Wall Street is more than just a seven-block thoroughfare in Lower Manhattan: it is also a marketplace for 17 million investing Americans, a worldwide symbol of capitalism, and a national pool of money from which American business draws its financial sustenance. The Street has meant profit for many investors and grief for some, and since World War II has raised $43 billion for the expansion and modernization of U.S. industry. Any man can buy a piece of what Wall Street offers with a down payment of as little as $2, but the men who really run the Street, says the Securities and Exchange Commission, are a small and clubby circle of insiders.
Last week a group of investigators for the SEC reported that these men often overcharge and insufficiently protect the small investor, and called many of the rules by which they work outmoded, ineffective, and in need of reform. This was the essence of 2,100 pages of findings in the second report of a three-part series on the financial markets, it followed a thorough, 1½-year study by a team of 65 lawyers, economists and SEC staffers under Milton H. Cohen, 51, a sad-eyed and careful Chicago attorney.
The SEC group found few outright abuses of the stock market's rules, but its recommendations struck deeply at five major areas (see box on next page) that make up the very heart of the market, promised the most sweeping overhaul of Wall Street since the Pecora investigation set up the SEC 30 years ago. The SEC recommended that trading in stock issues that are "unlisted" on any exchange be automated and perhaps made cheaper for the investor, and that the cost of trading in "odd lots" of fewer than 100 shares be lowered. It asked for closer regulation for the stock exchange specialists and bearish "short sellers," and suggested that the exchanges' anachronistic floor traders be abolished altogether.
Long Overdue. Having been relieved last spring at the relative mildness of the first part of the SEC report (TIME, April 12), Wall Streeters were shocked by the sharpness of Part 2. Some grumbled that the criticisms and suggestions were "wild" and "unknowing." Said Floor Trader Edwin H. Stern: "The other floor traders think what I think. They don't know what to think." But after the first shock, many close observers of the market acknowledged that the proposed reforms are long overdue, would bring the market up to date and raise investor confidence.
Speaking with the slow deliberation of a man who does not want to rouse the bears, Investigator Cohen conceded that the proposals are "quite controversial" and said that the SEC commissioners might find some "alternative solutions." SEC Chief William L. Gary and the four other commissioners already have the power to order most of the changes, but Gary, a tough and even-tempered former Columbia law professor, does not intend to take any action until Wall Streeters get a chance to speak their piece at public hearings.
Illusory Value. The SEC investigators were disturbed most that the market's safeguards for small investors seem inadequate and that its devices for moderating market swings often sharpen them instead.