Securities and Exchange Commission Historical Society

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

Rules of the Club

Co-Opting the Club

"I believe in stock exchanges. I do not believe you should kill them. I do believe you should regulate them—not because I have any social philosophy in regard to the subject—but because as a sheer matter of economic wisdom they should be regulated."

- February 26, 1934 Excerpt of Testimony of Thomas Corcoran on the Securities Exchange Act before the Committee on Banking and Currency, U.S. Senate

The stock market crash and the Great Depression discredited business institutions in the eyes of the American people, none more so than the New York Stock Exchange. Reforms predictably followed. The NYSE required listed companies to disclose their holdings in unconsolidated subsidiaries and intercompany profits, and even suspended and delisted a few companies. Brokers were required to sign ethical conduct agreements. But, when President Hoover explicitly asked the NYSE to outlaw stock pools, it refused.21

NYSE intransigence left the field to the reformers of the Roosevelt administration. But, despite the aspirations of doctrinaire New Dealers like Felix Frankfurter, practical legislative draftsmen such as Thomas Corcoran—let alone most members of Congress—never seriously considered mandating day-to-day supervision of the stock exchanges by the government. Instead, as the SEC Special Study of the Securities Markets later put it, "self-regulation was originally advanced and adopted as a feature of Federal control on the ground of practicality."

Rather than scrap the rules of the club, the New Dealers decided to co-opt them. The Securities Exchange Act of 1934 thus reflects a compromise: self-regulatory organizations would register with the SEC as "national securities exchanges," and, under the SEC's oversight, would enforce compliance with their own rules as well as the federal securities laws. In addition, in words already included in the NYSE constitution, the SROs would continue to uphold "just and equitable principles of trade."22

<<Previous Next >>


(21.) Parrish, Securities Regulation and the New Deal, 40; Sobel, The Big Board, 284.

(22.) May 23, 1934 Letter from Felix Frankfurter to President Roosevelt with advice on staffing the SEC ; 1963 SEC Special Study of the Securities Markets, 501.

Related Museum Resources


April 23, 1932
document pdf (Government Records)
February 26, 1934
document pdf (Government Records)
February 26, 1934
document pdf (Government Records)


(Courtesy of the Library of Congress )


431 Days: Joseph P. Kennedy and the Creation of the SEC

Permission for Use

The virtual museum and archive is copyrighted by the SEC Historical Society. The Society reserves the right to restrict access to or use of the museum by any user at any time.

Users are prohibited from sharing or downloading any material for publication or commercial purposes without written permission from the Executive Director. Requests for permission must be submitted by email and specify the material requested and for what purpose.

Material used with the Society's permission should be credited to: