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"Serious problems" were also uncovered among stock specialists, those professional risk takers who are supposed to soften swings in prices by buying or selling "against" the market trend. The SEC group says that specialists are not always willing to go out on a limb, that they profit on about 88% of their transactions, and that their inside information on how the market is trending gives them a leg up on other investors. During the 1962 market crash, some specialists cushioned the slide in General Motors, Jersey Standard and Brunswick, but those handling A.T. & T., IBM and Korvette did not. "Specialists are like all people," testified one specialist to the SEC. "They get frightened." Recommended: closer SEC supervision of specialists and new rules forcing them to have more capital, to buy when stocks are dropping and not to interfere in market opening prices, which the SEC feels should be determined by public supply and demand.
The SEC study also accused short sellers of aggravating last year's market break by dumping shares that they hoped to buy back later at a lower price. On "Blue Monday," May 28, 1962, short selling accounted for more than 16% of the sales of U.S. Steel and Korvette shares and, said the SEC, "undoubtedly contributed to the downward movement." The SEC proposes a ban on short selling in times of "general market distress."
For Strength. Just as U.S. business itself has modernized, the SEC believes, so should the financial markets. Nothing in its report suggests any basic change in the share-capital system that U.S. finance is justly jealous of. In fact, most of the reforms—though they may be hard on some individual professionals—are designed to make the market more fluid and to attract the greater number of investors needed by growing U.S. business. "This report," said Chairman Gary, "should not impair public confidence in the securities markets but should strengthen it as suggestions for raising standards are put into practice."