardashian bum famously once broke the internet, so the Pfizer vaccine announcement this week broke online trading for many DIY investors.
Hargreaves Lansdown and AJ Bell were amongst many global trading platforms to stumble under frenzied activity on Monday lunchtime this week, as markets shot up on news which seemed to herald a return to normal (?) within just a few months.
Activity surges have broken many online platforms over recent years. Some of the more notable examples include a man in the US who tried to raise $10 on Kickstarter for potato salad ingredients – and ended up raising $55,000 and temporarily breaking Kickstarter in the process. A petitions website crashed after more than 2 million people tried to overturn a perceived fix by Russian judges at the 2014 Winter Olympics. And Twitter collapsed for 20 minutes after that famous selfie by Ellen De Generes with Jennifer Lawrence, Meryl Streep, Julia Roberts, Brad Pitt (lovely) et al in it too.
What went wrong?
First this is a volume question. There are more online investors than ever. Numbers of DIY investors have gone up by 15% in just a year and there are about 6.6 million DIY accounts today. The speed and availability of information is greater than ever. People are at home. Bored. At computers. So when Pfizer shouted “Vaccine!” on Monday morning, it didn’t take long for markets to jump. And people to want to trade – all big platforms will have had their biggest ever trading day this Monday. Hargreaves processed in excess of 120,000 trades. And, importantly, most of these probably happened between 1130 and 130.
It's like everyone putting the kettle on in a World Cup final. Many were frustrated and unable to get online. So unable to trade. Problem One.
Unfortunately for them and their customers, Hargreaves Lansdown also had a systems meltdown at the same time. Problem Two. Put simply, they have one system which takes the orders. (The market trader out the front shouting “Buy my juicy apples”). And a different system which processes them and feeds the information back to the account. (Someone who knows to give 6 apples to the person at the stall). If the person taking the orders stops talking to the person giving out the apples, or they get out of sync – it’s bedlam.
So imagine I press ‘Sell’ on my 23 Unilever shares. And then I still see 23 Unilever shares in my account. I swear loudly, mutter that they are useless, and press ‘Sell’ again. If they have in fact already been sold, but my account position is not updated, I then go on to sell twice. So I have -23 Unilever shares. Oops. Add that to markets which are bouncing around on Vaccine Monday and you see the problem. I am told that all duplicated trades have now been corrected and customers compensated for any losses.
Hang on…how can they sell stuff they don’t have?
Imagine the volumes of trades going on every day with mainstream FTSE 100 shares. In liquid markets, it’s fair enough to assume that there will be masses of people buying Unilever and selling Unilever. And if you start the day as the big, fat, omnipotent financial supermarket, with 1,000 Unilever shares on your shelves - and 100 customers buy a Unilever share and 100 customers sell a Unilever share – not much has changed other than names on your administration records. Lots of reconciliation and tidying up is done at the end of the day. Stuff done during the day with third-party market makers is largely governed on trust – I’m going to buy this and sell this and then we’ll work it all out later when we tidy up the shelves…My word is my bond.
If you think that all sounds a bit unsatisfactory, just look at the £20 note in your wallet. It’s not actually worth £20 at all is it? It’s a scrappy piece of polymer with a probable intrinsic worth of about 1p if I’m being generous. It’s just a promise to pay the bearer…..My word is my bond.
I shall stop here because the more you dig into the nature of financial markets and money and boil it all down to its core elements, the more you want to live in a cave and go back to a barter economy!
So what happened in the rest of the week?
The second wave continues and both California and Texas have now seen more than 1 million cases. Nerves remain. Rallies of course bring opportunities for profit-taking and some investors will have been piling in to sell on Monday, not buy.
Despite some falls over the last few days let’s not forget that the main US index is up by nearly 10% for the year despite the best efforts of Covid. It’s been uglier closer to home ( I shall whisper ‘Brexit’ and then stop) and the FTSE is down about 16% year to date, despite rallying by about 6% this week.
And finally, in other news, more frenzied excitement as Dominic Cummings, Serbian footballers and Strictly’s Katya WhatsHerChopz join Trump in the Departure Lounge of Fame.
I leave you this week with a request for any readers who have a ‘drawdown’ pension. It’s devilishly hard for us to describe the customer experience of these for our readers because at the tender age of 35 (cough splutter..just in case Brad Pitt is reading….) I am too young to open test accounts. We want to get better at helping people choose a pension provider which will be good at some of the nitty-gritty only known to customers. It would be amazing if any of you in drawdown could take 3 minutes to share your experiences here. Thanks in advance - £100 prize up for grabs.
Have a lovely weekend everyone.