United States Securities and Exchange Commission Portals Roundtable: Relationships Between Broker-Dealers and Internet Web Sites

Securities and Exchange Commission
Room 1C30
450 Fifth Street, N.W.
Washington, D.C. 20549

Wednesday, May 23, 2001

Participants

Panel I: What's Happening in the World of Financial Portals and Internet Marketing?

Moderators: Laura S. Unger, Acting Chairman,
U.S. Securities and Exchange Commission;
Isaac C. Hunt, Jr., U.S. Securities and Exchange Commission

Panelists:

William Bishop, CBS MarketWatch.com, Inc.
Nadine Grant, UBS PaineWebber Inc.
Craig Gibson/Katherine Ennis Wychulis, America Online, Inc.
Julio Gomez, Gomez, Inc.
Lawrence T. Greenberg, The Motley Fool, Inc.
Donna L. Hoffman, Vanderbilt University
R. Clark Hooper, NASD Regulation, Inc.
Phillip K. Lynch, Reuters America, Inc.
John Scheibel, Yahoo! Inc.
Gregg Sharenow, Deutsche Bank/National Discount Brokers
Fran Smallson, Intuit, Inc.

Panel II: Where Should We Draw the Regulatory Line?

Moderators: Laura S. Unger, Acting Chairman,
U.S. Securities and Exchange Commission;
Isaac C. Hunt, Jr., U.S. Securities and Exchange Commission

Panelists:

Brandon Becker, Cutler & Pickering
W. Hardy Callcott, Charles Schwab & Co., Inc.
Robert L. D. Colby, U.S. Securities and Exchange Commission
Michael Hogan, CSFBdirect Inc.
Jeffrey S. Holik, NASD Regulation, Inc.
Ellen L. S. Koplow, Ameritrade Holding Corporation
David Lipton, The Catholic University of America
Kevin J. Moynihan, Merrill Lynch & Co., Inc.
Andre E. Owens, Schiff Hardin & Waite
John Polanin, Jr., USB Warburg LLC
Steven W. Stone, Morgan, Lewis & Bockius, LLP
Dr. Harold P. Wittman, American Association of Individual Investors

Proceedings

Panel 1

Acting Chairman Unger: Welcome, everybody. I just thought you would appreciate the female touch of the flowers. Actually they were left over from a party, so don't worry. It wasn't really the government's expense for the flowers, but good afternoon, and welcome to the SEC's Portals Roundtable.

I want to thank all of you for being here today and for my colleague's participation. I am particularly grateful to the panelists for making today's roundtable possible.

The event is being webcast live over the SEC's website, so welcome to all of you out there in cyberspace.

Commissioner Carey regrets not being able to be here but promises he will listen at least once to an entire replay of today's events.

I will say that because this roundtable is being webcast, if you could speak directly into the microphone and avoid speaking or having more than one person speak simultaneously, that would be very helpful to the people listening who aren't in the room.

As you all know, online trading has increased significantly over the last several years and a growing number of investors now manage their finances through online accounts and Internet portals that act as gateways to broker- dealers.

The portal issue, as many of you in the room probably know, has been of great interest to me for some time. My November 1999 Online Brokerage Report highlighted this issue and recommended that the Commission consider various types of compensation arrangements between broker- dealers and unregistered entities that would allow these entities to maximize the advantages and efficiencies of technology and Internet advertising models while still taking investor protection concerns into account.

Portals have evolved considerably since the roundtables in 1999 and particularly in the last year. The purpose of today's roundtable is to better inform the Commission on the types and extent of the services available to investors on the Internet.

We are also interested in learning more about the types of marketing and advertising relationships that exist in the Internet context both within and outside the financial services area.

This will be the focus of our discussion on the first panel, and I want to emphasize that our discussion, particularly of the various marketing arrangements, is very general and abstract and isn't meant to put anyone on the spot in terms of their own particular arrangements. We are not intending to elicit any proprietary or sensitive information from any of the panelists.

The focus of the second panel will be on the legal issues. Enough from me. Who I really want to hear from today are the panelists, and what I would like to do, after giving my colleague an opportunity to make a few comments, is to go around the room and just have each of the panelists introduce themselves and maybe make two to three minutes of comments and then we will turn the time, the mike, and the video presentation over to Professor Hoffman, who will give us an overview of online marketing and online advertising, and she will review the types of advertising and some of the key pricing models.

So with that, Commissioner Hunt.

Commissioner Hunt: Thank you, Madam Chair.

Good afternoon, ladies and gentlemen. It is a pleasure to be here. I have very little to say. I want to hear what you have to say. These are growing and important issues and will be critical issues for the Commission to understand tomorrow and going forward from then, so I look forward to hearing what you have to say about where you think we are now, what are the regulatory implications for the Commission, and where do we expect the whole Internet and portal development area to go in the future. So thank you and welcome. Thank you.

Acting Chairman Unger: Thank you, Commissioner Hunt. Nadine, can we start with you?

Ms. Genet: Sure.

Acting Chairman Unger: You have to turn your — this is not the latest in technology up here.

Ms. Genet: Good afternoon. I am Nadine Genet. I am the director of marketing at UBS PaineWebber, and marketing for us includes online services as well as offline services.

Our point of view in terms of marketing on the Internet is really focused on how it supports our business model, which is the financial advisor and client relationship, so we really believe it is a supportive relationship.

We have everything geared toward that financial advisor relationship, so therefore whether it is on our public website or on our online services, the role of the advisor and all of the information and all the services are done to support that relationship.

That is how we market it and that is how we use it in terms of our business model, so it is intrinsically linked to how we view our clients and their needs based on the information and the services that they want.

Acting Chairman Unger: Thank you, Nadine. Mr. Bishop — William or Bill, I am not sure.

Mr. Bishop: Bill Bishop from CBS MarketWatch.

First, I would like to thank the Commission for giving MarketWatch the opportunity to participate in this very important discussion today.

CBS MarketWatch is at its heart a financial media company along the lines, albeit a lot smaller, of Dow Jones or Reuters. We employ about 100 journalists to deliver news on the markets in real time. We strive to be a source of unbiased information, and we in no way recommend securities to our readers or perform any of the functions of a broker- dealer.

I would just like to make three brief points.

To the topic at hand, CBS MarketWatch has entered into a handful of pay-for-performance compensation arrangements with some of the online brokers. We have received compensation for new account generation but not for orders placed.

We don't like these deals from a business perspective but there's tremendous, and I would say increasing, pressure from the brokers to establish these types of arrangements.

Second, as part of this discussion, I think it is very important that the Commission carefully defines what exactly a financial portal is. Not all financial websites are portals and at CBS MarketWatch we consider ourselves as much an online newspaper as a portal.

We do not offer things like account aggregation or seamless integration to trading screens on online brokerage sites as some other sites may do.

If you look at us from the perspective of an online newspaper and decide more regulation is needed, I would have to ask why then would those regulations not be extended to also include traditional publications like The Wall Street Journal, Barron's, The Financial Times, or The New York Times.

I think doing so would obviously raise some important First Amendment issues.

The third point is that with over 8 million readers each month, CBS MarketWatch plays a very important role in leveling the playing field for individual investors by providing them access to information similar in quality and quantity to what Wall Street professionals have enjoyed for decades.

Regulation as a broker-dealer would hamper our ability to inform and educate the millions of individual investors in this country, and we believe it would do them a significant disservice. Thank you.

Acting Chairman Unger: Thank you very much. Clark.

Ms. Hooper: Thank you. I am Clark Hooper, and I am Executive Vice President for NASD Regulation in the strategic programs arena.

That encompasses advertising regulation. In that venue we regulate all of the communications with the public that are made by NASD member firms.

We began confronting many of the concerns that were so well articulated in Commissioner Unger's report several years ago, and this is a trend that has not diminished in any respect, especially as more and more investors have become interested in doing online investing.

There is absolutely no doubt in our minds that online broker-dealers face a greater number of rules and regulations with respect to the content of their websites than do other financial website operators.

As a self-regulatory organization, the primary concern of NASD Regulation is the protection of investors, including protection from fraudulent or misleading communications that are made through the Internet.

We are equally concerned that parties that are offering the same products and services compete on a level playing field.

I will later on go into a brief description of some of the restrictions that NASD member firms are subject to and the types of regulations that their Internet websites must comply with, and so I won't go into that now, but I think you will understand why we are particularly concerned that some of the areas that are out there, so to speak, are treated differently and we will be very interested in hearing the discussions that go on today in terms of what this group feels is probably the proper way to ensure the protection of investors while allowing people the opportunity to express themselves via Internet or any other medium. Thank you.

Acting Chairman Unger: Thank you, Clark. Phillip?

Mr. Lynch: Hi. My name is Phil Lynch. I am the co-CEO of Reuters America.

First of all, I would like to also say thank you for having the opportunity to come here today. It is very important to us — obviously the Internet has allowed us, has provided a medium for us to extend the information, news, financial services that we have provided for the institutional customers for — we're celebrating our 150th anniversary this year — but it has enabled us to provide that to a whole new group of users — consumers.

Our concern here today is that we balance the very good distribution that the Internet has provided for tools and information that had previously only been available to financial professionals while at the same time affording them the type of protection that they deserve.

So what seems clear to us is that over the last few years it's been a very good thing for investors to be able to access tools and information that only a few years ago were only available to professionals who paid thousands upon thousands of dollars per month to get similar types of service.

But unfortunately, somebody has to pay for that, and what seems to be becoming abundantly clear is that that business model is not yet, it's not clear as to how that's going to evolve.

There are many different business models that have been tried, from subscription to advertising, that have not yet seemed to have caught hold and many websites have gone out of business because their business models were not supported.

