Opening Up the Club

The New York Stock Exchange, long castigated by Government and other critics for acting as a private club run for the profit of a privileged few, moved last week to revise its membership. The exchange's Board of Governors caught many Wall Streeters by surprise by voting to allow its members to sell stock in their own firms to the public. At the same time, the board said that by year's end it would consider permitting mutual funds and other financial institutions either to join the exchange as associates or find some way to grant them discounts on the commissions that they pay on transactions.

Public ownership has been studied and restudied ever since Merrill Lynch suggested the idea in 1963. The issue was brought to a boil in May, when Donaldson, Lufkin & Jenrette, an aggressive company that specializes in institutional business, needed new sources of capital to finance expansion, and announced that it was willing to quit the exchange in order to go public. Since then, Chairman Daniel J. Cullen of Walston & Co. has said that his firm will go public if the exchange approves. Members of regional exchanges have also started pressing for permission to sell stock.

Traditionally, brokerage firms have been financed out of partners' pockets. But private capital can no longer hire the clerks and lease the computers needed to handle the flood of paperwork created by the huge increase in trading volume, nor can private money support the costly research staff demanded by today's increasingly sophisticated investor.

Hard Decisions. The board's proposals must now be approved by the 1,366 members of the exchange and by the Securities and Exchange Commission. And if approval is granted, the exchange must find a way to prevent disruptive takeovers of member firms by speculators, or even by the Mafia. Another problem is that many of the smaller firms will have a hard time selling their securities in competition with the big brokerage houses, and some are likely to fold for lack of capital. The smaller firms, which have relatively high overhead, also stand to be hurt by volume discounts for the institutional buyers. In general, the securities industry seems to be moving toward lower commissions for the institutions and higher commissions for small, individual traders.

For all the many problems involved in public ownership and volume discounts, the Wall Street Establishment can no longer afford the luxury of putting off its decision. The SEC and the Justice Department have made clear that they are ready to step in, if necessary, to open up the club and reduce the commissions on big trades.

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