(June 9) – Online investors need more protection and would benefit from new rules requiring brokerage firms to detail risks such as the potential for delays and outages, concludes the General Accounting Office,” The Wall Street Journal is reporting today.
“The GAO said investors using the Web to trade also need better disclosure of privacy policies, margin-lending practices and trade execution.
“Those findings come as the Securities and Exchange Commission’s efforts to beef up enforcement of online stock scams have hit a snag in Congress. Earlier this week, the House Appropriations Committee voted to increase the SEC’s budget for fiscal 2001 by $24.8 million to $392 million. But that was only about half of the increase sought by the agency, which had asked for a 12% increase to $422.8 million, in large part to increase the number of staff focusing on online stock fraud and to boost the pay for accountants and lawyers.
“The GAO report, issued Thursday, focuses on 12 brokerage firms that accounted for about 90% of online-trading volume in 1999.
“Officials from one firm told the GAO that they had so many outages that they didn’t keep track of them all. Another firm told the GAO it tracked only those outages that lasted more than 25 minutes or affected at least 25% of its customers.
“The GAO recommended that the SEC ‘require broker-dealers with online-trading systems to maintain consistent records on systems delays and outages and their related causes and to disclose the potential for service disruptions on their Web sites,’ key House Democrats wrote SEC Chairman Arthur Levitt in summarizing the report.
“The GAO found only 25% of the firms it surveyed posted information about margin requirements on their Web sites. Others provide investors with agreements describing lending terms in hard-to-understand ‘legalese.’