Latin American Capital Markets

INTERNETTECHNOLOGY AND THE DEVELOPMENT OF SECURITIES MARKETS 83monthly statement of all the costs and losses the user has incurred, broken down ina manner enabling the customer to see what portion of these losses are due to transactioncosts (Bundesanstalt fur Finanzdienstleistungsaufsicht 2000).Some jurisdictions also impose "suitability" or "appropriateness" requirementsfor day traders, as well as limits on margin accounts. Suitability requirements may includerestricting day trading to persons who have prior knowledge of investments,have a high level of risk tolerance, or trade only for themselves. Under this approach,regulators may require that the day trading provider make a threshold determinationthat day trading is generally appropriate for the customer; basing its assessment on theexperience, objectives, and financial situation of the customer.Internet Discussion SitesA great deal of information and opinions about securities investment is availablethrough Internet discussion sites, chat rooms, mailing lists, and similar multi-user mechanismsthat enable people to send messages and information to one another IDSscan provide investors with a number of benefits. However; regulators should also recognizethat, because the Internet facilitates the rapid dissemination of information,IDSs could be a cheap and effective way for disseminating false or misleading informationabout securities and securities markets. In particular; an IDS could deliberatelydisseminate information to manipulate the price of a particular security. For example,fraudsters have used IDSs to manipulate the market in a particular stock or as partof a traditional pump and dump scheme. In some jurisdictions, an IDS facility mightqualify as an investment adviser under the broad definition of the law. 17 In these jurisdictions,IDSs could be subject to the requirements imposed on investment advisers.Generally, this would require IDSs to meet licensing requirements relating to qualifications,fitness, integrity, and experience; disclose any conflicts of interest; and provideadvice that is reasonable under the circumstances and tailored to the client's needs.Given the unusual nature of IDSs, regulators could, instead, exempt IDSs fromregulation as investment advisers, subject to certain disclosure, record keeping, and17 In certain jurisdictions, a person or entity is providing "financial product advice" if he, she, or it offers "a recommendationor a statement of opinion, or a report of either of those things, that (a) is intended to influence a personor persons in making a decision in relation to a particular financial product or class of financial products, or an interestin a particular financial product or class of financial products; or (b) could reasonably be regarded as being intendedto have such an influence." (Australian Corporation Act of 2001, § 766B [I]) An earlier version of Australia'scorporations law defined an "investment adviser" as someone who makes available to the public advice, reports, andanalysis about securities with system, repetition, and continuity (Australian Corporation Law, § 77[l]).Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub