Letter from House Commerce Committee Chairman Billy Tauzin (R-LA) to Acting SEC Chairman Laura Unger.
Re: SEC regulation of financial portals.
Date: June 12, 2001.
Source: House Commerce Committee.

June 12, 2001
The Honorable Laura Unger
Acting Chairman
United States Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549

Dear Acting Chairman Unger:

I am writing in reference to the Portals Roundtable the Securities and Exchange Commission (SEC) held on May 23, 2001. The SEC needs to be careful not to create the impression that it is considering regulation of Internet portals. Internet portals do not fall within the jurisdiction of the SEC. Absent direction from Congress, there is no basis for the SEC to extend regulation to Internet portals.

Under the Securities Exchange Act, a person is subject to broker-dealer regulation if that person is “engaged in the business of effecting transactions in securities for the account of others.” Portals are passive vehicles that aggregate and make investment related information available to their users. This provision of information is at the heart of the Internet revolution. It has served to enhance the ability of individuals to participate in financial markets with a sophistication that was unimaginable only a few years ago. It is no coincidence the rise in individual participation in the markets in the past decade parallels the growth and acceptance of the Internet.

Any attempt to sweep Internet portals into the scope of Federal securities regulation is unwarranted. Portals do not recommend specific securities. Nor do they take action involving brokerage accounts or securities transactions. Suitability obligations and other investor protection concerns simply do not arise.

In addition to financial content, portals often provide advertising space for financial services providers in the same manner they display advertising from non-financial services businesses. Many portals rely on advertising revenues because they provide financial information to their users for free.  Just as online brokers are subject to the same regulatory regime as traditional brokers, Internet based financial websites should be treated no differently than traditional counterparts in print, television, and radio media.

Not even a generous reading of the language “effecting transactions in securities” would sweep in the activities of financial portals. The SEC has had a regrettable tradition of attempting to regulate in areas over which it lacked jurisdiction. Internet portals should not become part of this tradition.


W.J. “Billy” Tauzin