Enron Mail

From:mark.taylor@enron.com
To:raislerk@sullcrom.com, gilbergd@sullcrom.com
Subject:Online Contracting
Cc:
Bcc:
Date:Tue, 3 Aug 1999 02:04:00 -0700 (PDT)

Digital Frontiers
Calif. Says Digitally Signed Broker Contracts Are Valid
By ROSS SNEL

08/03/1999
American Banker
Page 12
Copyright © 1999 American Banker, Inc. All Rights Reserved.

A new California law opens the door for brokerages to conduct most, if not
all, of their business in
cyberspace.

The legislation, which applies only to broker-dealers, validates brokerage
contracts that are digitally
signed.

Though Internet brokerages routinely accept trading orders on-line, most
require customers to enroll
and order account transfers by sending in paper documents. The law makes
such paperwork no
longer necessary.

Digital signatures-a derivative of data encryption technology that binds
customer identities to
documents-are seen as a way to "legalize" on-line exchanges of information.

The California legislation, which California Governor Gray Davis signed into
law last week, "gives
people some certainty that these contracts are enforceable," said Thomas J.
Smedinghoff, a partner in
the Chicago law firm McBride Baker & Coles and a leading authority on
digital signatures.

He added, however, that the law's specific definition of a digital signature
could limit the flexibility of
its application as the technology evolves.

Certainty about the validity of digital credentials is especially important
to securities brokers, because
securities transactions are typically much bigger than merchandise
transactions on the Internet, said
Christopher Musto, a senior analyst at Gomez Advisors Inc. in Concord, Mass.

E-Trade Group Inc., the Menlo Park, Calif. on-line broker, pushed for the
California bill, bringing the
issue to the attention of state Sen. John Vasconcellos, a Democrat from San
Jose. Sen. Vasconcellos
introduced the proposal in February, and it passed the Senate July 15.

San Francisco-based Charles Schwab Corp., the leading Internet brokerage,
also offered input on
the law's definition of a digital signature, according to Sen. Vasconcellos'
chief of staff, Rand Martin.

Schwab has focused its legislative efforts more on the federal level,
however, a spokesman for the
company said. "This action is a step in the right direction," the spokesman
said. "But the real objective
would be to get national legislation that creates uniformity regarding the
use of digital signatures."

E-Trade said in a news release that the new law would apply to its
transactions with customers in all
50 states, but the Schwab spokesman said its applicability beyond California
is "murky."

E-Trade did not respond to calls seeking elaboration on how it sees the law
applying across the
country.

Mr. Smedinghoff, chairman of the American Bar Association's electronic
commerce division, said the
only way the law would have broader applicability is if a broker stipulated
that a contract was
governed by the laws of California.

Legislation on digital signatures varies from state to state. For example,
Connecticut law covers only
medical records at hospitals, while Illinois makes electronic signatures
applicable to all
communications.

In 1995 California became one of the early adopters of digital signature
legislation, but that legislation
was limited to communication with government agencies.

Utah is often cited as the country's digital signature pacesetter, with a
comprehensive law that
preceded California's in 1995 and resulted in the pioneering designation of
Digital Signature Trust
Co., a Zions Bancorp. subsidiary, as a licensed certificate authority.

To bring consistency at the federal level, Sen. Spencer Abraham (R-Mich.)
this year introduced two
bills addressing the issue. The Millennium Digital Commerce Act sets out to
clarify the legal status of
electronic signatures in general, while the Electronic Securities
Transaction Act focuses on the
securities industry.


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