(Courtesy of Milton Cohen )
The Special Study would be released in several parts during 1963. A leading historian of the SEC has called the Special Study "undoubtedly the single most influential document published in the history of the SEC," providing "the foundation for most of the reforms that occurred in the securities industry in the ensuing fifteen years."(9)
Central to the findings of the Special Study were the limits of industry self-regulation. The Special Study concluded that industry self-regulation had often been self-interested, more protective of industry business concerns than the concerns of the public. The Special Study pointed to the lack of securities industry standards for ethical conduct regarding entry requirements, selling practices, back-office procedures, and for the behavior of floor members. It also noted the problems of fixed commission rates and mutual fund selling practices that often hurt small investors. The Special Study highlighted lenient exchange disciplinary procedures for rules violations, and numerous instances of unethical or fraudulent practices by sales personnel. (10)
The Special Study provided the impetus for additional regulatory efforts by the SEC. Cary established a new Office of Program Planning, with Walter Werner as Director, to work with the securities industry to implement the SEC's expanded program for policing rules violations.
Perhaps most importantly, the Special Study refocused the SEC's emphasis on fiduciary issues, those issues that had been most emphasized during the New Deal. Protecting investors from unfair and unequal stock exchange practices such as fixed-commission and brokerage house rates, commission rebates to exchange members trading in mutual funds, and undisclosed reciprocal trading and service arrangements which raised the cost of trading to investors, became a major focus of the SEC as a result of the Special Study.
(9) Seligman, Transformation, 299.
(10) Ibid, 330-334.
(Courtesy of Stuart Kaswell; made possible through a gift from the family of Milton H. Cohen)
