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Notebook: Spinoffs Could Bring More Buying Options

Plus where to send broker complaints and our poll results.

With the few online brokerage stocks out there reaching new highs, investors must be tantalized with the possibility of more buying opportunities.

Donaldson Lufkin & Jenrette



Toronto Dominion Bank

(TD) - Get Free Report

both are considering taking public their discount brokerage units. In DLJ's case, that could mean an IPO of the No. 7 online broker,


. TD could let loose its international discount brokerage units, of which


is a dominant part. Waterhouse was bought by TD in 1996 and recently claimed the No. 2 spot in online transactions market share in the fourth quarter with the help of recent acquisitions, according to

Credit Suisse First Boston


Charles Schwab


, still the No. 1 broker,



, No. 3, and


(AMTD) - Get Free Report

, home of the No. 6, all hit 52-week highs Friday. Schwab closed at 70 5/16, up 1 1/8, E*Trade finished at 110 3/8, up 10 15/16, and Ameritrade closed at 80 1/4, up 13 13/16.

Of course, online brokers have been on quite a tear since late December, sparked by heavy trading volumes, high-profile Net stock trading and better-than-expected earnings. Ameritrade and E*Trade announced 2-for-1 stock splits this month. (E*Trade will begin trading at its post-split price Monday.) The stocks have been trading like their Net counterparts and have become sensitive to daily bits of news. Not even Internet Sector

index can keep up, let alone the


investment banks and brokerages group, of which the online brokers are a part.

So speculation has turned to possible moves into the market by other brokers.

"I think it behooves your long-term strategy to be spun out and attract capital at low rates," says analyst Scott Appleby at


. "With the cost of capital where it is today, it's a no-brainer."

If the parent company, a DLJ or TD, were to sell only part of its broker, a successful IPO could add value to the parent. And with brokers like E*Trade spending big on advertising -- last quarter's ad spending totaled $40 million and the broker will be prominently featured in


pre-Super Bowl show -- it may be more palatable for banks to let an independent unit take on the loss-inducing marketing costs common in the Internet sphere.

Yet some companies seem to have little interest in this approach.

Morgan Stanley Dean Witter


, for instance, has No. 9 online broker

Discover Brokerage Direct

, which it acquired in late 1996. But Tom O'Connell, Discover's executive vice president, dismisses a spinoff. "The long-term strategy is a lot more important than whatever market capitalization we might get," O'Connell says.


Quick & Reilly

, a unit of

Fleet Financial

(FLT) - Get Free Report

, has online trading under its name and through its


unit. Fleet declined to comment.


, which last year was considering a public offering, also declined to comment.

Where to Send Your Gripes

What's an online trader to do?

As online brokers struggle to deal with the intense 1999 trading volume, "please help" emails have funneled in to

. Whether it's a less-than-desirable execution, delayed confirmation, access-related trouble or multiple-order confusion, a lot of online traders have a bone to pick with their brokers. Unfortunately, many don't know where to go for help.


National Association of Securities Dealers

is one place to go. As a first step though, the NASD suggests writing to the broker, both the representative involved and the rep's branch manager or the firm's compliance department. Not only does that give the firm an opportunity to respond, but also it gives it an explicit explanation of what happened. If that doesn't bring satisfactory results -- and for some people who have emailed, it hasn't -- the NASD is ready for you.

"The very best thing to do is send a written complaint to the NASD regulation district office where the individual is located," says Dan Sibears, senior vice president and deputy of NASD member regulations. Complaints can also be filled out

online, and the NASD will forward the complaint to the appropriate district office.

Once the complaint is received, the NASD will look into it and decide if it warrants an investigation. Things that may produce an investigation include unauthorized trades, investments outside the scope of a customer's objectives and certain order execution issues. Because the investigations are based on regulatory compliance, financial compensation isn't necessarily a result. But the NASD also offers mediation and arbitration programs to resolve disputes with brokers.

The complaint letter should include the name of the brokerage firm and the names of people involved at the firm; the name of the securities involved in the complaint; the date of the problem; a detailed description of the events; complete address and contact numbers. Along with the complaint, relevant sales confirmations, monthly statements and correspondence with the firm should also be sent. The NASD explains this entire process on its

site, including which district office to contact.

Traders In Line for Summer School


Securities and Exchange Commission

already has received


share of online trading-related complaints. In

response, SEC Chairman Arthur Levitt said Wednesday that, in essence, online traders would do themselves a big favor if they stopped complaining and started learning.

"I say to all investors -- whether you invest online, on the phone or in-person -- know what you are buying, what the ground rules are and what level of risk you are assuming," Levitt stated.

We asked

readers if they agreed with Levitt, whether:

Levitt's right, many online traders aren't adequately prepared; or

Levitt needs to direct his comments to the online brokers.

Of the more than 1,100 people who responded, 61% said they agreed with Levitt and 39% said that brokers were the ones that needed to smarten up.

Since Levitt had little criticism of the brokers themselves -- saying technology difficulties are to be expected -- a warm reception from the brokers would be anticipated. And Schwab, the largest online broker, was quick off the mark Wednesday night.

"Chairman Levitt is advocating a responsible approach to investing that we at Schwab have recommended for many years," said Charles Schwab, the firm's chairman, in a press release.

Schwab underlined its efforts to educate customers along Levitt's recommendations. An E*Trade spokesman also agreed with Levitt's comments and emphasized the things it does to help investors to understand the process of online investing.