Secretary Cox Offers Guidelines for Safe Online Investing

ATLANTA, GA .… Georgia Secretary of State Cathy Cox today unveiled a list of 10 guidelines to assist the growing number of Georgians interested in making their stock, bond or mutual fund investments online.

        Secretary of State Cathy Cox and the North American Securities Administrators Association (NASAA), which represents state and provincial securities regulators in the U.S., Canada and Mexico, recently developed “10 Tips for Online Investors” to educate consumers and help them carefully and prudently plan their online investment strategies. In Georgia, the Secretary of State serves as the state’s Commissioner of Securities.

        More than 200 securities firms currently offer online brokerage services to an estimated 10 million-plus online accounts. Each year, online brokerage firms are spending hundreds of millions of dollars on advertising to attract new customers, many of whom are new to investing.

        “Thousands of Georgians have been attracted to online investing because of the convenience and lower transaction costs these services can offer. But online trading represents a radical change in the relationship between brokerages and their customers,” said Secretary Cox. “These guidelines include safeguards investors should follow to protect their investments as they participate in this rapidly changing arena,” she added.

        Secretary Cox noted these tips apply to online trading, in which investors execute a relatively small number of purchases or sales of stocks, bonds or mutual funds through a Web-based brokerage. Online trading is distinct from day trading, an extremely risky investment scheme in which traders execute scores or hundreds of trades daily via computer (either at a day trading brokerage or from a remote location).

        Online investing was the subject of recent studies by the New York State Attorney General and the U. S. Securities and Exchange Commission. The New York report (www.oag.state.ny.us/investors/1999_online_brokers/brokers.html), for example, 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.

        “As investing technology changes, educating investors is the key to empowering them to understand their choices and avoid costly mistakes,” said Secretary Cox. “Our objective is not to discourage consumers from utilizing online brokerage services. In fact, many customers have satisfactory, positive experiences with their online brokerages. But it is also important to be aware of some of the potential pitfalls so Georgians can make wiser, more prudent investment decisions,” Ms. Cox added.

10 Tips for Online Investors

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 Web site.

2. Understand that most likely you are not linked directly to the market, and that the click of your 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 Web site 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 Web site 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 Secretary of State’s Securities Division to verify the registration/licensing status and disciplinary history of the online brokerage firm, or, when warranted, to file a complaint.

To verify registration/licensing status, review the disciplinary history of an online brokerage firm or file a complaint, contact the Secretary of State’s Securities Division at (404) 656-3920 or visit us on the Web at www.sos.state.ga.us .