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1 James Wm. Moore & Frank M. Wiseman, Market Manipulation and the Exchange Act 46 (1935)

handle is hein.tera/markmane0001 and id is 1 raw text is: MARKET MANIPULATION AND THE EXCHANGE ACT JAMES VM. AMOORE* AND FRANK M. VISEMANt il THE MARKET CONCEPT T was inevitable that some type of measure should be taken to correct the evils of over-speculation' and financial racketeering' occurring on organized security exchanges, and to prevent as far as possible an- other major stock market crash with its attendant grief and destruction. The Securities Exchange Act of I9343 is the federal government's proffered solution. Since the aim of this paper is to examine the market concept under the Act, and that concept of a free and open market previously de- veloped, no detailed analysis of the measure will be attempted. Its princi- pal objectives are: (i) to curb excessive speculation; (2) to give the public adequate financial information concerning the securities traded in; and (3) to prevent illegitimate manipulation of security prices and protect the public against unfair practices. To effect these, the Act enunciates certain * Sterling Fellow, Yale University School of Law. t Member of the Ohio Bar. I Loans to brokers on the New York Stock Exchange alone reached the unprecedented total of about $9,ooo,ooo,ooo at the peak of the bull market. The period between January 1, 1927 and October x, 1929 accounted for an increase of $5,3ooooo,ooo. Loans declined $3,000,- ooo,ooo in the first ten days of the debacle, and continued to decline for the next three years. These loans indicate the extent of stock market speculation. Feverish activity in trading is another indication. In the ten years before the war the yearly transactions in stock on the New York Stock Exchange averaged about T55,000,000 shares; in 1929 the volume had reached 1,125,000,000 shares; and in 1933, despite the depression, 654,ooo,ooo shares were traded in. Twentieth Century Fund, Stock Market Control (1934), C. i and c. 6 at 86-95; 78 Cong. Rec. 7992-7993 (1934). The extent to which inflation had gone and the consequent deflation when the bull market broke may be gathered in part from the following figures: in r929 the total value of stocks listed solely on the New York Stock Exchange was nearly $89,ooo,ooo,ooo; in X932 it had shrunk to less than $16,ooo,ooo,ooo; bonds on the same exchange had declined from $49,000,- ooo,ooo in September, 1930 to $3i,ooo,coo,ooo in April, 1933. An extreme case of deflation is the decline in Insull Utilities Investment, Inc., from a high of approximately $r49 to I of a point in 1932. Twentieth Century Fund, Stock Market Control (1934) 7; 78 Cong. Rec. 7992, 84o1 (1934). 2See generally the reports of the proceedings before the Senate Committee on Banking and Currency investigating stock exchange and banking practices published in 1933 and x934. 3 P.L. No. 291, 73d (2d sess. 1934); 15 U.S.C.A. § 78a (1934). See Tracy and MacChesney, The Securities Exchange Act of 1934, 32 Mich. L. Rev. 1025 (1934); Meyer, The Securities Exchange Act of 1934 (1934).

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