So it seems to come down to the individual investors, who also are not willing to pay for these services but certainly do rely on them to manage their finances.

So the question is who is going to pay for them and how, and we just want to make sure that in this time before the business model, the successful business models are clarified, that we don't cut off the options that are available to make these services available to consumers by putting, you know, regulation in place that might make it uneconomical for companies like us to provide this information to consumers, which we think is a very valuable service to them.

Until things are clarified as to the successful business models that will carry forward and continue to encourage companies like us to provide more and more tools and information to consumers, we would ask that we have some flexibility while at the same time balancing against the needs for consumer protection.

That is Reuters' position on this.

Acting Chairman Unger: Thank you, Phillip. John.

Mr. Scheibel: I am John Scheibel, the Washington Counsel and Director of Government Relations for Yahoo!.

Madam Chairman, Commissioner Hunt, Yahoo! appreciates the opportunity to appear before you today on this most important topic. We are fully committed to the protection of Internet consumers, and the investment area is no exception. Yahoo! is a preeminent Internet communications, commerce and media company offering a comprehensive, branded network of services to more than 192 million individuals worldwide each month. We are an aggregator and disseminator of information and advertising.

We neither perform the functions of a broker-dealer nor do we hold ourselves out as a broker-dealer to our users. Those who come to Yahoo! understand this and recognize that if they seek to trade in securities they must do so through a registered broker-dealer.

We therefore respectfully submit, Madam Chairman, that Internet portals such as Yahoo! should not be regulated as broker-dealers.

As an aggregator of information Yahoo!'s objective is to facilitate ease of access to the incredible resources available on the Internet. We do this in a broad array of categories and subcategories from arts and humanities to business and economy, from entertainment to health, from news and media to recreation and sports.

While we have branched out considerably since the time that our founders began the directory in 1994, our commitment to making information available has never wavered. That is what we do. The quick, easy and personally tailored availability of information is good for our users as consumers, as citizens, as patients, as parents, as students — and in any other capacity in which there is a need for such material.

In addition to our directory, as a broad-based Internet portal we have a wide variety of offerings that number close to 90 including Yahoo! Sports, Yahoo! News, Yahoo! Maps, chatrooms and clubs, movies and music, e-mail and instant messaging and dozens more.

We also run a large amount of paid advertising, the content of which is the responsibility of our advertisers.

Yahoo! Finance represents one of approximately 90 properties on Yahoo!. Yahoo! Finance makes available an extensive amount of information, all provided by third parties. It includes real time stock quotes provided by the markets, in-depth information on individual stocks, news on international, financial and economic developments, and news and editorial comments from respected sources such as Business Week, Motley Fool, the Industry Standard, the Street.com, and Forbes.

Since we share the Commission's desire to protect investors, it is important to make clear not only what we do but also what we don't do.

We do not open, maintain, administer, or close investment accounts. We are not involved with the solicitation of trades or the resolution of problems or disputes involving brokerage accounts or related securities transactions.

We do not hold ourselves out as a broker, as taking orders for securities, as executing trades or as assisting in settling securities transactions, nor do we in fact perform any of these functions.

We do not answer questions or engage in negotiations involving brokerage accounts or related securities transactions. We do not make recommendations regarding potential investments, nor do we make suitability determinations for any investor.

A significant part of Yahoo!'s income derives from advertising that could be found all over the site, and that includes Yahoo! Finance.

On Yahoo! Finance as well as other parts of the site we carry the advertising of broker-dealers. Payment for the advertising of broker-dealers is based on the number of page views, the number of click-throughs, the number of completed applications to open a brokerage account, or some combination thereof.

We believe that the extensive financial and economic information available on Yahoo! Finance serves the interests of consumers. It is our sincere desire to continue to provide this quality and quantity of material.

As has been widely discussed, the Internet economy is in transition. It is not absolutely clear exactly what course this new economy will take. If you agree that there is significant value to consumers in the information and services that we currently provide, we respectfully urge you to exercise caution in restricting the terms under which we can financially support the provision of such information and services.

It is extremely important that we be allowed to avail ourselves of the economic efficiencies that the Internet brings to our relationships with our advertisers. We believe that allowing for flexibility in these relationships is consistent with protecting the interests of consumers.

We do not believe that it would be appropriate to regulate Internet portals such as Yahoo! as broker-dealers, nor do we believe that it would serve the best interest of investors.

Acting Chairman Unger: Thank you, John. Craig.

Mr. Gibson: Good morning. My name is Craig Gibson, with America Online, and I am Vice President of the Personal Finance Channel. We appreciate the opportunity to talk to the Commission. We believe we have a common goal with the SEC similar to our colleagues at Yahoo!

We are an Internet portal that allows over 29 million members to be able to have easy access to a number of different news items and tools, and I will briefly discuss a few of those today, but we also feel that obtaining easy access to that information does require a business model that does require us to look at a number of different viewpoints and we will talk about a few of those today as well.

A hallmark of the America Online service has been the ease of use and the convenience of America Online, and this certainly extends to the personal finance area.

AOL seeks to make financial information and financial tools easily accessible to the members and to be able to access those channels with the same ease that they access our other 20 channels that provide information to various different locations and interests for our members.

Some of the tools that AOL makes accessible to its subscribers are certainly business and stock news, portfolio tracking, analysts' reports, stock screeners, financial calculators, and a number of other tools that we feel are important for our members to be able to have access to in order to make intelligent decisions as they decide where and how to utilize their portfolio income.

While AOL seeks to make quality financial information and tools available, AOL does not now or plan in the future to undertake broker functions. We do not plan to enter the environment of opening or maintaining or closing accounts. We do not plan or now currently provide any customer service for broker accounts, nor do we accept or route any orders or select a broker or execute a trade.

Most importantly, we do not accept customer funds or securities in connection with any of the broker orders that occur on our site.

We certainly are very aware and conscious of the broker-dealer rules and I think we have worked well in the past with the SEC ensuring that we are not in violation and we take a very aggressive, conservative platform in working transactions with our various content providers that we aggregate for on the financial services site.

AOL is trying to provide content providers design and supply in the content of ads and there are situations where we are providing opportunities for individual content providers or for broker relationships to provide their services on our site.

We welcome the opportunity to work with the SEC to determine the best way for our members to be able to view that without violating any of the rules that are out there.

Again we thank the SEC for allowing us here. Thank you.

Acting Chairman Unger: Thank you, Craig. Julio?

Mr. Gomez: Thank you, Chairman Unger. My name is Julio Gomez. It's my pleasure to be here. I'm the CEO of Gomez, Inc., formerly known as Gomez Advisors.

Our company is an Internet quality measurement firm. We provide research, data and tools to business designed — to help them improve the quality of their Internet offering.

We focus on e-commerce and, within that, in financial services. In addition, we operate the Gomez.com website, which provides a lot of the data that we collect in our research to consumers to assist them in the selection of a service provider over the Internet.

A large amount of the traffic on our site is focused on financial services and on the brokerage industry in particular.

And we have a business model for that site, which is exclusively a pay-for-performance business model.

So today I come to you wearing two hats. One is as an industry analyst, and additionally as a firm that has engaged in pay-for-performance with the brokerage industry.

Because of my experience — I was first a Series 7 registered representative more than 15 years ago. And I had a career in financial services, which ended with my selling my business to the partners in the company which I acquired before going to be an Internet analyst.

So not only am I wearing two hats, but I guess I'm wearing two shirts because I'm not only an Internet person but also a securities professional historically.

Actually, that's not the only way I'm overdressed. I'm wearing a wool blazer. Obviously I'm the only one from New England here. It was 50 degrees when I left this morning.

And with these lights — it does have an effect, but not so much that I'm losing interest. I'm actually very interested in hearing the discussion today because to me it seems as though there is a fairly simple concept of companies trying to access the value of the media through some form.

And pay-for-performance and all of the mechanisms that are being created right now are really mechanisms that are being created because they can be created because of the Internet — some accountability in terms of the performance of the media.

And I think we will all agree that most of the media exists because of advertisers and because of their willingness to pay in order to acquire customers.

The reason that we get to watch "The West Wing" and "CBS News with Dan Rather" is not because Congress has decided that we should be better informed citizenry, but because General Motors thinks that they can sell cars to people who want to watch those shows.

And so what you see evolving over the Internet right now is taking it from black and white to more of a spectrum in terms of the payment mechanisms for that media.

And so there's actually quite a lot of creativity in terms of how media gets paid. And I'm sympathetic to the gentleman from CBS MarketWatch, who as a businessman doesn't like this because it, in fact, puts the risk on media entities to deliver results then.

You know, who wants to do that? But I think that what you see driving a lot of the brokers to push for pay- for-performance is that they want to pay based on the results that the media provides.

So I'm looking forward to seeing how that affects the discussions here today. Because I don't think anyone in media wants to be a regulated broker-dealer.

Having been there I can tell you all, you don't want to be a regulated broker-dealer at this point. And many of you will drop your programs as fast as you can say FOCUS Report.

(Laughter.)

Mr. Gomez: So I look forward to this meeting and I thank the Commission for its invitation.

Acting Chairman Unger: Thank you, I think.

(Laughter.)

Acting Chairman Unger: Donna, did you want to make a brief introductory comment? Or would you rather wait for the presentation?

Ms. Hoffman: Thank you, Madam Chairman. I'm very pleased to be here today. Because I'm going to speak in a few minutes, I'll just introduce myself now.

I'm Donna Hoffman, professor of management at Vanderbilt University. And I am the co-founder and co-director of eLab, which we founded in 1994 to study the Internet opportunity.

And in 1995 my colleagues and I launched the first formal program for MBAs to study electronic commerce. We graduated a single student. That was in 1995. I'm very pleased to report now that we've grown to become one of the most popular programs in the country.

