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January 1, 2000

No New Regs for Online Broker Dealers

By William Hoffman

Also in this article

  • No New Regs for Online Broker Dealers

SEC Commissioner Laura Unger's report

on online trading does not propose new regulations for one of the hottest phenomena on Wall Street. But that suits some online pros just fine.

"Our view is positive," said Michael Hogan, general counsel at online broker DLJ direct, a unit of Donaldson, Lufkin & Jenrette. Recognizing that "one month in real time is seven months in Internet time," Hogan said, Unger and her colleagues rightly resisted the impulse to use observations made last spring as a foundation for new rules this winter. "The wrong thing to do would have been to regulate," he said.

"I'm delighted, both as a member of the public and as a participant in the markets," with Unger's report, said Stephen J. Schulte, a founding partner in the corporate and securities department at the law firm of Schulte Roth & Zabel in New York City. "It's very timely for her to have undertaken this," Schulte said. "Four or five years ago online and day trading were very small specks on the radar screen. That has changed."

Unger Speaks Out

In an interview here in Washington, Unger told Traders Magazine that the reaction to the 95-page report, released Nov. 22, was positive.

Unger conceived, conducted, and presented the report's findings with the acquiescence, but not the official sanction, of her colleagues at the SEC. "I'm waiting for the not-so-positive reactions," she half-joked, "because I haven't gotten any so far."

Unger's report summarizes observations and recommendations made during a series of industry roundtables - in California last February, in New York City last May, and in Washington in June - attended by online and offline brokers, investors, academics, regulators, and attorneys.

Unger said she wanted to assess the current state of the industry, identify major issues facing it, and provide a framework of recommendations for continued discussion among SEC commissioners and staff.

"It's unusual for a commissioner to do something like this," Unger acknowledged. SEC Chairman Arthur Levitt was "extremely supportive from the very beginning," she noted. Though the commission staff was "a little bit cautious" about her unique project, Unger took pains to assure that the work did not violate provisions of the law, such as the Administrative Procedures Act. The roundtables were closed to the public. That was to encourage participants' candor, Unger noted, though their names are listed in a block at the end of the report.

No Surprises

For Hogan, the report's best feature is that it contains no surprises, proposes no solutions. "They've identified things the industry needs to talk about, that the regulators need to talk about," said Hogan, who attended Unger's roundtable in New York City. "That's the trick with the Internet: it's moving so rapidly that anything you do is a snapshot of actions in time, and by the time you develop regulations for it, that time will have passed."