Bank brokerages are stepping up efforts to protect themselves from investor lawsuits linked to volatility in Internet stocks.

Though banks' brokerage clients tend to invest conservatively, their appetite for speculative stocks has increased. And brokerage chiefs have become more concerned about liability as a result.

"People are really second-guessing us," said Curt Anderson, president of First Busey Securities Inc., the brokerage unit of First Busey Corp., a bank holding company in Urbana, Ill.

Under National Association of Securities Dealers rules, a brokerage that recommends a stock may not execute a trade in it without having "reasonable grounds" to believe that the investment is suitable.

However, the brokerage is not shielded from suits brought under state or common law, said John Ramsay, a vice president and deputy general counsel for the NASD's regulation unit.

Nor does a brokerage have to recommend an Internet stock to court trouble, said Vincent Cappucci, a plaintiffs' lawyer who specializes in securities class actions. A firm that executes an unsolicited trade at the customer's request could also be vulnerable to a suit, he said.

Discount firms, whose brokers only make trades, could also ultimately be held liable when Internet stocks fall out of favor and disgruntled investors sue, said Mr. Cappucci, a senior partner with Entwistle & Cappucci of New York.

To limit their exposure, brokerages have tried to caution customers about the erratic nature of Internet stocks and explain the difficulties in pricing them

One such firm is UBOC Investment Services, the brokerage arm of Unionbancal Corp., which is mostly owned by Bank of Tokyo-Mitsubish Ltd. Richard Smiley, president of UBOC Investment Services, said it also plans to send statement stuffers to customers alerting them about the sector's volatility.

And increasingly, some firms are refusing to execute extremely risky trades.

"In the final analysis, if the customer loses a lot of money and it wasn't a suitable investment, the exposure is still there for the brokerage firm," said Michael Harkins, first vice president of the brokerage arm of People's Bank of Bridgeport, Conn. His unit sells stocks on a discount basis only.

In Illinois, Mr. Anderson of First Busey Securities said that at some point it might consider requiring a waiver stipulating that the transaction was unsolicited, and that the broker advised against it.

Though the waiver might not hold up in court, it would show the brokerage's intent, Mr. Anderson said.

Meanwhile, some brokerages have raised margin requirements on Internet stocks to protect themselves financially.

Mori Paulsen, senior vice president of the brokerage unit at Zions Bancorp. of Salt Lake City, sent a directive to representatives last month telling them to accept orders only if there is enough cash in the account to cover the trade.

"We would hate to be stuck with a trade where a client walks away from it," he said.

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