Wall Street: A Little Self-Reform

Six months ago. when the SEC announced its intention of investigating all the nation's stock markets, some Wall Streeters wondered where Washington would find enough securities experts to handle the job. Last week the signs were that Wall Street itself might take a good deal of the load off the SEC's shoulders.

Anxious to forestall any lurid SEC revelations, the financial community is in the midst of a frantic bout of self-policing. Three weeks ago, the governors of New York's American Exchange secured the resignation of longtime Amex President Edward McCormick (TIME, Dec. 22). Last week, in a follow-up move, a special Amex investigating committee urged a sweeping reorganization of the exchange, which would bring its practices closer into line with those of the well-policed New York Stock Exchange. Chief changes proposed: to increase the policing power of Amex's administration, decrease the number of "self-perpetuating" Amex governors who represent nobody but themselves, and to leaven the presently New York-dominated board with a number of out-of-town members.

An even more drastic reformation of the securities business was called for last week by the National Association of Securities Dealers, which is composed of 4,760 brokerage firms and acts as a semiofficial adjunct of the SEC. After studying the underwriting of 300 new stock issues put out by "unseasoned" companies, the N.A.S.D. concluded that in many cases the underwriting brokers had been far too greedy. In one "hot" issue underwriting, reported the N.A.S.D.. the broker had received a 10% commission, an equal amount in underwriting expenses, and options to buy, at $5 a share, 50,000 shares of stock that promptly jumped to $10. Noting that the return to the broker may have hit $350,000 (or 69%) of the original stock offering, the N.A.S.D. coldly implied that, hereafter, excessive underwriting charges could be punished with expulsion from N.A.S.D. membership—which, in effect, would mean expulsion from the securities business.

The New York Stock Exchange added a warning of its own. In all cases, said a Big Board circular last week, a broker should think long and hard before becoming a director of a company whose stock he had underwritten, or before accepting options to buy the company's stock at a price likely to run below subsequent market prices. Such activities, noted the New York Stock Exchange statement dryly, were apt to place a firm "in the position of being unable to defend its actions from charges of manipulation."

Last week, as the stock market staged the year-end rally that has occurred every December since 1897, employees of U.S. brokerage firms had good reason to stage a rally themselves—around their Christmas trees. The nation's biggest brokerage house, Merrill Lynch, Pierce, Fenner & Smith Inc., gave 7,900 of its employees bonuses totaling $10.9 million, 55% more than last year. Elsewhere on the street, in reflection of the New York Stock Exchange's first billion-share year since 1929, employee bonuses ranged from a piker's minimum of one week's salary up to 70 weeks' salary.