Securities and Exchange Commission Historical Society

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

Rules of the Club

Coherence of the Self-Regulatory Regime

Although New York was at the center of the growing national economy, the Board of Brokers remained relatively small, with seventy-five members in 1848. This was partly by design, since the quality of the market depended on the participants. The board kept careful watch on member solvency, promptly suspending defaulters and steadily raising initiation fees to a remarkable $400 by 1848. By then, the Board of Brokers had earned its reputation as a "gentlemen's club." 7

The 1817 constitution provided for pure democracy—disputes and resolutions were decided by the members as a whole. But as a practical matter, specific jobs were soon delegated to ad hoc committees whose recommendations were usually approved by the full membership. Listing decisions, for example, were made informally at first, but by 1856 the task was assigned to a committee. By then, the Board of Brokers was self-consciously building a coherent self-regulatory regime.8

From the first, however, this member-controlled regime inevitably favored the floor over the investors that it served, particularly in enforcement. Committees could be expected to deal severely with those who violated minimum commission rules. However, from 1817 to 1860, the board claimed to detect only two cases of fictitious sales, and in neither case were the perpetrators punished.9

Still, the Board of Brokers flourished because its capacity for price discovery gave it influence far exceeding its actual size. By the late 1850s, telegraph service enabled the exchange to provide price information for traders in nearly every other major American city. With growth came a second daily auction and a new name.

On January 29, 1863, the board changed its name to the New York Stock Exchange. By then, the five key aspects of the club rules had been well defined: 1) admission, 2) expulsion, 3) fixed commissions, 4) rules of trade, and 5) incipient listing standards.10

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(7.) Banner, Anglo-American Securities Regulation, 254, 258. Both the Boston and Philadelphia exchanges were larger than the Board of Brokers.

(8.) Banner, Anglo-American Securities Regulation, 272. In settling an 1837 dispute, for example, committee members acknowledged that their decision would set precedent.

(9.) Banner, Anglo-American Securities Regulation, 274-78.

(10.) Banner, Anglo-American Securities Regulation, 255-56; Sobel, The Big Board, 53-60.

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March 7, 1861
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