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SEC eyes online brokers
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March 11, 1999: 10:33 a.m. ET
Agency steps up scrutiny of Schwab, E*Trade, others, sources say
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NEW YORK (CNNfn) - The Securities and Exchange Commission is stepping up its oversight of online brokerage houses after outages and other problems led to a sharp rise in customer complaints about the Internet brokers, people familiar with the matter said Thursday.
The SEC "is examining some of these online trading firms and day traders," one person familiar with the investigation told CNNfn. The agency is taking the probe "one step at a time," said the source, who asked not to be named.
The agency is looking at whether online brokers have delivered the services they promise as millions of Americans flock to Internet investing, many of them new to the stock market. Online trading now accounts for about a quarter of all trades by individual investors.
SEC examiners have met with officials at Charles Schwab (SCH), the biggest discount and online broker, and E*Trade (EGRP) and plan to meet with other online brokers, people with knowledge of the inquiry said.
The probe is in its early stages and it isn't clear what the agency may find or what action, if any, it might take, the sources said. The probe was first reported in Thursday's Wall Street Journal.
Schwab, E*Trade and other online brokers have had several outages in recent months that cut off customers from trading. The Wall Street Journal reported separately that Schwab is quietly settling complaints from about 300 investors who claim they paid too much for shares of the hot Internet startup theglobe.com on its first day of trading and lost up to $1.2 million as a result.
Officials at Schwab and E*Trade were not available for comment. An SEC spokesman in Washington declined to comment.
In a bid to forestall action by regulators, many online brokers have moved to limit trading in volatile Internet stocks, favorites of so-called day traders - investors who trade online and sometimes buy and then sell a stock in an hour or less.
The SEC is also eyeing whether to apply rules that compel traditional brokerage houses to consider if certain investments are suitable for their customers to the online brokers, those familiar with the matter said.
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