Auditing disclosure risks of on‐line broker‐dealers

This paper discusses disclosures required of on‐line broker‐dealers, and recommends various internal measures that on‐line broker‐dealers should take to comply with securities trading regulations. On‐line trading is transforming the relationship between investors and broker‐dealers. While the services offered by on‐line broker‐dealers may be different from those offered by full‐service brokers, the differences are diminishing, and both activities are subject to the same rules and regulations. A GAO report of May 2000, revealed that many on‐line broker‐dealers did not comply with disclosure requirements, resulting in complaints by customers who lost money or financial opportunities. As the SEC is strengthening its examinations, this article is helpful to firms that offer trading on‐line to comply with disclosure requirements for investor protection. This article is especially helpful for internal auditors of these firms in implementing internal policy and procedures to ensure adequate disclosures and to mitigate risks of investors’ litigation.