"Prior to 1967, there had never been a serious records-keeping problem for the Industry... Consequently, it was necessary for the Exchange to develop operational safeguards, in addition to its historical self-regulatory policies."
Robert W. Haack Testimony in July 30, 1971 "Crisis in the Securities Industry, A Chronology: 1967-1970" - Prepared for the Subcommittee on Commerce and Finance, Committee on Interstate and Foreign Commerce, U.S. House of Representatives by the New York Stock Exchange, Inc.
The postwar boom not only underscored the limitations of the specialist system, but also brought member firms close to collapse. As brokerage firms expanded during the 1950s, the potential collateral damage of brokerage firm failure loomed ever larger. The threat materialized in 1963 when the Ira Haupt firm failed. In acknowledgment that the NYSE owed some measure of protection to investors, the exchange extended $12 million to cover Haupt's obligations and created a special trust to cover future brokerage firm failures.34
The steady ascent of the 1950s gave way to exponential growth in the 1960s, and by 1968, the system had become a victim of its own success. "Fails"—indicators that brokers had lost track of transactions—began rising. Overwhelmed firms began shutting down. For several months during 1968, the NYSE closed the floor on Wednesdays to help member firms catch up with order flow. The NYSE laid plans for a larger trading floor, but commission brokers, such as Robert Haack, understood that the problem was in the nature, rather than the scale, of the system.35
When Haack became NYSE president in 1967, he bluntly stated that "my job is to move these people into the twenty-first century." This was doubly important because, during the 1960s, the legitimacy of the SRO model had come into question. The first challenge came in the 1963 Silver v. NYSE decision, when the U.S. Supreme Court sharply limited the NYSE's antitrust exemption to those areas that allowed it to fulfill its regulatory obligations under the Exchange Act.36
Challenges also came from the member firms. A central tenet of the NYSE had long been that only individuals or partnerships could be members, because only they could be counted on to uphold the NYSE's code of honor. A corporation, it was assumed, could not be held to its word. But in 1969, Donaldson, Lufkin & Jenrette announced that it would go public to raise the capital needed to serve its institutional clients. In 1970 the exchange allowed corporate membership. The old pillars of the exchange kept falling. In February 1971, in an effort to limit officer liability in an increasingly litigious environment, the NYSE itself incorporated.37
(34.) April 21 2006 Interview with David Silver - Part II; Sobel, N.Y.S.E., 180, 285.
(35.) July 30, 1971 "Crisis in the Securities Industry, A Chronology: 1967-1970" - Prepared for the Subcommittee on Commerce and Finance, Committee on Interstate and Foreign Commerce, U.S. House of Representatives by the New York Stock Exchange, Inc.
(36.) Seligman, The Transformation of Wall Street, 353, 386.
(37.) Seligman, The Transformation of Wall Street, 467; Wall Street Journal, June 9, 1971.
Washington Debates for the 70's Television Program, with Manuel F. Cohen, former SEC Chairman; and Dr. George J. Stigler, University of Chicago, Chicago School of Economics; moderated by Peter Lisagor; produced by the American Enterprise Institute
with permission of the American Enterprise Institute and courtesy of the National Archives and Records Administration
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