Online trading task force formed by state securities regulators

WASHINGTON (May 3, 1999) – State securities regulators have formed a task force to look at issues surrounding online trading such as advertising, order handling and customer suitability, the North American Securities Administrators Association (NASAA) announced today.

The “Online Trading Project Group” will report to the NASAA board of directors and be chaired by Peter C. Hildreth, NASAA’s President and New Hampshire’s Director of Securities Regulation. Other members of the group, Deborah Bortner (Washington), Denise Voigt Crawford (Texas), William Mohr (New York) and Bob Terry (Georgia), include some of the country’s most experienced state securities regulators.

“The online investment world presents regulators with some novel challenges,” said Hildreth, citing customer suitability, advertising, and disclosure of an online brokerage firm’s capacity and the speed and cost of order execution. In early February, the New York Attorney General’s Office launched an inquiry into online brokerages, in response to “dozens” of complaints from investors following outages and computer glitches.

State securities regulators were the first to raise concerns about aggressive day trading firms, taking actions against several. In recent weeks, state regulators have raised the issue of advertising by online brokerage firms, questioning whether some ads could be sending the wrong message. Hildreth said: “The message of many of these ads is ‘trade, trade, trade…you’ll make money, you may even get rich.’ That’s the wrong message for the vast majority of Americans who should be saving and investing for the long term.”

Under longstanding securities rules, Hildreth noted, when a broker recommends a particular stock he or she must be sure that recommendation is suitable for the investor based on their financial situation and their goals. “But what happens when there is no broker?” asks Hildreth. “Does the online firm have an obligation to step in if, say, a novice investor or a retiree on a fixed income starts loading up on the latest Internet IPO?”

Regardless of what new regulation emerges to cover online trading, said Hildreth, “Investors need to realize that when they take a flyer on a hot stock, they’re speculating, they’re gambling. And that`s okay, as long as it’s with money they can afford to lose. No one should be gambling with the rent money, Joey`s college money, student loans or credit card advances. The Internet has made both long-term investing and risking money on ‘fad’ stocks easier and quicker, not safer. Today, with the Net, you can lose your shirt electronically–and in a big hurry.”

1999 Headlines, Newsroom