Restraint on the Floor

Round 1 of the feud between the New York Stock Exchange and the Securities and Exchange Commission ended last week--and both sides claimed victory. But in fact, the Stock Exchange seems to have suffered two setbacks that may have important long-range implications.

Bowing to the demands of the SEC, the exchange agreed to put serious restraints on the Big Board's floor traders, who buy and sell for themselves with no responsibility to the public (TIME, April 3). Each floor trader henceforth will have to maintain a minimum capital balance of $250,000 and trade against the trend of the market at least 75% of the time--buying when stocks are falling and selling when they are rising.

Most important, the new rules will end almost all the part-time floor trading now carried on by some 400 exchange members, who also execute orders for the public. Exchange President Keith Funston called the new measures a happy compromise, but the SEC actually got almost all that it wanted. The commission is now in a considerably stronger position to push through its other proposed reforms, including tougher SEC controls over the exchange's specialists and odd-lot dealers.

At the same time, Funston faced a revolt of sorts in his own back yard. He called a private meeting of leaders from 80 New York brokerage houses to discuss--as the exchange put it--routine matters. But the session turned out to be tense, and a number of brokerage partners voiced displeasure with the exchange's leadership. Many big brokers have long complained that the exchange's 33-man board is dominated by the specialists and other insiders who work right on the exchange floor and thus stand to profit from their inside status. Such men have a dozen board seats against only ten held by the New York-based brokers who work outside the exchange. The exchange plans to give the outside brokers one more place on the board, and to take away one of the insiders' seats. If that concession does not satisfy the rebellious brokers, they may well stage their own proxy battle in board elections next month.

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