Long before the completion of the Special Study, the New York Stock Exchange, concerned about its implications for NYSE members and for the stock market in general, organized a concerted effort to react and respond to demands made by the Special Study staff. Both the SEC and the NYSE realized that the recommendations of the Special Study could have dramatic effects on the way the exchanges did business.
NYSE President G. Keith Funston created "Operation S.E.C.," a confidential NYSE staff group which communicated to the NYSE Board about each SEC request or meeting, and discussed how to respond to likely SEC requests and recommendations. The NYSE supported self-regulation of market problems and its own members' practices. The NYSE was convinced that the SEC did not fully appreciate the economic complexities involved in regulating market practices.
The correspondence and meetings between Cohen and his staff and Funston and his staff document an intricate and complicated effort to measure each other's intentions and goals, while remaining professional and cordial. In that respect, the SEC's approach under the Special Study differed from the attitude of the SEC under Chairman Douglas, which had engaged in open warfare with the NYSE and its officers. By 1962, the SEC had established a reputation for effectiveness among administrative agencies, choosing cooperation rather than confrontation as the best approach.
