Online Investors May Gain Protections From U.S. Muni Regulator

U.S. financial regulators, responding to the growth in trading securities over the Internet, want to bolster protections for investors buying municipal bonds through online brokers.

The Municipal Securities Rulemaking Board, which drafts regulations for the $3.7 trillion state-and-local bond market, said today said it may place new requirements on online brokers, such as collecting information about investors, sending out educational material and drawing up procedures for meeting their obligations -- including those aimed at preventing overcharging.

The municipal market is dominated by individuals seeking tax breaks or safety of bonds sold by state and local governments, which rarely default. Other bonds also backed by specific revenue, including parking garage tickets or levies on new housing developments, pose more risks to investors.

The board, based in Arlington, Virginia, said the new rules would be aimed at improving “the likelihood that individual investors who trade online would understand the features and risks of municipal securities and purchase securities that are appropriate based on their financial condition and risk tolerance.”