Online brokerage regulation roundtable set for November 1 in Washington, D.C.

SEC Commissioner Laura Unger, brokerage executives, others to discuss” suitability rule,” other topics

WASHINGTON (October 7, 1999) – The head of a group of state securities regulators will moderate a roundtable on November 1 asking whether online investors need the same regulatory safety net as investors who rely on advice from traditional stockbrokers.

Bradley Skolnik, Indiana’s securities commissioner and the new president of the North American Securities Administrators Association (NASAA), will chair a panel discussion on regulatory issues surrounding online brokerage, including the “suitability rule,” a tenet of US securities regulation since the Thirties.

Panelists will include state, industry and federal securities regulators, representatives from online and traditional brokerage firms and electronic communications networks (ECNs), academics, securities lawyers and representatives from Congress. SEC Commissioner Laura Unger will take part in the November 1 roundtable along with executives of Wall Street firms such as Charles Schwab & Co., Merrill Lynch and Island ECN.

The panel will be held from 9:30 a.m. to 12 noon on Monday, November 1 in the Executive Forum on the ballroom level of the Monarch Hotel (formerly the ANA Hotel) at 2401 M Street NW, near Georgetown in Washington, DC.

The suitability rule requires brokers to recommend only those investments that are appropriate for a client, taking into account factors such as the client’s age, income, goals and tolerance for risk.

In his inaugural speech as NASAA president late last month, Skolnik said, “Suitability may have meant one thing in 1969, when nearly all investors were getting stock recommendations from their brokers. Thirty years later, however, millions of investors never meet, let alone receive recommendations from, their brokers.” There are an estimated 7.5 million online brokerage accounts.

Skolnik asked, “Given this new reality, do we need to change, modify, rethink, or update the suitability rule in the age of the Internet and do-it-yourself online investing?”

He noted that the suitability rule was already being reinterpreted. In a proposed rule aimed at curbing problems at day-trading firms, the regulatory arm of the National Association of Securities Dealers said suitability should extend to a type or strategy of trading, not just specific recommendations. And SEC Commissioner Unger, following meetings with brokerage industry officials and others around the country, is asking whether online brokers have a suitability obligation if they offer access on their web sites to stock research and other financial advice.

“Clearly, it’s our job as regulators to protect people from other people such as stock brokers who churn accounts,” said Skolnik. “But what is our role, if any, in protecting people from themselves? Should securities firms or regulators be concerned about what investors do for themselves online?”

“There are no easy answers,” Skolnik said. ” Because of the rapid growth in the number of Americans investing online, I think the issue deserves to be put on the table now and that all parties have an opportunity to share their views.”

The forum is free and open to all but reservations are encouraged as space is limited. Those interested in attending the roundtable, should contact Cheryl Besl at NASAA at 202/737-0900 ext. 120, by fax at 202/783-3571 or email

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1999 Headlines, Newsroom