"There have been outcries from time to time against the Stock Exchange; but whenever it has come up for impartial investigation the investigators have been amazed at this machinery."
In the early 20th century, Progressive reformers combated concentrated political and economic power. One campaign was the 1912 Congressional "Money Trust" investigation, which revealed that NYSE officials had known of manipulations, yet had taken no action. It also aired the now familiar claim that the way to bring the exchange to account would be to incorporate it. But lawmakers were convinced that the NYSE's potential for disciplining its members not merely for unlawful acts such as fraud, but also for unethical conduct, was too valuable to give up.16
The exchange responded with limited reforms. To counter speculation in company stock by corporate insiders, the exchange required listed companies to publish dividend actions in 1913. Inquiries into the financial condition of member brokerage firms were stepped up in 1922. Four years later, the exchange further tightened listing requirements by barring companies with nonvoting stock. Exchange officials, however, continued to insist that its power over issuers was limited.17
The NYSE seemed to put more energy into public relations than into reform in the 1920s. At mid-decade the exchange revised its constitution to include the phrase "in the public interest," opened its gallery to visitors, and began issuing an annual report. Exchange officials were right to be concerned about public interest. By then, the NYSE was host to a speculative boom. The staid NYSE bond market was drying up as professional and public investors rushed into the burgeoning equities market. While the exchange welcomed the new business, the boom severely taxed its self-regulatory capacity. An eight-man committee was expected to approve 759 listing applications in the pre-crash months of 1929.18
Maintaining the quality of the membership was even more difficult. By the 1920s, a new generation of brash and aggressive manipulators had emerged. Most were floor traders who bought and sold for their own account. Neither specialists serving the exchange, nor commission brokers serving the public, their interests were unabashedly their own.19
Their most common manipulation was the stock pool. A few traders bought stock quietly and sold it back and forth amongst each other to raise the price. Tape watchers bought and the stock price rose. When the manipulators decided that the price had gone high enough, they unloaded, leaving investors with devalued shares. By 1929, stock pools were routine, yet NYSE president William Simmons claimed that there was little he could do about them. That was true. Despite the private reforms and public promises, the real power at the NYSE—the governing committee—was dominated by the floor traders and specialists who considered pools to be prerequisites of the trade.20
(16.) December 19, 1912 Testimony of J.P. Morgan on the Money Trust Investigation to the Subcommittee of the Committee on Banking and Currency, U.S. House of Representatives (Pujo Committee); William C. Van Antwerp, The Stock Exchange from Within (New York, 1913), 167; Richard W. Jennings, "Self-Regulation in the Securities Industry: The Role of the Securities and Exchange Commission," Law and Contemporary Problems 663 (1964): 668.
(17.) 1920s Instructions to new members of the New York Stock Exchange, from Ashbel Green, Secretary ; Westwood and Howard, "Self -Government in the Securities Business," 523-24; 1963 SEC Special Study of the Securities Markets, 568; Meeker, The Work of the Stock Exchange, 461, 68.
(18.) December 3, 1925 "The Constitution of the New York Stock Exchange" - Address by H.S. Martin, First Assistant Secretary, before the New York Stock Exchange Institute; Biais and Green, "The Microstructure of the Bond Market in the 20th Century," 4; Michael E. Parrish, Securities Regulation and the New Deal (New Haven, 1970), 39-40.
(19.) Sobel, The Big Board, 242-47.
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