NASD Tells Brokerages: Boost Online Warnings

The National Assn. of Securities Dealers, parent of the Nasdaq Stock Market, wants member brokerages to notify customers when they change online trading procedures because of fast-moving markets.

In two notices, NASD Regulation, which oversees all brokerages, said firms should tell customers that heavy trading can delay trades and that completed trades could be at significantly different prices than when orders were placed.

Firms should also explain differences between market and limit orders, and that there may be times when access to brokers’ Web sites may be unavailable, NASD said.

“These are just prudent guidelines that people should consider,” Thomas Gira, vice president of NASD Regulation, said in unveiling the recommendations at an online trading conference. “These are not mandated; they’re just good ideas. But firms that don’t [follow them] could put themselves at risk” of being sued by customers.

In the last month, Internet stocks have seen nearly unprecedented price swings as investors have scrambled for shares. That’s caused Web site crashes and trading delays, prompting brokers to change normal procedures by restricting and, at times, barring trading via the Internet of highly volatile stocks.

In its guidelines, NASD said firms should explain that they’re required to execute a market order fully and promptly without regard to price, while limit orders are executed only at a specified price or better, though the order may never be executed.

Firms should also tell customers that they could suffer losses during periods of volatility because they’re unable to access a Web site, NASD said.