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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: TFF who wrote (6731)	3/18/1999 11:05:00 AM
From: agent99	Read Replies (2) \| Respond to of 12617

After Chatting Up the Stock, Where to Place the Trade? By REBECCA BUCKMAN Staff Reporter of THE WALL STREET JOURNAL Investors come to fast-action Web sites like trading-places.net for hot stock tips, beamed out every few seconds. But, like most chat rooms, it isn't a registered brokerage firm; investors must go elsewhere to buy and sell the stocks it discusses. So where to trade? Trading-places.net (www.trading-places.net) founder Chris Rea says that is up to subscribers. He says he personally likes MB Trading Inc., a firm in El Segundo, Calif., that he says has stellar customer service. But trading-places.net and MB Trading have a deeper relationship, and one that points up the complicated regulatory issues raised by the new breed of online stock-recommendation services that fuel heavy trading at Internet brokerage firms. MB advertises on trading-places.net, and trading-places explicitly recommends MB. The endorsement appears whenever someone clicks on MB's name on the chat site's home page. In addition, an MB Trading "tech-support agent" participates in the trading-places.net chat room. "When someone says, 'My software just died on me," you have someone there who might be able to help them," says Steve Demarest, one of MB Trading's two principals. Messrs. Rea and Demarest say their only financial link is an advertising agreement, with MB Trading putting regular banner ads on the chat site, much as larger online brokers like ETrade Group Inc. or Ameritrade Holding Corp. do on the Web. Trading-places.net gets about 80 cents whenever a visitor to its site clicks on the MB ad. Mr. Demarest says he has "no idea" how many trades he gets from trading-places.net's subscribers and wasn't even aware until a couple of weeks ago that the chat room recommended MB. MB Trading is owned by Terra Nova Trading LLC, a Chicago brokerage firm that began moving most of its business to the Internet two years, after having formerly focused on providing access to Nasdaq's Small Order Execution System, or SOES. Terra Nova owner Gerald Putnam also helped found an electronic trading network, Archipelago Holdings LLC, in which Goldman, Sachs & Co. and ETrade have invested. Terra Nova branches send some of their orders through Archipelago, which matches buy and sell orders. Another Terra Nova brokerage branch, the Executioner in White Plains, N.Y., has an advertising deal with a chat room called Pristine Trader, says a Terra Nova executive. He says the brokerage branch and the chat site have offices in the same building and sometimes appear at seminars for day traders. Last year, trading-places.net talked to MB Trading and some other firms about an arrangement in which the firms would have paid a fee for every trade by an investor who reached them via trading-places.net. Mr. Demarest says his response was, "That sounds interesting, but I can't do that. Common sense tells me that's not legal." Mr. Rea says he dropped the idea. Such an arrangement might be considered "fee splitting," or sharing commissions with an unregistered entity, which the Securities and Exchange Commission typically doesn't allow. Its rule isn't rigid, though. In 1996, it gave Charles Schwab Corp. the green light to pay a flat fee to Internet services like America Online Inc. for every trade generated by a customer who reached Schwab from the AOL site. The SEC said the fees had to be nominal and not tied to the size of trades, "to avoid the temptation to push customers in one manner or another" toward generating trades, says Sam Scott Miller, a New York securities lawyer. Trading-places.net also has arranged for its subscribers to get reduced commissions from CyBerBroker, a unit of CyBerCorp of Austin, Texas. But unlike MB, CyBerBroker doesn't get an online recommendation from the chat site. Securities experts note that if chat rooms were considered investment advisers, any financial arrangement with a brokerage firm would have to be disclosed.