In light of what happened to Zecco last week, would you still open an account with them? My thoughts on the matter, as a former IT engineer who has worked at a top discount brokerage.
I’m covering yet another brokerage, and have been focusing a bit on investment topics lately. I wasn’t really prepared to talk about yet another online broker, but I had to comment on what happened to Zecco some days ago.
Zecco is a highly visible online stock broker we’ve mentioned time and again on this site. Well, on April 1st, they made some unsavory, surprising “headlines” when their customers saw something strange happen to their “buying power”. People saw this figure inflate into the millions, causing Zecco customers to mistakenly realize they had additional liquidity and funds with which to play with. Well, the boo-boo caused massive confusion at Zecco, with people using the money to make big trades, potentially opening themselves and the brokerage to risk and liabilities. Zecco has since cleaned up the mess, but not without having to confront and field questions from angry customers and a befuddled SEC.
Some sites like My Money Blog and The Consumerist wondered if it was a poorly thought out April Fool’s joke. Honestly, I can’t believe how anything as ridiculous as this can be construed as an April Fool’s joke. The official report from Zecco is that it was due to “a faulty data feed from a vendor.” Hmmm… wonder how it could have really happened?
More on Zecco’s official notification:
On April 1, 2009, one of our vendors provided Zecco Trading with an incorrect data feed which caused some customers to see erroneously high buying power. This error was quickly corrected, but about 1% of our customers were impacted. All positions in excess of our customers’ true buying power have since been closed. Except in a very small number of egregious and fraudulent cases, customers will not be responsible for losses (or gains) incurred for trades in excess of their buying power.
Well, glad that’s resolved.
Would You Open A Broker Account With Zecco?
Zecco is still a popular brokerage because they are cheap. Even cheaper if you are either a trigger-happy trader who trades fairly often or if you have nice coin in your account (at least $25,000). You are eligible for 10 free stock trades a month given those circumstances. Otherwise you only pay $4.50 a trade. But for a few weird glitches like the April Fool’s bug that may happen on occasion, could they still be worthy of your business? Would you still consider opening a Zecco account?
As for me, I’d take things into context and see what my overall experience is with them over a certain period of time. Software can be screwy, but if it has only turned out to be a minor annoyance to you, it may not be that big of a deal. Of course, many others saw this the wrong way and proceeded to shoot themselves in the foot with vapor-money. I’d use common sense if I saw mistakes like this on my dashboard (yay! instant millions), and wouldn’t necessarily hop on to other alternatives on a whim (but there’s always TradeKing or OptionsHouse for those Zecco refugees). After all, **** happens, and I’ve seen this a lot at places I’ve worked for.
A Stock Broker’s Learning Experience
I found this to be an interesting story because I used to work for a well-known discount broker some time ago while my last employer was one of the biggest banks around; and we worried exactly about those very things that could cause these types of bugs. As an IT engineer, bad data feeds would be my worst nightmare! As you can expect, it’s something these companies take extremely seriously, so there are always a lot of checks and balances in place before something goes “to production” (or is released to the customers/users). This could only be an honest mistake or the work of a saboteur. The good news is that the ZeccoShare community seems to have moved on from this incident and Zecco has acted quickly to restore order, even if it means having to eat any costs incurred. I’ll bet that Zecco picks up, moves on and gets better. Okay, I’m an optimist.
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{ 6 comments… read them below or add one }
I wouldn’t open an account with them after this. I don’t trade too often so I’d rather take my chances with someone who charges a little extra but has never goofed up.
Of course, I will never trade with any miracle money either.
Yes, I would expect that this would be a lot of people’s reactions. Zecco could sustain a hit to their business because of this, but whether it’s a short term thing is another story. If they manage to improve on things and make positive steps/changes, then great, maybe they’ll restore more confidence in their brand.
Coming from the engineering point of view — I’ve mentioned that some boo-boos like this have happened to some major sites I’ve worked on. It didn’t really make a huge dent to the business (maybe the size of the companies were a factor so they could absorb such loss of face), since people’s memories are short. The only time I can see it making a difference is if there’s a string of problems and this becomes the “last straw” so to speak. As an isolated issue, it may not be as huge a deal as it seems, but I agree that if problems persist, then no matter how cheap a service is, there won’t be enough pull here to keep the business growing.
My opinion on this is that $*%t happens. Computers aren’t perfect – I myself caught a virus this week that sent me for a tailspin and took a week to get cleared up and off my computer. At any rate, while I think Zecco should have better protocols on checking data feeds prior to release, I also think personal accountability is important. Anyone watching the stock market lately would quickly realize that something was wrong when their accounts went from modest numbers one day to millions the next. Give me a break! You can’t tell me that those people didn’t genuinely know something was out of place. And if they did believe they’d gotten lucky, I’ve got property on Mars I’m looking to sell.
I don’t do online brokerages at all, but if I did, this incident probably wouldn’t faze me enough to make me move my money. They handled the situation quickly and efficiently, and they took care of the liability issue. While it’s unfortunate that it happened, I understand that mistakes happen. As long as it did not result in a direct loss to my accounts, then I’m good.
They did well to minimize the issues and I certainly don’t think a simple mistake is worth getting fired up about. I’ve worked in financial services for more than a decade and during that time I’ve seen more errors than I’d care to count. In one case, a five figure deposit posted to the wrong account and was subsequently spent by the other party. This resulted in the company taking the hit and then pursuing remedy through the courts with the party that had a nice shopping spree “on the house”.
I have a super small account with Zecco for my own amusement and I’ve had no trouble with any of their systems. Hopefully they didn’t lose too much on the deal, as I note they had a capital infusion not too long ago. This along with the increase in commissions earlier this year begs the question of net capital requirements, doesn’t it?
I wonder if it was an April Fool’s joke and they didn’t think it through all the way, unfortunately letting people trade with money they didn’t have… oh well, either way Zecco has been getting a lot of bad press.
This was obviously a mistake. I don’t really understand customer outrage. Anybody with a brain should have realized it is a mistake and notified Zecco immediately. I’d be much more upset if the mistake had been in the other direction – i.e. if my account showed $0 buying power when I actually had money.
It’s stupid to think of it as April Fool joke: what if the market crashed that day after a lot of people made purchases? Zecco coud’ve lost millions.
Keep in mind, this was “buying power” not the actual account value. If some of these accounts had margins, it simply meant that they were allowed to borrow millions. Only a fool or a crook would risk more money than he can repay in a lifetime. What if Zecco hadn’t noticed the mistake for a few days. Would those who made trades be responsible for margin interest?