SEC releases views on broker electronic communications with investors

Journal Record, The (Oklahoma City), May 15, 1996 by Rob Wells Associated Press

WASHINGTON -- The Securities and Exchange Commission has taken another step to make it easier for brokers to communicate with their customers via computer.

The agency late last week released a legal road map on a range of electronic communications issues, which allow brokers to send trade confirmations to customers via the Internet or other computer systems without mailing a paper backup copy.

"I think it's very significant," said Andrew Klein, founder of New York-based Wit Capital Corp., which is building an Internet-based investment bank. "What strikes me as new and important is the SEC has now gone a further step in accepting ...digital transmissions."

The new SEC guidelines, known as an "interpretive release," come as Wall Street firms move on several fronts to incorporate the Internet and other modern technology in the investment business.

"It's the hot issue, what everybody is focusing on now and looking for guidance," said Mark Egert, assistant general counsel for the Securities Industry Association, the industry's main trade group.

In recent months, the SEC has made a series of statements that clarify what sort of investment business can be conducted over the Internet or other computer systems.

Via home computer, an investor now can receive a prospectus for a stock offering; review price quotes for securities or mutual funds, although sometimes they're provided at a 15-minute lag; view advertising for investment opportunities; and receive account statements or a listing of your account's holdings.

In addition, brokers can transmit research reports to investors. One or two brokerage firms even allow investors to open accounts online, and after a credit check, trade the same day with a $10,000 limit, said Egert.

In theory, the same now can be done with mutual funds. The SEC has spelled out a scenario for electronic delivery of a fund prospectus to an investor prior their purchase of fund shares. However, mutual fund officials have said they're unaware of funds allowing people to sign up via computer and buy shares the same day.

What's more common is an investor using a computer to request a fund prospectus and then purchasing the shares through a check sent in the mail.

Funds generally allow people to transfer money among their accounts, but only after they've first opened an account through regular paper mail.

How investors pay for securities remains the next step for the industry. So far, SEC and industry officials say they're unaware of brokerages allowing people buy stocks through electronic funds transfer from their bank accounts.

"I'm not aware of firms accepting cash in electronic fashion," said Egert.