And about half of our classes now — our MBA classes — elect to emphasize electronic commerce.

For the past seven years my research has focused on three main areas. I study Internet marketing strategy and web-based business models. We study online consumer behavior, particularly the creation of compelling online customer experiences and we are also focused on the policy implications of commercializing the Internet, with special attention to privacy and consumer trust issues.

I am very pleased to be here today at this important roundtable and I am looking forward to talking to you in a few minutes about some of the more general trends in Internet advertising.

Acting Chairman Unger: Thank you, Donna. Fran?

Ms. Smallson: Hello, I'm Fran Smallson. I'm assistant general counsel and director of Intuit. And I represent, among others, the computer finance division.

I think it may be useful to get a little bit at Intuit's history to understand the context that we find ourselves in 2001.

Intuit started in the early '80s. And their mission statement — which actually has not changed in the almost 20 years of Intuit's history — is to revolutionize the way people do their personal finance.

It started with our checkbook management system, and it has evolved over the years to include all sorts of different ways that people can manage their personal finances.

It evolved to include the portfolio and the product evolved with various tools to manage your finances, whether it be your insurance, your mortgage, your retirement, et cetera.

What we found in 1995 was that the Internet happened and we wanted to take Quicken and bring it to the Internet.

And we found that we created our first site in 1995 and all of a sudden we found that 80 percent of the people that were coming to our site were not Quicken users. They were other users — they were consumers.

And those consumers were looking for all sorts of information in order to manage their personal finances. And so our site grew.

It grew to include stock quotes and news. It grew to include retirement planners and insurance information. It grew to include banking and aggregation.

And it grew to include many, many tools and information so that the consumer could better manage their personal finance.

What we have found in recent years is that the consumer has demanded these things from Intuit. And we've tried to provide it on the Internet for free.

We've also tried to do integration with desktop software. And in trying to meet those consumer demands we have given them types of information and believe that that's what in the future — and now — the consumers need and want in order to — in this context manage their investments or manage the kinds of financial matters they need to.

We at Intuit believe in consumer protection. We believe that we need to look at what best serves the consumer, give them objective information and tools in order for them to do that.

We also see in recent years that there's been — and actually throughout Intuit's history — there's been a need for a flexible business model.

That's where I agree with several of the panelists here, that we need to have that flexibility because as there is this evolution, various business models have either — let's say not brought the kind of returns on investment to both parties — actually, I would disagree with one of the panelists when he said that we don't like the e-business arrangements.

The bottom line is, is that unless a partnership — we believe the only way a partnership is going to work is with a win-win. And you have to have return on investment or else the partners are just not going to come.

And on the Internet partnerships are a major source of the way the Internet has grown.

So we at Intuit believe that we need flexibility when we look at the business model in the future, we need to provide the return on investment not only for Intuit but for those partners — those partners being broker-dealers in certain contexts, financial institutions, ISPs, whoever we're dealing with. The new model in this era is going to be pay- for-performance.

So the issue is how can we balance this new model that is occurring on the Internet and have the pay-for- performance and also protect consumers.

We at Intuit have not personally seen where consumer protection has not occurred. We have not seen the consumer abuses occurring.

If our consumers, for instance, have issues with Intuit, we hear about it and we address it. That has been our model.

And so we would urge the Commission today to look at the flexible arrangements that we could have with broker- dealers, as well as other entities who we are doing business with in order to make sure that both parties have the return on investment and at the same time, have consumer protection. Thank you.

Acting Chairman Unger: Thank you very much. Lawrence?

Mr. Greenberg: Thank you, I'm Lawrence Greenberg. I'm the chief legal officer at the Motley Fool. And on behalf of the Motley Fool, I'm very grateful and honored to have the opportunity to be here today.

The Motley Fool is like CBS Marketwatch in particular, a media company. We're dedicated to educating, informing and amusing individuals. And to help them make financial decisions for themselves.

We publish content in a variety of media starting with Fool.com, but branching out into radio, newspapers, television and magazines, as well.

It's kind of hard for me as the Motley Fool to say that we don't feel special here because we like to think that we are.

But in fact, our concerns very much mirror those of CBS Marketwatch. We're very excited about the ability of the Internet as a medium for people to learn personal finance and to gain and share information and to execute transactions more easily and cheaply.

We think that we're in the early days of harnessing these technologies. And we recognize that just as it's very hard to come up with a business model that works on the Internet, it may be equally as hard to come up with regulations that work and don't harden into unproductive avenues, future developments of the Internet and business.

As a message-oriented company, as an advocate we feel for individual investors as a whole, we care a lot about their protection.

And as I said, we are looking forward to having the opportunity to participate in this discussion and further discussions revolving around this issue.

Acting Chairman Unger: Thank you, Lawrence. Gregg?

Mr. Sharenow: Hi, my name is Gregg Sharenow. I'm a managing director with National Discount Brokers.

First, I want to thank the Commission for inviting me to talk today.

Our business started out as a traditional discount brokerage and in 1995 we went online. And soon after that, we discovered that we can do a few things. We can be both a brokerage and we can be a portal. We can do both.

So we went out and purchased a lot of content from a lot of different players and we put it on our site. And customers come to us and they do a lot of their research and they do their trading and investing.

But we obviously recognized that there was a tremendous customer base that was using other financial portals.

And so we went out and started advertising on those portals. We started the basic model of CPM advertising. But as time went on, CPM advertising lost its luster.

And we saw that our returns were just not there.

And we, in fact, pushed the portals — who were pushing back pretty hard at that time — to go to a pay-for-performance model.

And currently those models really include paying for orders, not executed orders, and paying for applications, not necessarily a bona fide customer account.

So those are sort of the conditions under which we've been working with the portals.

We've got other deals with banks, credit unions, insurance companies and others — and not-for-profit organizations which actually operate under different rules.

And what we would like to do is we would like to be able to pay portals — or pay other types of institutions according to a model that works for us — on an ROI basis.

So what we would like to do is we would like to see a more consistent application of the regulations to all the entities to whom we make payments for performance. Thank you.

Acting Chairman Unger: Thank you very much, Gregg. I'm glad that you're all here to help us in terms of identifying some of the key issues that we're facing and some of them are the same as the issues that you are facing.

What I'm hearing is that there is a common theme from all the participants that — one is that there are new sources of information that people are eager to supply to investors.

Two is that technology has truly made this feasible and changed the playing field both from a competitive perspective and a consumer-product oriented perspective.

And that we probably share the goals of how we can allow you to move forward and develop new business models and new products, while at the same time ensuring consumer protection and investor protection.

So with that I'll turn the — I don't know what it is — conference, the video presentation over to Donna to give a context for our discussions moving forward on these issues.

Ms. Hoffman: Thank you. I've prepared something very brief. For people who are interested, there's a copy available both on the SEC web site and also available at the URL that's posted on the bottom of this page here, if you wanted to go ahead and grab a copy for yourself.

I'm just going to take about 10 or 15 minutes to hit the highlights of some of the key issues in online advertising in general, and I'm not going to talk specifically about the financial services area, but I think it's useful from just a background discussion, to set the stage for the specific discussion to follow, to talk about some of these issues.

So I wanted to run through some of the most common types of marketing arrangements, some of which you've already gotten a flavor for from some of the panelists, and talk a little bit about the shift that's occurred, as we've moved from straight banner ads and buttons to more sophisticated marketing types of arrangements, and then talk a little bit about some of the compensation and pricing models and some of the shifts that we've seen take place there from, as I think Gregg mentioned, from CPMs to, as many of the panelists mentioned, pay-for-performance.

So I wanted to start first with just a few numbers, and then move into some of that discussion, and then leave with a couple of policy issues before turning it back over to Laura.

Just in terms of a few numbers here, I think you can see very clearly the web is huge — I don't think this is a surprise to anyone — and growing very rapidly.

Estimates are that there are expected to be about 10 million websites globally by the end of this year. About 60 percent of that is publicly accessible, and about 70 percent of that, or somewhere around five billion pages, is thought to be commercial in one level or another.

Of course, that clearly doesn't mean that all of those are pages that are accepting advertising. Depending on whose estimates you look at, somewhere between 6,000 and about 19,000 pages of that is probably out there looking for advertising revenues at some point in time.

Now, in terms of just the size of the market, last year web ad spending topped about $7 billion, and that represents only about 3 percent of total ad spending in the United States.

Clearly, the landscape is still dominated by the traditional players, including papers, broadcast TV, direct mail, but web spending is growing very rapidly, while these other areas are relatively stagnant, and so I think that's very interesting.

On the other hand, 2001, as many of you know, has been a very tough year, due to the dotcom flameout and changes in trends, so those triple-digit growth rates are pretty much over.

On the other hand, online advertising is still expected to be very healthy and is probably going to grow about 40 percent on average annually, at least through 2005, and there are some long-range changes expected.

The traditional media that are thought most likely to be hit the hardest are going to be those that are accepting classifieds and then newspapers and direct mail.

A couple of other numbers, just in terms of some of the categories.

If you want to look at the top websites that are capturing nearly three-quarters of all online ad dollars, those are the search sites and the portals followed by business and finance, classified, technology, and then news and information.

If you want to look at the flip side of that and take a look at the industries that are accounting for most of that spending, you can see that there are five industries at the top that account for about 83 percent of that, starting with consumer, which is pretty much retail, mail order, autos, music, home, pretty much everything but travel, which is broken out as a separate category and is very small, so I don't list it here, followed by computing and then financial services and so on.

