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News Release: 00-10

GRAY DAVIS, Governor
Date: 06/16/00

WILLIAM KENEFICK, Acting Commissioner

Consumer Tips for Online Investors

State Regulator Issues Top-Ten Guidelines

 

Sacramento, June 16, 2000 — The Department of Corporations, California’s securities regulator, today released its Top-Ten Tips for Online Investors. With some 200 securities firms offering online brokerage services and an estimated ten million-plus online accounts, the department warned that it is critical that online investors understand the playing field, including the risks and limitations of online investing and the difference between online and more traditional brokerage accounts.

With the rapid expansion of online trading of stocks in recent years, online firms are spending hundreds of millions of dollars on advertising to attract new customers, many new to investing and the stock market. The Top-Ten Tips for Online Investors was developed to educate investors and help them to think critically about online investing.

The department noted that as investing technology changes, educating investors is the key to empowering them to understand their choices and avoid mistakes. Online trading represents a radical change in the relationship between brokerages and their customers, and the ten tips below lay out some of the things investors should expect and be wary of in this new relationship.

Top-Ten Tips for Online Investors:

When You Invest Online, Be Sure To:

  1. Receive full disclosure, prior to opening your account, about the alternatives for buying and selling securities and how to obtain account information if you cannot access the firm’s Website.
  2. Understand that most likely you are not linked directly to the market, and that the click of your computer mouse does not instantly execute the trade.
  3. Receive information from the firm to substantiate any advertised claims concerning the ease and speed of online trading.
  4. Receive information from the firm about significant Website outages, delays and other interruptions to securities trading and account access.
  5. Obtain information before trading about entering and canceling orders (market, limit and stop loss), and the details and risks of margin accounts (borrowing to buy stocks).
  6. Determine whether you are receiving delayed or real-time stock quotes and when your account information was last updated.
  7. Review the firm’s privacy and Website security policies and whether your name may be used for mailing lists or other promotional activities by the firm or any other party.
  8. Receive clear information about sales commissions and fees and conditions that apply to any advertised discount on commissions.
  9. Know how to, and if necessary, contact a customer service representative with your concerns and request prompt attention and fair consideration.
  10. Contact the Department of Corporations to (1) verify the registration/licensing status and disciplinary history of the online brokerage firm, or (2) file a complaint, if appropriate.
A recent study on online investing by the New York State Attorney General and the U. S. Securities and Exchange Commission highlighted a number of complaints lodged by online investors, from delayed execution of orders to slow response times, inadequate customer support and possibly misleading advertising claims. The New York report can be reached on the Web at: http://www.oag.state.ny.us/investors/1999_online_brokers/brokers.html. Additional information can be obtained from the Department of Corporations’ Website at www.corp.ca.gov and North American Securities Administrators Association’s Website at www.nasaa.org, or by calling the department’s consumer services representative at (213) 576-7643.

The Department of Corporations is California's Investment and Financing Authority, reporting to the Business, Transportation and Housing Agency and the Governor. The Department is responsible for the regulation, enforcement and licensing of securities, franchises, off-exchange commodities, investment and financial services, independent escrows, consumer and commercial finance lending and residential mortgage lending. For further information or to obtain a complaint form, see the Department's Web site at www.corp.ca.gov.

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