Public Regulation of National Securities Exchanges

A Test of the Capture Hypothesis

G. William Schwert

University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research

The Bell Journal of Economics, 8 (Spring 1977) 128-150

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 periods of major changes in the regulation of the securities industry from 1926-72. Time series regression models are used to identify changes in seat prices that are unrelated to changes in stock prices or share trading volume. Empirical analysis of the unexpected changes in seat prices shows 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. There is also evidence that contradicts the hypothesis that securities brokers have benefited by capturing control of the regulators of the securities industry.

Key words: Regulation, S.E.C., Stock exchange, Stock exchange seats

JEL Classifications: G14, G28

Cited 46 times in the SSCI and SCOPUS through 2020
© Copyright 1977, AT&T

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