Now, getting to some of the issues that I wanted to review and spend a few minutes on before I turn it back for our panel discussion, if you take a look at the breakdown in the types of online marketing spending, you can see that there's a lot of activity going on out there, but that banners and buttons and then sponsorships account for over three-quarters of all online advertising spending.

Now, a couple of things I think are interesting to point out about this chart that I prepared for you.

First, that these numbers here in no way reflect effectiveness, and so even though quite a bit of spending is certainly going into banners, that certainly doesn't mean that they are the most effective form of online advertising, and I think that's important to point out.

Another one I want to draw your attention to is, if you take a look at intersticials and rich media and e-mail marketing, you can see that those certainly get a lot of media attention, but really account for very small portions of spending, at least at this time.

I just wanted to give you a few examples of some of these, and of course everybody is familiar with banner ads.

What I've prepared in this chart for you here — and again, banners account for about 52 percent of online marketing spending, and these are the top five banner ads that were viewed in the United States a couple of weeks ago.

I think as these point out, it's easy to see why banners get a lot of criticism.

Now, another one here, just to show you, is intersticials, if you're not familiar with these.

These only account for about 3 percent of spending, but I think they're particularly interesting because they're particularly annoying. They are very slow to load and, particularly from the consumer side, they absolutely cannot be avoided, because these are what happens when you click on something else, waiting for it to happen, and they become what is called part of the content loading process.

In this example that I've showed here, if I go to Excite.com and I want to play a game, as I'm clicking to wait for the game to load, I am treated here to this intersticial from eBay.

And then I think it's also interesting to recognize their close cousin, what are called the supersticials. Those are the nightmares online that can be up to 100K in size and include full animation, sound and graphics that you wait for to load.

I can tell you from our leads on the research side, consumers really hate these things.

Now, in terms of sponsor content, again, this accounts for more than one-quarter of online ad spending, and this is a very interesting and growing area in the online marketing arena.

Sponsorship can take on many different forms. I think generally, the way to think about it is it's advertiser-supported links on a publisher's site, and some of the more common forms we tend to see are things like direct links to a sponsor's site, what are called micro-sites and co-branded pages, things called featured sponsorship and editorial sponsorship.

I think sometimes sponsorships can actually be banner ads, except one of the key ways to distinguish a straight banner from a sponsorship relationship between the advertiser or the sponsor and the publisher is that the sponsorships tend to involve more extensive integration of the sponsor's brand with the publisher's content, and I think that becomes very important, particularly from a policy perspective.

They can be exclusive. The prices can vary. There can be sponsored sections, sponsored pages, sponsored key words. These really can become very creative.

One example here, this is what we would call a co-branded arrangement.

For example, I could go onto the ESPN.com website, and a while ago, I could have followed the contest link to this page right here, which would have taken me to a battle of the fans competition.

Then I could have clicked on the sponsored link. That's what I've circled here for you. That's the Tostitos up there in the right.

Then I would be taken to another site, in this case paid for by the sponsor, who, in this case, is Tostitos.

Now, another example here, which I think is also particularly interesting, of sponsorship, is what Google does, and here they offer a number of opportunities for advertising with key words and key word phrasing, and in categories.

So in this case, a text-based ad appears, and I've circled these in red here. You can see them.

I've put in a search for new cars in the search box at Google, and then a text-based ad has appeared on this Google results page, because the key word has been purchased and is included in the search.

If you'll notice here, I think this is an interesting development. The ad appears adjacent to, but is clearly distinguished from, the results listing, because it's highlighted, and as I indicated by the arrow, it clearly says that it's a sponsored link.

And there are variations on this theme. The boxes on the right-hand side — Google refers to these as self- service ad words — and the pricing for these varies, depending on the number of impressions and also where in the placement they would go.

Another example here is — this is an example of a featured sponsorship, and this one involves what is called a strategic partner, so in this case, if I go to the iVillage.com site, there's a set of links on the — running on the right side, which lists all their featured sponsors, and those are their strategic partners.

If I were to click on one of those, in this case Match.com, I then would be taken to a website which, in this case, is hosted by that strategic partner, Match.com.

Another example of a featured sponsor relationship is shown here on Baby Center's site, and here you can see that this one is hosted on the publisher's own server, so it's on the Baby Center site, not on the Beechnut site.

Notice here that, in this case, the editorial department of Baby Center has researched and written a special package on solid foods, and then it is sponsored by Beechnut.

Closely related to these kinds of arrangements that we see are editorial sponsorships. Now, under this particular revenue model, the company would then sponsor existing sections or pages of a site, and these sorts of techniques have been pioneered by the portals.

Now, another area that's particularly interesting, and is really rising in popularity, is affiliate programs and affiliate marketing.

These come under referrals in terms of spending, and they only account for about less than 5 percent of spending, so I think one of the things to notice about them that's particularly interesting is they are extremely inexpensive to implement, but they can be very effective in terms of customer acquisition.

The basic idea is that a publisher would put a link on his or her site to an advertiser, and then when the consumer would click through to that particular advertiser and then purchase or do something that met a strategic objective, the publisher would get a cut of that.

The payment is either by flat fee or commission.

Most commissions tend to run in the 8 to 12 percent range, although some might go as high as 25 percent.

They're very popular. One very popular affiliate network, called Commission Junction, alone has 1,500 merchants and 350,000 affiliates, and third parties have now emerged in a very sophisticated marketing area to help manage the enormous demand.

So this example that I have here is from GoTo.com. They have a program called Search in a Box, and you can, if you have a website, so you're the publisher, you can add a GoTo.com search tool to your site. And then you get paid every time one of the visitors to your site goes ahead and uses that search engine, and you get 2 cents a click every time that happens.

Another example of an affiliate program is one that eBay just recently launched with Commission Junction, and in this case, every time you would click through from the publisher's site to the eBay site, and go ahead and actually register at eBay, eBay would pay you $4.

These are some very interesting emerging examples of pay-for-performance based advertising.

Now, just to put this sort of back to a framework for talking about some of the models here, originally, you know, a long time ago when things started, so that was like circa '94, circa '95, flat fees were the mode.

That quickly evolved into what we call CPMs or cost-per-thousand impression based advertising.

Just in terms of numbers, the average CPM, just back in September of last year, was about $28, which means that a web site will charge an advertiser $28.28 to make an impression on 1,000 web browsers — that's how it's calculated, and it comes from traditional advertising — or about 2.8 cents to expose a single consumer to a banner.

So it sounds cheap, but of course, when you start to get into some of the effectiveness issues, it turns out not to be very cheap at all.

Now, CPMs tend to range from a low of about $1 for a low-traffic, very untargeted site, to $100 or even more for extremely targeted and highly desirable demographics on a very high-traffic site.

I think one of the things important to point out, though, is that what I've given you are official CPMs. The actual CPMs, after negotiation, are actually much, much lower than the number I'm telling you here, because there is routine discounting and bartering.

The average is probably closer to $10 or $20 CPMs. Some industry analysts have suggested that the normal discounts are probably 70-to-85-percent off rate cards, and if you monitor the discussion on Internet online advertising groups, it looks there like most websites don't really get much more than $5 to $10 a CPM, and so I think it's important to talk about that.

Now, what emerged from that model was what are called the click-throughs, or the click-through rates.

Currently, those rates are hovering at about 0.3 percent. In 1997, the click rates, on average, were about 2 to 3 percent. That meant that was the number of people who would actually be exposed to a banner and then click through to the page behind it.

A couple years ago, they were about 1.35 percent, and now, as you can see, they've really plummeted.

Now, in terms of some of the trends, before I talk about some of the emerging models, I think it's very important to note now that there is now significant unsold inventory in the online advertising industry.

Leftover ad space is now sold at a serious discount. Obviously, this is putting downward pressure on — pricing pressure on CPMs. The number of pages available far outstrips the demand for online ads.

There are an awful lot of websites chasing advertising revenues. The number of those sites is growing every day.

This glut, unfortunately, has led to the rise of third-party networks who have now emerged to sell the space. That's putting downward pressure on some of the profits, because they're taking a cut for those placement fees.

If you add to that some of the consumer behavior issues, for example, half of all consumers who are out there online have never clicked on a banner ad and don't ever plan to.

To many other people who did bother to click, there are just too many ads out there. The novelty has worn off, and people just simply aren't interested.

Some other trends that I think are interesting, against this backdrop, then — and I think you've seen this in some of the comments of the panelists — are advertisers really want to start holding the new medium accountable, and online managers now are increasingly dissatisfied with banner ads and flat fee portal deals because there's this sense of, "I need a way to measure ROI."

So one of the things we're finding is that firms are increasingly looking for ways, first to integrate offline advertising with online — that they don't occur in separate spaces.

An interesting trend from the traditional area, which is also, I think, motivating a lot of the trends we're seeing in the online space, is that major advertisers with traditional media are now increasingly compensating their agencies based on results, so this is another form of pay- for-performance, rather than based on commissions.

The traditional way, which has been in effect for over 100 years in this country, has been to pay on 15 percent of billings, but now more than two-thirds of major ad agencies in the United States have labor-based compensation agreements, and these are now based on pay-for-performance or incentives which are linked to sales goals, and these are clearly having an impact on some of the things that we're seeing on the Internet space, as well.

I think one of the things that has really motivated this at its heart is this idea. There's a very well-known quote in advertising, which goes, "I know that half the money I spend on advertising is wasted, but I can never find out which half."

The idea is that the Internet now is suddenly going to let us figure out which half, and so I think that's really been behind a lot of this trend toward accountability, because the Internet actually is an accountable medium.

So that, and some of these other trends that I've outlined for you, have led to the emergence of what are now called pay-for-performance pricing models.

So the early days of the web favored exposure-based pricing models, but those were simply borrowed from traditional media based on CPMs and impressions, but now the trend is very clearly toward paying only when I can quantify that a result has occurred.

