Regulators and legal experts say the legal climate has evolved since a year ago, and brokerages are less likely to face lawsuits. But U.S. and California regulators are still feeling their way on the legal issues for online activities.
Schwab, which today revealed plans beyond an email program it's launching this week, is in some ways playing catch-up to rival E*Trade, which added a variety of community features to its site in September.
"We are interested in exploring this community issue because, hearing from our customers, they like to talk to each other," said Tracy Behler, director of community development for Schwab's online unit. Customers also want more communication with financial experts and Schwab itself, she added.
Schwab intends to provide its own moderators for chat areas, and it intends to zap comments that tout or slam specific stocks. Although Schwab doesn't plan forums for specific stocks, that's a major feature at E*Trade.
"We don't want our boards to be used as a forum for that activity, [but] we obviously can't pull down every posting," Behler said, adding that the brokerage would delete anything misleading or that could boost trading.
E*Trade has had 50,000 people register for its community sites, Vice President Lisa Nash said today, and it has hired outsiders to moderate chat boards. E*Trade, as Schwab plans to, also uses its community area for customer support, letting investors handle queries online, thus reducing the cost to the brokerage.
"We wanted to keep regulatory concerns at the top of the list, but we wanted from a self-regulation perspective for people to think of these as legitimate places," Nash said. "We wanted to do in way that we could regulate ourselves."
Michael Overly, an attorney with Foley & Lardner, notes that online services have more leeway today than they did a year ago in how they handled community boards.
"For a while it was a big concern, that if you engage in editorial control you could be held liable," Overly said. But a "good samaritan" provision in the 1996 Communications Decency Act stated that exercising some editorial control would not open Web sites to liability. Although most parts of the CDA were struck down, that clause still stands.
E*Trade dealt with similar issues in launching secure email notifications and chat boards last year, but today regulators suggest the debate has moved beyond that.
"If a discount broker provides a forum for that kind of communications, do they have any responsibility [for inaccurate postings by others]?" asked G.W. McDonald, assistant commissioner in the enforcement division of the California Department of Corporations. "I don't see that providing a forum, as long as that 's the only thing they do as a licensed discount brokers, I don't think that's a problem."
John Ramsay, deputy general counsel of the National Association of Securities Dealers' regulatory arm, agrees.
"I don't think that we as a regulator would say that because you do exercise some control [of content] that you are taking responsibilities for all the statements made in those ventures."
But that doesn't mean there's no downside for an online broker to moderate its own chat areas.
"If I were a discount broker, I wouldn't want any part of being a moderator. As soon as you take responsibility for the content, that ups the ante in terms of liability significantly," said McDonald, who with Ramsay is scheduled to testify today in a California hearing about online financial services.
The other relevant regulator is the U.S. Securities and Exchange Commission, which has been moving gingerly. It suggests that brokerages submit their plans for chat areas and request a "no action" letter, a way for regulators to give an opinion that it has no problems with a specific proposal.
"The SEC is not sure where the envelope is, so they say, 'you push us,' " said Robert Seidman, a Schwab vice president overseeing the launch of its email products. "That's the road we're walking down, the whole industry, not just Schwab."