Amendments to the Securities Act passed in 1936 (referred to as the "Unlisted Securities Trading Act") gave the SEC broad jurisdiction over unlisted securities, including the determination of the extent and forum for trading those securities.(1) Under Chairman Kennedy the SEC began significant reform of the nation’s stock exchanges. In 1934, Kennedy’s first priority was to revive the floundering securities market. Adopting a cooperative approach, he sought to encourage honest enterprise even as the Commission prosecuted examples of security fraud.
This cooperative approach paid dividends but could not break the hold of the exclusive club that was the governing board of the New York Stock Exchange. Kennedy's attempt at exchange reform could only work with the cooperation of the NYSE Board of Governors. Then-NYSE President Richard Whitney signaled that cooperation was fine, so long as the Exchange ultimately decided and controlled its own affairs. Throughout 1935-1937, the stock exchanges enforced their own rules on member trading and the segregation of the duties between brokers and dealers intended to protect investors and prevent conflicts of interest, in the exchanges and in the over-the-counter market. In January 1935, the SEC reported that the exchanges’ internal governments were "negligent, archaic, and oligarchical" yet it recommended against mandatory segregation and regulation of those accounts. Concerned about the effect of its actions on economic recovery, the SEC hesitated to force its hand on the exchanges.
The increasing legislative responsibilities given the SEC by PUHCA and the Unlisted Securities Trading Act corresponded to the rapid rise of William O. Douglas at the SEC. Douglas, who was then dividing his time between his Yale teaching and SEC work, was anxious to become Chairman where he could push even harder for economic reform. His years in Washington had taught him the art of politics and self-promotion. When the old guard of the New York Stock Exchange blamed the 1937 recession on the New Deal, and specifically on the policies of the SEC, Douglas counter-attacked with a spirited defense of New Deal policies, gaining the attention of the President. Roosevelt made it known that Douglas was his choice, and when Landis resigned to return to Harvard, the Commission elected Douglas Chairman on September 21, 1937.
During his tenure as Chairman until his confirmation by the Senate to the Supreme Court on April 4, 1939, Douglas would transform the administrative capacity of the agency. He would soon become "the man who got things done" on the increasingly powerful and efficient Securities and Exchange Commission.(2) With the Electric Bond and Share victory in the Supreme Court and the notorious scandal involving New York Stock Exchange scion Richard Whitney, Douglas and the SEC would cement their reputation as the New Deal’s most lasting and important agency.
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