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To: Bill Harmond who wrote (45382)	3/12/1999 2:43:00 AM
From: H James Morris	Respond to of 164684

William, please don't give up M&S. >>By CHARLES GASPARINO and MICHAEL SCHROEDER Staff Reporters of THE WALL STREET JOURNAL The Securities and Exchange Commission is cranking up its oversight of online brokerage houses through a series of formal examinations of top industry players, say people close to the matter. <Picture: Heard on the Net>The SEC's inquiry is still in its early stages, and no one knows precisely what the agency will uncover or what action it might take. But one thing is clear: The heightened scrutiny has the online brokerage industry on edge. The inquiries by the SEC's Office of Compliance Inspections and Examinations mark the first time the SEC has taken such a detailed look into the burgeoning world of online trading, which accounts for an estimated 25% to 30% of trades by individual investors. SEC examiners have met with officials at Charles Schwab Corp. and ETrade Group Inc. and plan to meet with other firms as part of the agency's top-to-bottom review, people at the firms say. An SEC spokesman said in a statement, "The primary goal of the inspection system is to ensure compliance with the rules and investor protection." One big question: Do online brokerage firms make good on promises involving the reliability of their services as millions of investors, many of them newcomers to the stock market, start trading on the Internet, people close to the inquiry say. In recent months, several online firms have suffered high-profile outages in their trading system, meaning that some investors couldn't place trades or access accounts. <Picture: [Stock Investors Log On, and On]> Regulators also seem concerned about whether day traders -- investors who use online accounts to jump in and out of stocks on a daily, even hourly basis -- are properly warned regarding the risk of such strategies. In response to this scrutiny, the National Association of Securities Dealers, the brokerage industry's self-regulatory organization, already is considering a new rule extending "suitability" guidelines, which now apply to traditional brokerages, to day-trading firms. Under the proposed rule, the firms would first have to determine if day-trading strategies are suitable or too risky for particular investors. In addition, officials at the NASD haven't ruled out requiring a "suitability" notice to be attached to "customized" online research available on specific securities from major online brokerages, such as Schwab and ETrade. Schwab declined to comment specifically on the SEC examinations, but Carrie Dwyer, general counsel, said "the regulators should be pleased about the quality and quantity of information being conferred on retail investors, as well as lower costs and greater trading efficiency" offered through online investing. Want to receive an e-mail alert when Heard on the Net columns are published? See the E-Mail Setup page for details on how to subscribe. E*Trade spokeswoman Lisa Nash said: "We work very, very closely with" regulators and stay in "constant contact." She added that it is "pretty apparent that there's real interest on everyone's part about what is happening in the online investing world." The wide-ranging review comes amid a flurry of efforts by the SEC to come to grips with Internet trading mania, including a separate enforcement inquiry into online investment fraud. SEC Enforcement Chief Richard Walker, for example, is planning to meet with state securities officials in Massachusetts who have launched a major crackdown on Internet fraud. Last week, the agency introduced a proposed rule that some online brokers believe is aimed squarely at their industry. The SEC proposed that a broker-dealer would violate securities rules if the firm didn't have the "operational capability" to handle their day-to-day activities. An occasional outage or glitch wouldn't be a violation, but a pattern of capacity problems could break the proposed rule, SEC officials say. Meanwhile, SEC Commissioner Laura Unger is spearheading a study of the online-trading business, and she plans to submit a report by early fall outlining new possible regulation. The huge growth in online trading "calls for a reassessment of whether our regulatory scheme is adequate," she says. Frank Zarb, chairman and chief executive officer of the NASD, has called Schwab President David Pottruck and asked him to create a "best practices" set of guidelines for Internet trading firms, an NASD spokesman said. Mr. Zarb also has asked other online trading firms to do the same. But some advocates for small firms believe the move to regulate is partly a result of prodding by the big Wall Street firms that feel a competitive threat. Alan Davidson, owner of Zeus Securities Inc. of Jericho, N.Y., and an NASD board member, says he is worried that the sudden flurry of scrutiny of online trading "creates a suspicion that it's an agenda emanating from larger firms that are being negatively impacted."<<

To: Bill Harmond who wrote (45382)	3/12/1999 5:15:00 AM
From: Brian K Crawford	Read Replies (2) \| Respond to of 164684

herring.com Interesting article on net stock valuations. Makes a good case for "Price to Gross profit" being a better measure than "Price to sales". Writer compares YHOO, AOL, and AMZN. Clips: "What's the best way to compare valuations of Internet stocks? One measure has gained more or less universal acceptance: the ratio of stock price to annualized sales, or revenue per share. The popularity of the PSR (price/sales ratio) reflects investor belief that it's more important for Internet companies to grow revenue than profit, and that revenue is proxy for marketplace acceptance and market share." "Yahoo trades at 90 times sales. But few would say that Amazon, which trades at 30 times sales, is only one-third as richly valued as Yahoo. " "Retailers' revenues are different from those of service companies." [Due to lower gross margins] "That perspective makes it clear why Yahoo's PSR is three times that of Amazon. Though Amazon's $253 million sales in the last quarter were three times Yahoo's $76 million, gross profit was much closer -- $53 million vs. $69 million. From that point on, the types of activities and expenses of Amazon and Yahoo are nearly identical: marketing, product development, and administration." Brian