Securities and Exchange Commission Historical Society

The Institution of Experience: Self-Regulatory Organizations in the Securities Industry, 1792-2010

Evolution of the Perfect Institution

Secure Place in an Unfamiliar World

"In effect, then, self-regulation today is at a crossroads...How well we all buckle down and cooperate may very well determine the thrust—and even the survival—of responsible self-regulation in our industry for years to come."

- September 16, 1981 "Self Regulation at the Crossroads" -- Remarks by John J. Phelan, Jr., President,  New York Stock Exchange, Inc. to Internal Auditors Division, Securities Industry Association

Although the unfixing of commission rates on "Mayday" 1975 seemed at the time to be the signal event of the year, of much more lasting impact on the SROs generally was the enactment, a little over a month later, of the Securities Acts Amendments of 1975.

The 1975 Securities Acts Amendments provided for the creation of the Municipal Securities Rulemaking Board, a new type of SRO. Its chief impact, however, was that Congress substantially strengthened the authority of the SEC and greatly restricted the freedom of SROs. The SEC was authorized to initiate as well as approve SRO rulemakings; the SEC's role in SRO enforcement and discipline was expanded. In addition, the 1975 Amendments required SROs to include outside representatives on their boards of directors, thus extending the federal government's reach into the structure of SRO governance.41

The 1975 Amendments also empowered the SEC to effect the unification of an increasingly fragmented securities market into a "national market system."  The SROs heeded this directive by creating the Intermarket Trading System (ITS), which linked the NYSE and the regional floors in 1978. The SEC also acted to extend its purview through the Market Oversight and Surveillance System (MOSS), tested in the early 1980s. Neither proved effective, and for much of the next two decades, the SEC more effectively stimulated competition than it countered fragmentation. After 1975, therefore, it was more often competitors than regulators who influenced the evolution of the NYSE.42

In the 1970s and 1980s, NYSE conservatism became a liability as new competition arose. In 1971 came Nasdaq, an electronic system that linked buyers and sellers through "market makers" who maintained a bid and ask spread. Although the NYSE's continuous auction provided better price discovery for heavily-traded stocks, newer thinly-traded issues gravitated to Nasdaq, which was better able to support them. By the 1990s, Nasdaq had sewn up the market for high growth "tech stocks." 

A different kind of competition came from the Chicago Board Options Exchange, which began trading listed stock options in 1973. This touched off a steady escalation of trading in derivatives—contracts to buy or sell often tied to NYSE stock prices—that depended heavily on mathematical models, ever faster computerized trading, and increasingly interlinked equities and options markets. The first big failure of this new market came in October 1987 when the Dow Jones Industrial Average fell 22 percent in one day, specialist firms were overwhelmed, and many wondered whether the NYSE was outmoded.43

The specialists helped effect change by merging, and by the early 2000s NYSE trading posts were dominated by a handful of firms, most owned by big brokerages. The NYSE redoubled its investment in technology, replacing the Designated Order Turnaround system created in the 1970s with a much larger capacity SuperDot system.

By the 1990s, technology had revolutionized NYSE market capacity. Since 1962, the average trade had increased from 204 to 1,441 shares and block trading (of 10,000 or more shares) had doubled. But true electronic trading, already reshaping other markets, was hardly considered at all. The fixes still drove most business to the floor. When it came to governance, despite 65 years of evolution, NYSE floor members still ruled. Whether they or the SEC would be the most influential participants in the public/private partnership remained to be seen.44

