Report of special study of securities markets of the Securities and Exchange Commission

This chapter is concerned with trading markets which are organized as exchanges, as distinguished from over-the-counter markets. The treatment of securities exchanges in this chapter relates primarily to their functioning as trading markets, and to the roles of those exchange members who are directly involved in the trading mechanism. Thus, detailed discussion of the exchanges as self-regulatory bodies is left to chapter XII. Exchange listing rules and practices, which in part determine the securities traded on exchanges and impose certain regulations on their issuers, are considered in chapters VIII and IX.

The entire chapter focuses primarily on the New York Stock Exchange (NYSE). Although there are 14 registered national securities exchanges, it goes without saying that the NYSE is by far the most important securities market in the country. As is noted in chapter I and elsewhere in this report, the dominance of the NYSE extends to every area of the securities industry: with few exceptions, the leading firms in the industry are among its members, and the securities for which it is the primary market include the outstanding corporations in the country. Its various trading rules and procedures are of paramount importance for these reasons and because they influence and affect the rules and practices of other exchanges. In light of the importance of the NYSE and its members, some general data about the securities traded on the NYSE and about its member firms are set forth in sections 3 and 4 of this part to serve as a background for the chapter as a whole.

1. THE LEGISLATIVE BACKGROUND

The Exchange Act contains many provisions relating to the various mechanisms and operations of the exchange markets. In general terms it may be said that the Commission has been granted broad authority, direct and indirect, over the auction market. However, as with most legislation, many of the statutory provisions were designed to meet certain specific problems-in this case the problems were connected with various manipulative activities characteristic of the speculative atmosphere of the 1920's. In a statement entered in the Congressional Record, Senator Fletcher, one of the sponsors of the bill which was to become the Exchange Act, stated:

Although the bill does not prohibit all speculative activities on stock exchanges, its purpose is to make stock exchanges marketplaces for investors and not places of resort for those who would speculate or gamble."

1 While the auction market is examined in this chapter mainly in terms of the NYSE, it should be noted that, in the mechanics of its trading market, the American Stock Exchange (Amex) closely resembles the NYSE. The other exchanges are of lesser importance as auction markets, and for the most part present different questions; attention is given to these exchanges primarily in chs. VIII and XII.

278 Congressional Record 2270 (1934).

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