As some of the panelists also suggested, we're seeing a lot more risk sharing now, too, because advertisers are putting pressure on publishers to pay for performance, but that's encouraging the publishers to demand revenue sharing for any purchases that they're actually helping to make through their site.

So what we're seeing now are the emergence of hybrid models that take advantage of these different forms here.

And so another way you might think about pay-for- performance is also, some people call it cost-for-action. I like to think of it as this is just sort of cost-for- whatever, so whatever is relevant to be charged for in terms of objectives is what we can develop a pricing model around.

So in terms of just if you're interested in how the breakdowns look here, pure CPMs, again, are the classic impression-based buy. They use CPMs, cost-per-thousand. They can also include sponsorships, of course, which may be priced at a flat fee, but they tend to be calculated or sometimes offer guarantees in terms of impressions.

The hybrid models involve a mixture of these two approaches, and I think they're a very important way for advertisers and publishers to share the risk, and there's no question we're going to be seeing more of those.

As you can see right now, they are the more dominant form, and in fact, if you add up the hybrid and the performance-based together, Forrester estimates that in just a few more years, they will be the form of advertising online.

Now, one of the things I think has been particularly interesting here is being able to do this — for example, negotiating a cost-per-action price — depends on being able to do something called calculating the lifetime value of your customer, and also being able to know your customer acquisition costs.

These are things that traditionally had not been possible or able to pin down for a lot of traditional media, but are now much easier to do, at least in theory, on the Internet.

I think another trend that's been moving that along is the move of direct marketers to the Internet, who are bringing a lot of these sophisticated marketing tools to bear, and which a lot of people who didn't know about them are now learning from.

So that's sort of my summary and my overview, and just to wrap up here, and then I want to turn it back for discussion, I think all of these trends and these emerging pricing models are raising some interesting issues.

I want to throw these out, but I'm not going to talk about them: rights of consumer data ownership, privacy and trust.

These are not new issues, but they become very important in these contexts, particularly as we see the increasing use of personalization and customization and recommender systems, and the capturing of consumer information.

But I think one question I would like to leave for the audience and for the panel, and then turn it back to Madam Chairman, is this idea of, with recommender systems, for example, or with the sponsor editorial content — editorial sponsorships that I've talked about — as the lines blur between advertising and content, important ethical issues arise that we have to start to think about — in terms of whether consumers are informed, how much they know, should we inform them of exactly what's behind some of these recommendations, or that some of these advertisements, and some of this content may, in fact, not exactly be editorial content.

So I think the rise of sponsorship models, the rise of revenue sharing deals is raising some very difficult issues as some of these lines blur between what's an ad and what's the content.

And with that, thank you very much for your attention, and I'll turn it back to Madam Chairman.

Acting Chairman Unger: Thank you very much, Donna.

That was very enlightening, from many perspectives.

I thought what was interesting about what your presentation sort of showed us, and that ties it back to something that Phillip mentioned in his presentation, is that we have all this information that we want to get out to consumers, but somebody is going to have to pay for it.

And who is going to pay for it, and if banner ads are so hugely unsuccessful, then how are broker-dealers driving the content of the portals, and how does that really sort of change the content, and what do investors understand about that content?

So if you can get the conversation started on that general subject.

Mr. Lynch: The quality of the information that consumers get is directly proportional to how much people are willing to pay, and I see the price of pay-for-performance being attractive to companies, because then your costs are in direct proportion to your revenues, which is what we all try to achieve.

So if we lose that possibility to do that, then obviously, the quality of the information that would be available on the Internet, whether it's real-time quotes or real-time news or the types of tools or information that we provide to the financial professionals at a much higher rate, we could not, obviously, we could not cannibalize our business and make that available to consumers, just out of a public service.

So I think, you know, what Gregg was talking about, looking for financial return, but it's in relation to how you make your money, is going to be very important, but again, we don't know — you know, it hasn't settled out yet, and you saw how quickly the revenue models were changing, adapting, and to try to put a box around it right now would be very restrictive.

Acting Chairman Unger: So are the brokers driving or the firms that — who drives the content of the portal site, and how does the pay-for-performance —

Mr. Lynch: Well, you know, in a professional market, people pay a subscription, and many web sites have tried to adapt that to the Internet, but the individual has not shown a propensity for subscription-based, you know, websites. There hasn't been a big — that hasn't been highly successful.

So it is being provided by somebody else, either through advertising or through direct payment, and the people in financial services — obviously the people that are looking for that demographic, are very often financial services companies, and that's what's driving them.

And the way they get paid is, more often than not, transactional, so they like to have something that pays -- that they can pay in relation to how they get paid.

Acting Chairman Unger: Would someone else like to answer, sort of, or address that same issue? And that is, how have the pay-for-performance models changed the relationship between the website operator and the broker- dealer, if at all?

Gregg?

Mr. Sharenow: Yes. I haven't seen any change at this point. I mean, as far as I can tell, we have not driven the content at all on the portal sites. In fact, we never say anything to the portal sites about what they offer. We've basically been much more passive.

We've just put up banners or other kinds of targets on the portal sites, and then it's driven those, the consumers, to our site, and then we — and it's our responsibility then to sell to that consumer.

But as far as content is concerned, I don't really see that there's been very much of a relationship between what we do and the content that's provided on those sites. That's something that we've completely stayed away from.

Ms. Smallson: I would agree with that. I really think that who is driving the content is the consumer. The broker-dealers haven't.

If anything, the consumer has made certain demands. They want, you know, current news. They want quotes. They want tools.

And if you look at kind of several years past, it's the financial portals or the other portals that provided all that, and then a lot of that content started to appear on the broker-dealer sites.

In some cases, the broker-dealer sites were taking content from the financial portals and also the financial portals were licensing some of their tools and content.

So I really don't see it's being driven in that way. It's the broker-dealers providing — I mean, they may want to buy sponsorships, or et cetera, but there's a real — they haven't asked what kind of content.

It's usually they're going to sponsor some, maybe they'll sponsor content to provide a button, but it's clearly identified.

Intuit's position is very clear that they identify exactly what's — you know, who's providing the content, whether it be S&P, whether it be Dow Jones, whether it be the Red Herring, whoever is providing the content, and if there's an ad, it's clearly identified who is — where the ad is, if it's a sponsorship, if it's a button, if it's even, you know, some kind of textual link. They try to identify who is sponsoring that.

So I really don't think it's being driven in the direction which I think you were asking.

Mr. Gibson: One comment that I think is important for the panel and for the audience to recognize is what Donna was saying, that in the past, for literally 60, 70, 80 years, an advertiser would say, "I know half of the advertising isn't working, but I don't know which half."

And now, literally, from 1994-1995, we've gone through six, seven, eight different evolutions of business models out there to where now Macy's, 70 years ago, would simply say, "I believe that this advertising is working," now Macy's or Coke or anyone else, instead of saying, "Is another $1 million of billboard advertising going to make a difference, or am I going to just simply put $1 million into banner advertising, and I can tell what my sales were specifically."

So to your comment earlier, that Phillip was making, we need to start realizing that the advertisers are driving a business model that's stating, "I can now be specific."

The brand theory of, "Well, you're seeing your brand, Coke, all over the Internet page," is not very valuable right now. They want to see actual purchases come from that. I think it's an important point that Phillip was illustrating there.

Acting Chairman Unger: Go ahead.

Mr. Scheibel: Thank you. I think also, for a company like Yahoo!, that has earned its reputation as being independent, and is providing best of breed in any number of content areas, whether it's sports or anything else, you know, the idea that the advertisers would in some way influence or drive content is anathema to us — that it just won't happen.

And sort of the understanding we have with our users is that we're going to bring them the best in each area, regardless of what the advertising is.

So I think that's important.

The other thing that was, I thought, very instructive about what Donna was saying is that she referred to 1994 as the old days.

And, you know, realizing how many times since then the business models have changed and the speed with which this medium is evolving, and which the payment forms are evolving, really is illustrative of how we need flexibility, prospectively.

You know, none of us can be sure of where we're going to be, you know, in a year, maybe not even in a few months, and so it's really important for us to be able to provide this content, to be able to pay for this content and support it, and to not be hemmed in.

Acting Chairman Unger: I guess what I'm trying to get at a little bit, and maybe this is a good way to move on to a slightly different topic, is if you have a portal that has a banner ad, it's pretty clear that the banner ad is an ad, it's across the top, and it mentions the name of the firm or whoever is paying for the advertising.

What might not be so clear, though, is when you have a financial portal that has maybe the top 20 recommendations or I think we saw one that had short sales for mom for Mother's Day, and then the ability to trade — I know. And did you get your mom that for Mother's Day? I didn't.

(Laughter.)

Acting Chairman Unger: — and the ability to "trade now," and the "trade now" is through a couple of different firms

That, I assume, is another form of advertising, and so my question is, how do people sort of, or how are the firms integrating themselves into your web site? If they're not controlling the content, how do you sort of have the relationship or how does it work? I can't even think of the appropriate words.

And you had mentioned, Fran, that it's very clear to the consumer what's a paid-for advertisement and what's not, and what I'm describing, I'm not sure it is so clear.

So I would like to move on to that sort of content and discussion, if that's appropriate to the participants here.

Ms. Smallson: I guess I can speak for Intuit and some of the others that are around this table.

You know, I don't know how it's not clear, so let's just talk about the "trade now" button. If you can go, you hit the "trade now," and you may have a choice of four or five brokers to go to.

Once you're on that broker's site, it is extremely clear who it is. It's, you know, in our case, it's not co- branded. If you're going to a Schwab site or Ameritrade or Datek or whoever it is, you're seeing who it is.