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Related Museum Resources

Papers

January 8, 1971
transcript pdf (Courtesy of the National Archives and Records Administration)
September 28, 1971
image pdf (All rights are owned exclusively by NYSE Euronext copyright 2007 NYSE Euronext, All Rights Reserved, Courtesy New York Stock Exchange Archives)
December 1, 1972
image pdf (All rights are owned exclusively by NYSE Euronext (copyright) 2010 NYSE Euronext. All Rights Reserved, courtesy New York Stock Exchange Archives. All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
June 21, 1973
image pdf (All rights are owned exclusively by NYSE Euronext (copyright) 2010 NYSE Euronext. All Rights Reserved, courtesy New York Stock Exchange Archives. All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
July 3, 1973
image pdf (Courtesy of the National Archives and Records Administration)
November 12, 1973
transcript pdf (All rights are owned exclusively by NYSE Euronext copyright 2008 NYSE Euronext, All Rights Reserved, Courtesy New York Stock Exchange Archives)
January 2, 1974
transcript pdf (All rights are owned exclusively by NYSE Euronext copyright 2008 NYSE Euronext, All Rights Reserved, Courtesy New York Stock Exchange Archives)
1975
document pdf (Government Records)
March 11, 1975
transcript pdf (Courtesy of the National Archives and Records Administration)
October 31, 1975
image pdf (Courtesy of the National Archives and Records Administration)
November 5, 1975
image pdf (Courtesy of the National Archives and Records Administration)
December 17, 1975
image pdf (Courtesy of the National Archives and Records Administration)
January 29, 1976
transcript pdf (Courtesy of the National Archives and Records Administration)
January 29, 1976
transcript pdf (Courtesy of the National Archives and Records Administration)
February 1976
image pdf (All rights are owned exclusively by NYSE Euronext (copyright) 2009 NYSE Euronext. All Rights Reserved, courtesy New York Stock Exchange Archives)
September 27, 1977
image pdf (Courtesy of the National Archives and Records Administration)
October 18, 1977
transcript pdf (All rights are owned exclusively by NYSE Euronext (copyright) 2010 NYSE Euronext. All Rights Reserved, courtesy New York Stock Exchange Archives. All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
1978
image pdf (All rights are owned exclusively by NYSE Euronext (copyright) 2009 NYSE Euronext. All Rights Reserved, courtesy New York Stock Exchange Archives)
March 28, 1978
image pdf (Courtesy of the National Archives and Records Administration)
April 20, 1978
image pdf (Courtesy of the National Archives and Records Administration)
June 23, 1978
image pdf (Courtesy of the National Archives and Records Administration)
July 26, 1979
transcript pdf (All rights are owned exclusively by NYSE Euronext (copyright) 2010 NYSE Euronext. All Rights Reserved, courtesy New York Stock Exchange Archives. All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
1980
image pdf (Government Records)
March 20, 1980
image pdf (Courtesy of David Morf)
December 4,1980
image pdf (Government Records)
December 22, 1980
Final Report on SEC by Reagan Administration Transition Team

(Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)

April 1, 1981
image pdf (Courtesy of David Morf)
July 20, 1981
image pdf (Courtesy of David Morf)
August 28, 1981
transcript pdf (Courtesy of the National Archives and Records Administration)
September 16, 1981
transcript pdf (All rights are owned exclusively by NYSE Euronext (copyright) 2010 NYSE Euronext. All Rights Reserved, courtesy New York Stock Exchange Archives. All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
October 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
October 1, 1981
image pdf (Courtesy of David Morf)
October 5, 1981
image pdf (Courtesy of David Morf)
October 6, 1981
image pdf (Courtesy of David Morf)
October 14, 1981
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
November 19, 1981
image pdf (Courtesy of David Morf)
December 2, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
December 30, 1981
image pdf (Courtesy of David Morf)
December 3, 1982
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
March 25, 1983
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
March 25, 1983
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
July 29, 1987
image pdf (Anonymous)
August 14, 1987
image pdf (Courtesy of Stuart Kaswell)
October 22, 1987
transcript pdf (Courtesy of John J. Phelan, Jr.)
October 22, 1987
transcript pdf (Courtesy of John J. Phelan, Jr.)
October 26, 1987
transcript pdf (Courtesy of John J. Phelan, Jr.)
October 30, 1987
transcript pdf (Courtesy of John J. Phelan, Jr.)
November 12, 1987
image pdf (Anonymous)
January 1988
image pdf (Anonymous)
January 1988
image pdf (Anonymous)
February 1988
The October 1987 Market Break: Report by SEC Division of Market Regulation

(Courtesy of Alton Harvey)

November 5, 1998
image pdf (Anonymous)
July 31, 2007
transcript pdf
August 2, 2007
transcript pdf

Oral Histories

08 January 2010

Brandon Becker

30 April 2007

Robert Birnbaum

10 May 2010

William Johnston

05 November 2009

Catherine Kinney

30 November 2009

Edward Kwalwasser

Programs

01 November 2007

Keeping the Markets Open - Lessons Learned from the 1987 Market Break

Moderator: Brandon Becker

Presenter(s): Andrea Corcoran, Christopher Cox, William Johnston, Richard Ketchum, David Ruder, Erik Sirri

Galleries

In the Midst of Revolution: The SEC, 1973-1981

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