Happy Birthday, Big Board

As befits an institution that began business under a colonial buttonwood tree,* the venerable New York Stock Exchange now observes only every 25th birthday. For its 150th anniversary in 1942, trading halted one hour. It was a desultory day, with only 216,620 shares traded, and the Dow-Jones industrials ended up at 98.65.

Last week the exchange celebrated its 175th year, and things were considerably different. Trading stopped for a mere 13 minutes to mark the event, the day saw 9,560,000 shares traded, and the Dow, although off 3.56 points, finished at 882.24, a level no one would have predicted 25 years ago. On hand to salute the viable U.S. economy which made all this possible was Hubert Humphrey, who described himself as a "longstanding capitalist as the proprietor of Humphrey's Drug Store in Huron, S. Dak.," a role he played before he became Minneapolis mayor, U.S. Senator and finally Vice President.

Humphrey's was not necessarily the most compelling Washington presence on Wall Street last week. One guest in 1942 had been First Lieut. William McChesney Martin Jr., who had been installed four years earlier--at 31--as Big Board president, and had left that post for the Army. Now, even more illustrious as longtime chairman of the Federal Reserve Board, Martin returned to get a nervous welcome from his old colleagues; a Martin jeremiad two years ago against excessive speculation touched off a drop that became known as "the Martin Market."

Unconcerned, the Fed's chairman delivered another lecture, this one against speculative trading by institutions. "Increasingly," said Martin, "managers of mutual funds, and portfolio and pension-fund administrators are measuring their success in terms of relatively short-term market performance. In effect, they set a target on a growth stock, attain that target, unload, and then seek other opportunities for quick capital gains." Given the size of their buying power, said Martin, such activity "may virtually corner the market in individual stocks," at the least cause undesirable price fluctuations. "Practices of this nature" said he, "contain poisonous qualities reminiscent of some respects of the old pool operations of the 1920s."

Private Club. So saying, Martin conjured up memories that last week's celebrants would just as soon ignore. Today, directly and indirectly, 22 million Americans own 11 billion shares of 1,285 Big Board companies. Until 30 years ago, the exchange operated as a private club, and the little investor was usually at the mercy of manipulators. The 1901 clash between E. H. Harriman and James J. Hill for control of the Northern Pacific Railroad, for instance, wiped out many a small trader and nearly wrecked the exchange.

After World War I, men like Jesse Livermore, Arthur W. Cutten and Bernard E. ("Sell 'em Ben") Smith preyed on the public. One bull device was the pools about which Bill Martin spoke: speculators pooled their capital, corporate connections and trading talents, and then quietly bought stock in a company. They artfully pushed up its value, suddenly sold out and let artificial prices plunge. One such pool in Sinclair Consolidated Oil earned $12,618,000 for Harry F. Sinclair and a group of cronies. Another in Radio, as RCA was then known, netted nearly $5,000,000 for a 70-member syndicate.

"He Has Made His Pile." The practice was halted only after Congress passed the 1934 Securities Exchange Act and F.D.R. named Joseph P. Kennedy to head the new Securities and Exchange Commission. Ironically, Kennedy the year before had made $60,800 on Libbey-Owens-Ford Glass Co., one of the last pools. "The President has great confidence in him," noted Harold Ickes' diary. "He has made his pile and knows all the tricks of the trade."

Today, as Bill Martin would be the first to say, the 1,400-member exchange is much more honest. And its problems are more sophisticated. One is the battle between big brokerage houses, which want lower fees, and smaller outfits, which want to raise them. Another problem is that, with 10 million-share days common, the tickers are obsolete and transactions take unnecessarily long. The biggest problem of all for the board of governors, and for Robert W. Haack, who this fall succeeds Keith Funston as president, is whether floor trading can be handled more efficiently by machine than by men; the exchange is considering moving to nearby New Jersey with automated equipment to escape New York City's stock-transfer tax. By its 200th birthday celebration, the speeches may well be made by computers.

* Now known as a sycamore.

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