SEC to Look at Financial Web Portals
Federal securities regulators will hold a discussion today to see how popular financial Web sites such as Motley Fool and Yahoo Inc.’s (YHOO) Yahoo Finance operate--and hear arguments over whether they should be regulated as brokerages.
Known as online portals, the sites provide financial information and portfolio analysis tools. They also have hyperlinks to broker-dealer Web sites so investors can open accounts and buy and sell stocks.
As the portals have gained popularity over the years, they have begun competing with brokerages for customers. As a result, brokerages are increasingly asking whether portals should have to play by the same rules they do.
“At least one of the questions broker-dealers ask is ‘Why aren’t the portals registered?’ ” Laura Unger said in a March speech shortly after being named acting chairwoman of the Securities and Exchange Commission.
New York securities lawyer Joe McLaughlin said one area of concern for the SEC is whether portals are being paid by brokerages when a customer opens an account and executes trades, which the commission calls transaction-based compensation.
The SEC has a “pretty consistent philosophy that if you are getting paid on a transaction basis by a broker-dealer or refer someone to that broker-dealer, then you have crossed the line into broker-dealer territory too,” he said.
Lawrence Greenberg, chief legal officer at Alexandria, Va.-based Motley Fool, one of the leading portals, declined to comment on any individual compensation arrangements his firm may have.
“We say on our site the brokerages who have ads on the site are advertisers who pay us,” Greenberg said.
“We hope that investors will have the information that they need in order to make totally informed [investment] decisions, including who their broker is, and that they get the protection that they need.”
Representatives of Internet access leader America Online Inc., Motley Fool, Web news provider MarketWatch.com Inc. (MKTW) and brokerage Charles Schwab Corp. (SCH) are expected to attend the discussion, along with Unger and other market regulators from the SEC and the National Assn. of Securities Dealers.