So, you know, if you look at the button, particularly "trade now," you can have a drop-down menu. That drop-down menu gives you a choice.

So it's a convenience issue for the consumer in that if they want to, let's say, take a look at the stock quote, it looks like it may be good to go, we're not saying one way or the other, and then they go over to the site, they're on the broker-dealer's site, which is subject to the regulations and the disclosures, et cetera.

So I'm still, you know, maybe on the same topic, but it seems clear to me.

We are in the evolution. Right now, obviously, there have been restrictions and the models haven't been flexible with respect to a financial portal and the broker-dealers, so how that's going to evolve in the future is hard to say.

But as we talked about before, you need the return on investment, which the gentleman from Reuters was saying, somebody has got to pay for this.

And to really pay for something that's going to give both the ROI, you need to invest in the technology and then figure out how it's going to work and still, you know, make it clear to the consumer who they're dealing with.

Acting Chairman Unger: So what would the advertising be in that situation that I described? Is it having your name be one of the four or five firms that you could "trade now" to?

Ms. Smallson: Our firm? No, because we're not — I mean, it wouldn't be us, because we're —

Acting Chairman Unger: No, I'm just — in the scenario we described, you have, the portal has the top picks, but then the broker-dealer is — let's say you would hit the "trade now" button, and there's four or five broker- dealers that pop up.

Is that the advertising, having your name be one of the ones that can implement the "trade now," the recommendations made by the portal?

Ms. Smallson: Right, and if you want to appear on the site, and you want to be one of the broker-dealer choices, yes.

Mr. Lynch: From Reuters' perspective, it is critical that we remain independent and that customers view us — I mean, our brand is the trusted provider of information, unbiased information.

If the consumer could not determine what was advertising and what was coming from Reuters, what was coming from somebody who had a stake in the game, then we would very quickly lose our brand.

So it is very important for us, as a provider of decision support tools, a provider of financial information, that we're seen as independent, and we would not recommend a list of stocks to trade.

We would provide financial information on stocks to help people make a decision, but it would be very important for us to box off and for consumers and investors to know specifically that they're going to a transaction site from us, because if we lost our independence, if we lost our unbiased — if people didn't think of our information as unbiased, then it would be much less valuable.

Acting Chairman Unger: So how does an investor understand that, though?

Ms. Genet: I think you have to remember a couple of things.

As an advertiser, people who are on these sites have a different advertising perspective. It's the environment where they think they're going to find customers.

And they don't think of it as a place that will be compromised. They think of it as a place where it's, whether it's television, or whether it's radio, it's another medium where they're going to find customers who probably are likely to buy their products.

They choose to be in those environments and think those environments are right, and they choose those environments because they believe there's credibility in being on those sites.

Once someone has clicked through that site, it is imperative, because no advertiser wants anyone to be confused with anybody else. They want that person to choose their firm amongst all the other firms, and to have a relationship with that firm.

It's really important from the content people that they're clear in terms of their unbiased point of view, in terms of who they are, and it's really clear from the advertisers that they're picking that environment because it's appropriate for their clients, they think they're going to get something from those clients, and once they have a lead that they believe is real, to make sure that lead knows who they are and what services they can provide. That's the inherent interest in both those parties.

So to compromise that relationship would be inappropriate, and it's coming from a place where the other relationships they've had like that, when they would never think of compromising.

So we're injecting a notion here that both parties don't come to the situation with, and have no interest in terms of furthering their business model, to promote.

I think most — many clients and many potential investors are more savvy than we give them credit for, and our investors we believe are very savvy, and that's perhaps why we choose to do what we choose to do in terms of where we put our advertising or not.

But it's not, I think it's not inherently in the interest of the broker-dealer and it's not inherently in the interest of the content provider to at all have their messages compromised or have their audiences be compromised, because if they in some way diminish the value of that relationship, in the end, the down side is far greater than the up side.

Mr. Gomez: There are a couple of areas where marketers are looking to be creative with regard to how they interact with the media, and you have to get down to the essential elements of what they're after.

Yes, they're looking for an environment where there are potential customers, but also what they're looking for is for that media property to have a relationship with their audience that is based on trust, and really to get a piece of that, to have some of that trust carried over to the advertisers so that the affinity gets carried over, as well.

And there is some creative activity that I wouldn't say goes as far as — I wouldn't call it blurring the lines, but, you know, for all of this, there's an offline analogy to everything that's going on here.

For example, in the case of pay-for-performance, there's direct advertising, where you put up an 800 number and you pay the television station based on the number of people that call the 800 telephone number.

Now, there's also an analogy for what's going on here, which is a form of advertorial. Okay.

So if you have a website with an audience that comes to you for certain things, advertisers increasingly are looking for an opportunity to be part of the experience beyond a traditional advertising relationship.

That might mean, for example, on a personal finance portal, to have a recurring column or section on retirement planning, which is brought to you by a company on a regular basis in the form of a sponsorship, but in which there may or may not be some different level of editorial input.

Now, that's a long way from offering transactions, the portal offering transactions, and it's very analogous to when I open up Fortune magazine and seeing a spread on, you know, the business climate in Puerto Rico that is paid for by the Department of Tourism or Chamber of Commerce of San Juan, or whatever it might be.

So there are opportunities that are analogous to opportunities that exist everywhere today, in offline media, that are being translated online.

Mr. Sharenow: Yeah, we have a lot of experience with this, with trade now buttons and things like that.

And I think that it is important, it is important to us that there be no blurring of the lines and that somebody knows that if there is something that goes on on a portal or advertising website, that we're not looked at in any way a part of that, and when they leave that site, and they hit "trade now," and they come to our site, they absolutely know they're on our site.

As I've said before, there is no co-branding. There is no mixing of that. They know that they're at National Discount Brokers, and on every single page they go to, they're at National Discount Brokers.

There is no frame around NDB for our partners. You know, we launch a new browser, a daughter window, so you know that you're someplace else, for sure; and for us, I think it's important that that remains that way.

But I don't see how there is a blurring if, you know, somebody does take some advice, general advice or specific advice, from a portal, clicks "trade now," comes through our site, that we had anything to do with that, and so I don't see any blurring at all. I mean, they know that they're someplace different.

Ms. Hooper: If I could just comment on that, I think that one of the things we all recognize is technology has really opened up the world of information, and it's been by far and away for the better good for investors, because they've been enabled to understand and capture more information more quickly than ever before.

I was really glad to hear your comments, Phillip, about the necessity of keeping the two areas boxed off, if you will, in order to maintain your own integrity, and I think also to enhance the integrity of the marketplace, because after all, if that begins to slide, then everyone loses. We all lose our ability to protect the investors. The investors themselves will turn away from it.

So to my mind, there's got to be an absolute distinction between what the portals are offering and what the "trade now" buttons are leading you into.

I guess my biggest concern is, if you go back to Julio's, I'm sorry, not Julio's, but Donna's reference to the old days, it was really clear as to who was accountable for what was being offered, what was being recommended, what was being suggested or what kind of research was being made available to investors.

And I think it is imperative that that accountability not be compromised by any kind of situation that makes the identity of who's doing what to whom transparent to the investor.

If the investor can't make that distinction and whatever action the investor takes doesn't go the way that he or she had intended or had thought it would based on the information that he or she has received, then the question is, who's accountable?

If that accountability line is blurred, invariably everyone is going to lose, and I think that is probably one of the major concerns that we, as a self-regulatory organization, have, is who is accountable at the end of the day when the information that's being provided is much more specific than just general research or general information that would assist the investor in making his or her own decision.

Ms. Hoffman: I think, building on that point and then getting back to something Julio said about the analogies and also the metaphors that have been borrowed from the traditional world that we've seen put into practice in the online world, for example, with CPMs, that was borrowed from print, and I think people quickly found that's really not working too well.

These exposure-based models are not necessarily the most appropriate, trying to measure impressions online, and so we've seen a rapid evolution, as we saw in pricing models.

But I think one place the analogy breaks down is we are borrowing analogies from the traditional media worlds of print and even from television for some of these advertorials, for example, that you were mentioning.

The problem is, when we read it in Fortune and we see an advertising supplement, it's clearly marked, and everyone understands, because of the standards, that that is an advertisement for investment opportunities in Puerto Rico, and it would be very hard, I think, through consumer research, for example, to find someone who didn't understand that that was not Fortune's editorial position.

The problem with that analogy is there aren't any standards yet on the Internet for this sort of advertising for these advertorials for this editorial sponsorship or for featured sponsorships, and so the notion that we have to be very clear about boxing things off or, you know, we need to make sure that consumers can make these distinctions, then we're relying on the good will and the faith of the companies who want to do the right thing, but one thing we've found in some of the more traditional consumer sectors is not all companies are necessarily doing the right thing, and consumers have been confused.

So I think one of the things that's very important is to start to talk about what some of these standards might be for the boxes and the distinctions, so that there isn't an errant consumer somewhere who isn't really sure what's going on and might take a list from a drop-down box as a recommendation that is completely bias-free.

Acting Chairman Unger: I think that what you are saying — and I want for you all to continue talking, though, is — what I'm hearing is that people intend for there to be the separation and that you want to provide content that's rich and then turn it over to the broker-dealer who provides the traditional broker-dealer services of execution, customer funds — or holding customer funds, et cetera, et cetera.

But is it so clear to the individual visiting the site that, in fact, these are two separate entities providing different services.

And as Clark said, where the liability sort of comes into play for each of the respective entities in terms of information content and services, and I'm not so sure it is so clear if you visit a portal and you see the information and then you buy now, yes, you're on a different site.

