Public Regulation of National Securities Exchanges: A Test of the Capture Hypothesis

G. Schwert

Bell Journal of Economics, 1977, vol. 8, issue 1, 128-150

Abstract: This paper tests the hypothesis that members of national securities exchanges have received net benefits from the regulatory activities of the Securities and Exchange Commission. The prices of stock exchange seats are analyzed in time periods of major changes in the regulation of the securities industry during the 1926-1972 period. Time series regression models are used to identify changes in seat prices which are unrelated to changes in stock prices or share trading volume. Empirical analysis of the unexpected changes in seat prices indicates that the most important regulatory change occurred in March, 1934, when the Securities and Exchange Act was first considered by Congress; both New York and American Stock Exchange seat prices fell unexpectedly by about 50 percent in one month. There is no evidence that this capital loss was ever recouped after March, 1934. There is also evidence that recent changes in the fixed commission rate structure of the brokerage industry have had a negative impact on seat prices. Thus, there is evidence which contradicts the hypothesis that securities brokers have benefited by capturing control of the regulators of the securities industry.

Date: 1977
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