Discount Broker Volume Goes Up

STOCK TRADING

DISCOUNT brokerage services have made an interesting discovery about their clients: even though many institutional investors have fled the stock market since the Iraq crisis began, individual investors who use discount brokerage houses appear to be buying more, not fewer, stock shares. Apparently investors see the summer's drop in stock prices as a good time to buy, brokers say.

That is not to say that these investors are not nervous about the dip in the market, or the generally lackluster course of the United States economy, or high energy prices resulting from the Middle East crisis. Clearly they are, says Lawrence Armstrong, executive vice president of Fidelity Brokerage Services Inc.

But trading activity is up for Fidelity's discount business - and on the buy side, as opposed to stock sales, says Armstrong, who is also president of Spartan Brokerage, the ``deep discount'' brokerage service offered by Boston-based Fidelity Investments.

For the weekly period ending August 17, roughly 60 percent of the trading activity for the discount service was on the buy side. For the week ending August 24, the figure was the same, roughly 60 percent. Fidelity, a privately held company, does not release specific dollar figures on its trading activity.

Buying, not selling

Nor is Fidelity alone is finding buy orders suddenly outpacing sales. At industry leader Charles Schwab & Co., trading activity is more on the buy side than sell side. That contrasts with what had been happening at Schwab in June and July, just before Iraq's invasion of Kuwait. Back then, on many days sales were outpacing buy orders, while the Dow Jones industrial average was climbing towards 3,000.

Trading activity has shot up substantially during the Iraq crisis, according to Mark Thompson, a vice president of Schwab at the firm's corporate headquarters in San Francisco. Trading volume has been 20 to 30 percent above normal in recent weeks.

Redemptions, Thompson notes, are more frequent in mutual fund shares. Thus, ``on a typical day in August, there would be sell orders amounting to about $12 million for mutual funds, compared to $10 million in buy orders,'' Thompson says. But for individual stocks, on a typical day, ``purchases would run around $130 million, compared to $120 million for sales.''

At Quick & Reilly, based in New York, share purchases have also been running slightly ahead of sales on many days, according to William Coppel, vice president in charge of marketing. For the month of August as a whole, he says, buy and sell orders have tended to balance each other out, running roughly the same. But the important element, he notes, is that sales have not been outpacing purchases.

Discount brokerages, which charge lower-than-normal commissions on stock transactions, produce only about 8 percent of all retail commission revenues. But the discount business has been one of the faster-growing segments of the overall investment field during the last decade. The top three discounters - Schwab, Fidelity, and Quick & Reilly - control about three-fourths of the trading revenues generated by discounters.

Sophisticated investors

Why are investors who deal with discount brokerages now buying shares? That is a pattern which is essentially running counter to the market as a whole, although the market has perked up somewhat in the past week.

Mr. Armstrong of Fidelity says that investors who deal with discount brokerage houses ``have become quite sophisticated.'' He notes that a similar pattern occurred back in late October 1987, following the steep market downturn that month. Many investors, he says, realized that a downturn meant a major ``buying opportunity,'' in the sense that one can buy more shares when stock prices are low, or falling.

Individual investors who frequent discount businesses such as Schwab are ``stalwarts,'' Mr. Thompson says. ``These are very seasoned, highly sophisticated investors, who have considerable experience in dealing with the market.''

The discount houses, for their part, continue to move forward with expansion plans, irrespective of the recent market downturn or the Iraq crisis.

Case in point: Fidelity has picked up over 75,000 brokerage accounts this years through acquisitions, Armstrong says. It has opened eight new ``Investor Centers'' in five states.

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