But is it so clear that you're on that site because those brokers have paid for the advertising to be on the portal site and to provide the execution based on — not necessarily based on — but in connection with — or whatever wouldn't necessarily trip you up from a broker-dealer registration perspective, but I'm not so sure that that is so clear. And I'm wondering how you make sure that it is clear. What is it that you all look at in terms of making sure that there is no customer confusion and preserving that loyalty in that brand?

Ms. Genet: My sense is that when people go to a site like CBS MarketWatch and Reuters, they know that it's an information-based site. And they're looking for information.

My sense is when they hit the "trade now" — because they may have read something about something — that they have to choose a broker.

And if they don't have an account, they have to open an account. And they have to open a relationship with a broker-dealer.

And they have a choice of seven, eight, ten depending. So all of those options exist for them in terms of what they may or may not want to do when they hit that trade button.

But I think for the average visitor who visits a site that's an information site, they have information — and if they chose to act on the "trade now," they're forced to go through a page that says, I'm going to choose a person or a broker.

I may have a relationship with them. I may not have a relationship with them. If they don't have a relationship with them, they happen to get a relationship with them. And they go through a whole account opening process.

So there's lots of opportunities I believe to make that decision.

I believe that when you're on an information site, it's pretty clear that the information is provided in those particular sites — so I can't speak for these guys — in a way that's presented as news.

That's why our sites choose a site to have news that we have to have because we want to have the endorsement of an unbiased news site for information for our clients.

So it goes both ways. I can't say that every consumer may not get confused. You know, I'm sure there are people who get confused.

But my sense is for those that are information sites where people are looking for information, it seems abundantly clear that the information of that news-related event is different than what's on the left bar about a trade that takes you to a very independent site where if you don't have a relationship you have to acknowledge that you want a relationship with a particular entity.

That is my overall sense of how it is. And that may not be true for every site. It may not be true for every consumer. But at least for information sites that are offering more than three potential brokers to have a relationship with, I think it's clear probably nine and a half times out of ten.

Acting Chairman Unger: Well, you mentioned an interesting point and that is that you choose the portals that have information that you need to make available to your customers?

Ms. Genet: No, we choose to have relationships with news services so we have information on our site.

So our clients, for example — we want to keep our clients on our sites, right?

Acting Chairman Unger: Right.

Ms. Genet: So you want to make sure that they have information that's important to them, as well.

And what the information sites have done is forced us to put things on our sites so that they don't go away. Our clients don't go away.

So we want to have places where they can get news information on our sites so they don't have to click off and go to an independent site.

So what I'm saying is that they have forced us on our sites to pull in third-party contacts — because that's what our clients are looking for.

So we hope that they don't go off and look at their site. We hope that we have enough information on our site that they want to stay with us.

But we have to have a news information place on our site to give our clients the information that they want in an unbiased, news format perspective.

MR. BISHOP: Just to address, I think, one of your questions. As I said we have very few relationships where we're compensated say for a user clicking on a button or a banner and opening an account.

We do have some. And quite frankly, we do not tell the user we're going to get $125 from XYZ Broker if you click over and open an account.

I will say, though, that may be something we should do. But I think it's important to point out, though, that then why would those same kinds of rules not apply to a CNBC television show or a newspaper or a magazine?

Because you do have similar relationships in traditional media.

Acting Chairman Unger: Well, are Donna's statistics correct? Are most firms and website operators wanting to move to a pay-for-performance model? If they're not already there?

Mr. Greenberg: From our perspective we're getting a lot of pressure from the brokerages and other advertisers to move in that direction.

We probably prefer not to, but we prefer to have advertisers to not having advertisers. So it's not necessarily our choice.

One thing that I am curious about is we don't have a "trade now" capability on our site. So we perhaps wouldn't care about this in the same level as other sites.

But is there customer confusion about where they're trading? Because I mean, our customers seem to understand that they're not trading with the Motley Fool.

Or at least they may be so deceived that they don't know that they're not trading and they still think they are.

(Laughter.)

Mr. Greenberg: But I don't think that's the case because they're relatively informed. But we haven't heard that. And I'm curious whether that has been a problem that you've seen so far.

Acting Chairman Unger: That could be an appropriate question for Clark.

Ms. Hooper: When I was speaking earlier about the confusion, I wasn't so much talking about confusion with which entity you're trading, so much as confusion over who is responsible for the types of recommendations that are being made.

Acting Chairman Unger: Right. But are you seeing anything like that?

Ms. Hooper: Not to my knowledge. Generally speaking, we did some public focus groups two or three years ago regarding online advertising.

And the good news was that most of the investors that were included in the studies were not confused about the fact that they were trading, that they were trading online, that they were not gambling.

So there was — as you mentioned earlier — there was a degree of savvy, savviness — if there's such a word — for the investor that was sort of a relief to us.

There was — on the down side — on the flip side, there was a mentality about online trading that most of these participants exhibited that was somewhat reminiscent of being in Reno.

Because it was just so quick and easy and it was fun. And it sort of reminds me of playing Monopoly. It's a lot like funny money.

I think the confusion comes to an abrupt halt when the results start disappointing you. And that's actually when the confusion means something to the investor.

Because prior to that I don't think there's really that much worry about it, if everything is going up. So what we're seeing is — I think — really what the market conditions are creating, which is a situation where people are looking for someone to point the finger at.

Whether or not they're really confused, I couldn't say. But all I'm really worried about from the — from the regulatory perspective is at the end of the day who is responsible for the information that's being distributed?

Because someone has got to take accountability. And even if it's very clear with whom the individual is trading — and it's my understanding that most firms — even if there is not an existing relationship — by the time the customer can get through the red tape, if you will, of setting up the account, it ought to be abundantly clear with whom they're trading.

But nevertheless the question of what they're trading and who is responsible for the suitability of that trade.

Acting Chairman Unger: And I think what Clark is saying is true of what the Commission sees, and that is, we see almost no suitability-related complaints when the market is going up.

But when the market is going down, people all of a sudden aren't as happy with their investments and so might think that they were not suitable recommendations that were made.

Mr. Gomez: That's a shocker.

Acting Chairman Unger: I know.

(Laughter.)

Acting Chairman Unger: Yeah, we need to do a study on that.

Ms. Hooper: The other thing that I might just add to that — and if we have time for me to touch on some of the rules which will make filling out a FOCUS Report look like eating a piece of cake, you'll note that one of the things that we get into is the accountability of broker-dealers and remembering that our rules apply only to NASD member firms that are broker-dealers — but the accountability that they might have for any hyperlinks.

And we generally would say that our members are not accountable for information that they've linked to if it's of a general nature, an educational nature, a research type of — and whatever it is, so long as it isn't a direct relationship with something they're offering or selling and it would be almost like linking to a real estate section that was then offering private placements.

Would that be a public advertisement for the private placement? I mean, that's the kind of thing we would be looking towards.

And I think that's why this issue of making a list of recommendations and then having "trade now" next to it raises some questions of who is accountable.

Acting Chairman Unger: I was at a conference — and it was actually a very thoughtful conference — and it was a press discussion, so it wasn't really financially based.

But the discussion was about technology and what if The Wall Street Journal — I don't know if they're here — what if The Wall Street Journal had an article — you know, they have columns. And what if the column discussed vacuum cleaners. And there were two different vacuum cleaners and it discussed the merits of those two, and you could click on and you could buy those vacuum cleaners. What would you think of that?

And this was a small group so people raised their hands — everybody in the room except me — thought that that would be bad, that there would be a bias then to the article and that it would somehow affect the content of what was being discussed.

So pay-for-performance kind of raises some of the same issues. If, in fact, firms are paying for the number of accounts that are being opened as a result of having their presence on a website, does that somehow impact what's being presented on the website?

And so I think that's sort of another way of coming at this issue.

And one of our concerns — because my concern isn't to increase the number of broker-dealers who are registered.

Actually far from that. We have too many.

No, we obviously have limited resources. We don't need to regulate more people. But will people be looking to us to ensure that customers are protected and that they understand what they are looking at and who has responsibility for that content and that information?

And as it moves closer to, say, a recommendation as Clark was discussing then it becomes less clear.

Commissioner Hunt: I think what we've got to also make clear is who has got the liability when you show that the trade has gone through and the broker has somehow screwed up. Or that the information has somehow been misleading.

Is it always clear who gave the information and what that relationship is with the broker? And I'm not so sure. Maybe Reuters thinks it always is because you're so separate.

Mr. Lynch: Well, I'm not sure what you're getting at. But when you make a trade, the confirmation comes back - - usually in the form of an e-mail from the broker that actually identifies where it's coming from. That's my experience anyway.

So we don't get involved in trade confirms or anything like that.

Commissioner Hunt: Well, I guess, one of the things we worry about is how much reliance people are putting on the information they receive and whether that reliance is well place.

Mr. Lynch: Well, it certainly — when you get into this debate, I would like to bring some of our editorial people over — because it's clearly a debate that has been raging in my company for over 100 years.

Acting Chairman Unger: Reliance?

Mr. Lynch: No, about whether — once you take advertising, are you then unbiased?

So I think that would be a much longer conversation than we're having here today because Reuters is a news service without a newspaper, without a television that takes advertising.

You know having a website that takes advertising is really our first foray into media — owning a media that would open us up to that question.

But clearly, Nadine, I think was making the comment, it's just not economical. If your brand and the value of your company is based on building a trust with your consumers, then at what point is it economical to lose that trust because customers don't believe that that information is unbiased.

And for a company like Reuters we have way too much at stake to do that.

Ms. Smallson: I agree with that. I don't see where the model would be for Intuit or Yahoo! or any of us to become so unbiased or to really — if you will — move over to the advertisers, having them control our content, our news.

