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