Online Trading: Congressmen to SEC: Dealers Should Track Outages

WASHINGTON - The House Commerce Committee's top Democrats are urging the Securities and Exchange Commission to require broker-dealers with online trading systems to keep records of their delays and outages and to disclose the potential for disruptions on their Web sites.

The commission should also ensure that the firms' Web sites contain accurate and complete information on risk disclosure and privacy protection as well as margin requirements and trade executions, said Rep. John Dingell, D-Mich., the committee's ranking Democrat, and ranking subcommittee members, Reps. Edward Markey, D-Mass., Ron Klink, D-Pa., and Edolphus Towns, D-N.Y., in a letter sent yesterday to SEC chairman Arthur Levitt. They asked the commission to submit a progress report to them by Nov. 3.

The request from the lawmakers comes in the wake of a General Accounting Office report on online trading that found that while many investors complained that online outages disrupted their trading, broker-dealers typically do not keep track of these problems. In addition, only eight of the 12 brokers examined by the GAO informed customers of the potential for delays and outages.

The GAO also said that, if found, firms' disclosures about their policies for releasing personal account information were incomplete. In addition, the GAO raised questions about whether such information can not be protected from a security standpoint if it is obtained from online systems.

While the report focused on online trading of equities, many of its recommendations could be applied to online trading in general, including trading of municipal securities. All 12 online broker-dealers, for example, displayed disclaimers on their Web sites or told the GAO that they do not recommend, or offer advice on, the suitability of particular investments. But the report said that the SEC made clear to the GAO that disclaimers cannot be used to limit a firm's liability or waive customers' rights under the federal securities laws.

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