"The effect of this particular concept of competition in the securities industry would be to freeze the public out of the securities markets and to concentrate the ownership of American business – and investment decision-making – in the hands of a relatively few enormous investors handling huge pools of money."
In 1972, the SEC had acted to end fixed commissions on transactions above $500,000. The debate over the necessity and economic value of fixed commission rates resulted from concern over the exclusivity of membership in the stock exchanges, the practice of charging beneficial commission rates to large institutional investors, and the impact of that practice on small independent investors.
Congress had also been studying legislation mandating the end of fixed commission rates "in the interests of the investing public" and for the "long-term benefit of the securities industry."(9) Political concerns about how fixed commission rates inhibited market competition for small investors led to proposed legislation that would phase in fully-competitive commission rates and end the fixed-rate structure over a two year period. Alternate proposed legislation would abolish fixed commission rates by February 1, 1975.(10)
The concern that the issue would be lost to Congress caused the to SEC to announce that it would abolish all fixed commission rates within six weeks of the swearing-in of Chairman Garrett. The question for Garrett and the SEC was not whether fixed-rate commissions could survive in some form or another, but "who would kill them and under what conditions."(11)
At the same time the SEC was considering the issue, the New York Stock Exchange created a study, led by William McChesney Martin, to report on fixed commissions. The Martin Report called for a recentralization of all trading in NYSE-listed stocks onto the exchange floor and the elimination of the third market. The report also suggested that the SEC relegate to the regional exchanges only the trading of non-New York listings.
When the SEC held hearings on market structure, there was almost universal critical comment for the Martin Report. The SEC reaffirmed its support for competition, especially as provided by off-board market makers, and called for the eventual elimination of the fixed commission structure. Prior to his resignation, SEC Chairman Cook reinforced those conclusions in a speech to the Economic Club of Chicago.(12)
(9) US Senate, Securities Industry Study (US Government Printing Office, Washington DC, 1972), 53-60
(10) Vartanig G. Vartan, "Moss Confident of Passage for Securities Legislation," The New York Times, January 18, 1974, 43
(11) Seligman, 481
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