And again, most of us are aggregating news from a variety of sources, including Reuters or Dow Jones or others. And so I know the analogy is imperfect, but when you look at accountability for information in the offline world, you read an article in Forbes or Barron's and they make some type of a suggestion on good stocks? Or the top ten — whether you're on CNBC, or in the news media.

Where is the accountability for that information? They're publishers. And again you look towards the source of that information.

And hopefully we do have savvy investors. And they're going to say, yes, the Dow Jones does give good information so I can make a good financial decision.

So I think accountability comes from reputation. It comes from the source. It comes from a number of different sources.

But the online world makes it easier. And is it making it easier what concerns the Commission? Or is it somehow some types of consumer problems that are concerning the Commission?

That's something we would like to understand better.

Mr. Gibson: I think the analogy is a very good one between offline and online.

To build on what John was saying earlier that we have the integrity of our members at heart. And very similar to The Washington Post having an editor, a business editor that is driving home the integrity of that information, we also have a business manager that is trying to put advertisements in there.

Your analysis of the vacuum cleaner is a great one. Every single day we have this debate to make sure that those lines aren't blurred, that we're doing some self-regulation in terms of trying to determine what the magazines have done in terms of standards.

We're ensuring that we have standards, as well, because we don't want the members to see any blur. And you asked the question what are our members thinking, and that's something we're looking at literally every day in terms of focus groups.

And our members are clearly understanding that when they go over to the brokerage side, it is a brokerage side.

Commissioner Hunt: I am concerned about the confusion because it's easier. And I wonder whether that's something the Commission has to be thinking about every day.

Acting Chairman Unger: Well, I have a question.

If, as Nadine mentioned, one of the competitive issues is who has got better information on their site, most of your site is accessible to non-customers, right?

Ms. Genet: Our public website, anyone can go on our public website.

And they know that's our website and what the information is and it's really clear when it's third-party information we credit the third party because we have to.

And when it's a point of view from one of our analysts, we're really proud of that. And we beat our chest and say, it's a point of view of our analyst.

If you're a client of ours, you get different information — more information, more of our information — proprietary information, as well as third party information which we think our clients are looking for.

Acting Chairman Unger: So what I'm getting at is, what makes a consumer go to a portal, as opposed to a broker-dealer, if it's similar information? Do you have a sense of that?

Ms. Genet: Well, I mean, it depends on the client. Not all of our clients are going to be clients that are their clients, you know?

So it depends who the client is, what they want, and what information they're looking for.

Acting Chairman Unger: I'm talking about non-clients, members of the public who — as you say — can access a lot of your information?

Ms. Genet: Members of the public who are coming to our site are interested in what our point of view is and the information they can learn from us.

They're not coming to our site to get standard information they would get on a news site. They're looking for, is there a point of difference that UBS PaineWebber has to offer? And is that intriguing enough for them to want to come back and think about us as a potential broker-dealer.

That's why they would come to us and why they may go to a variety of places in terms of saying, is there something different that we're saying that they think is intriguing or interesting.

Ms. Smallson: Well, why would they come to a financial portal I think is a good question. And as it has been, at least since 1996, it's because they felt that this was a source of unbiased information that was reliable from, for instance, Intuit which has been in this business a long time that feels that they could provide unbiased information, that they're not going to tout a particular company or security or particular products that are being offered by a specific broker-dealer.

So they came to us to get this aggregation of information from a variety of sources that was reliable. And as I said before, then if you will — it started with the financial portals.

And then the broker-dealers started offering a lot of that same information that traditionally — if you will — was offered by the online companies.

So they still want to come to the Yahoo!s and Intuits and AOLs because they feel like they're not going to be — let's say — pushed a particular product line, or whatever, and that they can get a variety of different information and tools.

Mr. Gomez: Well, I think that while there may be some consumers that are cynical about their brokers, they think really it has generally been because the financial portals have out-executed the broker-dealers in terms of delivering a high quality customer experience.

They really have been on the forefront delivering news charts, quotes in an integrated way and with other information that people want — to the point where broker- dealers were at risk of squandering the relationship with the customer for market data.

But there has been really a big game of catch-up going on for the past two or three years. And the brokers, by and large, are holding their own in terms of competing with the financial portals in terms of the quality of information and the customer experience.

So that's a constant battle. And it's a battle that the folks at this table are fighting over who owns the customer and provides that value added experience of accessing market information.

And that's something that everyone is concerned with.

Mr. Scheibel: But isn't that discussion a real reflection of how the free market has worked? That somebody comes up with an idea of how we're going to appeal to consumers to draw them to our site, meaning providing very high quality independent information that will be useful to investors and others and lo and behold a lot of other people have to follow and compete with that because, in fact, it's working. So isn't that sort of the independence of what we're doing and the fact that we are all so concerned about our brand that we're not going to in any way compromise that independence, doesn't that show how the marketplace is itself working?

Mr. Gibson: And that's key for the portals that we are providing an unbiased side. As opposed to Paine Webber who may be giving something specific and biased and they've had success for the past six months doing that so the consumer knows they want to go out there and benefit from the experience where they've been successful in the past.

Acting Chairman Unger: It's 2:45 and it's supposed to be time for the panel to be over. But if you wouldn't mind, we started about 10 minutes late. If you wouldn't mind running it over a couple of minutes that would be helpful to continue the discussion.

Because the two things I wanted to touch on were the financial aggregation screen-scraping services and whether anybody here provides them and what they think of that, if that's part of the success of the model of the portals and then also to have Clark talk about the cake- eating experience that FOCUS Reports present compared to the oversight of website content that you provide.

So I guess, I'll open it up — unless anybody wants to comment on anything that we were already discussing.

Acting Chairman Unger: About the financial aggregation services — if anybody here provides those services and sort of what the success rate has been and the customer demand for that service.

Ms. Smallson: Those eyes are turning to us since we do aggregation, and I guess the question on success, I still think that it hasn't been fully polled yet. I will say — yes, there has been consumer demand. Consumers want to be able to look at all their accounts in a single way and to be able to go to a site and let's say if they've got five different bank accounts or brokerage accounts et cetera, that they can look at them and, again, manage their personal finances through not having to go to let's say five portals, maybe desktop software, back to their checkbook et cetera.

You know, Intuit obtains this information from a variety of different ways, through direct OFX connections with agreements by the financial institutions as well as the broker-dealers, as well as through the screen scraping technology, which so far we have not had any complaints from any financial institution about.

Currently, you cannot, again, trade or transfer funds or let's say do more robust types of activities. Whether or not there will be continuing consumer demand for this that would come from a specific financial portal, again, is yet to be seen, but we do have demand.

Mr. Gibson: And the consumer demand for account scraping certainly on the America Online environment has been very strong and was very strong a year ago, and the consumer demand wanted to have more and more account aggregation. But as you joked earlier about how many complaints you get as the market has gone, instead of looking at your portfolio four or five times a day, you want to look at it once a week and then quickly shut it down.

So the account aggregation demands from the consumer have softened dramatically, from one of our top recommendations of what we need to continue to enhance, to not even on the radar screen.

Acting Chairman Unger: Can customers, your customers, actually access their accounts that you provide the aggregated financial data for through the site? Do you provide hyperlinks?

Ms. Smallson: You mean access the account?

Acting Chairman Unger: I mean provide hyperlinks to the accounts that are reflected in the —

Ms. Smallson: You can go directly to the account. For instance, if you have a Wells Fargo account, you can go directly to that Wells Fargo account, or what you would do is be able to come to the aggregator site and be able to connect by basically telling the aggregator to go get the information, and you can either get that information either through the screen scraping technology or through a direct OFX connection, which is the communication protocol that the financial institutions are using with —

Mr. Gomez: It's still very early. It's a one-trick pony. It's one page. The whole service is one page, and it's a snapshot in time that just shows you something approximating a consolidated balance sheet but not. So the idea is that it is an important technology that as there is more interconnection over time, you will actually be able to put some value added services on top of that aggregated data such as, well, you know, "I've looked at this" or "my algorithms have looked at this and you need to diversify" or "you need to pay down your credit card" and so on and so forth. Those are the services that are the promise of this technology, but we are really in the very early — of account aggregation right now.

Acting Chairman Unger: So who pays for the service of the account aggregation?

Mr. Gomez: The institutions.

Acting Chairman Unger: I mean who —

Mr. Gomez: Well, maybe not Intvit — let me just say one thing. There is a dominant provider of account aggregation services, Yodlee, basically the only game in town. And Chase and Fleet and whoever wants to provide that as a service to their customers pays on a per-user basis or a flat-fee basis to allow that account aggregation service to be made available through the financial institution's website. That's through the financial institutions.

Now, in the case of the financial portals —

Ms. Smallson: The financial portals are paying. The consumer is not paying anything right now. And again, we've talked a little about subscription models — don't really see that that is going to go in that direction. So, really, the portals are paying the Yodlees. There is also some third-party software now that is currently being developed to do the same type of functions that Yodlee is doing but, again, it's the portal that is paying, not the consumer.

Ms. Hooper: And the only thing I have to add to that that we've heard from some of our members, and, once again, it's balancing the good and the bad and leaving out the ugly, hopefully, but you know while most of us as investors would want ourselves to have the big picture of where our investments lie, and those could include antiques and rugs and coins and securities, some of our members have expressed a concern that, in using outside aggregation services, they don't have an opportunity to validate the accuracy of the information. They don't feel like they should be accountable for the information that doesn't include exactly what has been sold through their firm. But once again, if that is transparent, if those differences are transparent to the customer, then the member firm sometimes feels that it's going to be held accountable for that bottom line regardless of whether it's had any input into all of the different components of it.

Acting Chairman Unger: Is UBS PaineWebber an operator, screen scraper?

(N