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Digital Signatures Approved in California

It won't be long now before investors will be able to open a mutual fund account online without any paperwork.

A new California law allows broker/dealers to accept so-called digital or electronic signatures from investors when they open an account over the Internet. Computers create these electronic signatures, which are used much like regular signatures, only they may come in the form of sounds or symbols.

Online brokerage E*Trade Group of Menlo Park, Calif., says that it will take advantage of the new law and will eventually begin opening customer accounts instantly over the Web. Currently, an investor wishing to open up an account through the E*Trade Web site must fill out an application online, print it out, sign it, and then mail it to E*Trade with a check or request to transfer funds. The acceptance of digital signatures would eliminate the need to mail in the brokerage contract with a handwritten signature. California Governor Gray Davis' office said that California is the first state to authorize brokerages to use this type of electronic verification.

"It's ridiculous for an all-electronic brokerage such as E*Trade to hold its customers hostage to paper. This law validates everything for which E*Trade stands," E*Trade chairman and CEO Christos M. Cotsakos said in a statement.

E*Trade is moving toward offering mutual fund investing that is conducted entirely online. Its family of index funds requires that shareholders receive all communications by e-mail. Implementation of digital signature technology would make the process of investing in funds -- from buying to trading and servicing the accounts -- a totally online experience.

"By instituting digital signatures, E*Trade will eliminate many of the delays that hinder the fundamental power of the Internet," Kathy Levinson, E*Trade president and chief operating officer said in a statement.

Although the law was passed only in California, investors from all states would be allowed to use the technology. However, companies based in other states would have to get similar laws passed to accept these electronic signatures.

Fidelity Investments of Boston is also reportedly working on legislation that would allow it to use digital signatures.

"Fidelity supports and encourages legislative initiatives to permit use of digital signature for financial transactions, including brokerage transactions. We support federal legislation on this topic... and continue actively to explore these possibilities," a spokeswoman said.