It is a measure of the uncertain state of the New York Stock Exchanged that the price of a once-coveted seat, which sold for as much as $515,000 just eight years ago, last year went for a little as $40,000.
The reason for the bargain-basement price is that the NYSE has been forced by federal law to reform. And some observers wonder if the crusty institution can survive the shock of change.
Significantly, last year even as the 184-year-old exchange was under siege by federal regulators and by reform-minded Wall Streeters, many member firms were enjoying record of near-record profits. In days gone by, the exchange's health would have reflected more closely that of its members.
In 1975, despite opposition from the securities industry in general and the NYSE in particular, Congress amended the Securities Act of 1934. The most controversial section of the new law demanded nothing less than a reformation of the entire securities market system.
Congress called on the Security and Exchange Commission to prod the industry into establishing a national market system for trading securities. The NYSE's dominance was to end, replace by a new system that would foster competition among the country's six major exchanges as well as the over-the-counter market.
Actually, Wall Street had begun to change, albeit reluctantly, even before the 1975 amendments. Change was forced by a combination of SEC prodding and a new and powerful market force, and institutions.
The institutions - insurance companies, mutual funds and banks that manage huge portfolios - were treated no better than small investors by the exchange. Though they traded huge quantities of stock, they paid fixed commissions on trades. Moreover, exchange rules forbade institutions from buying seats, thereby assuring fat commissions on the institutional business to NYSE specialists.
On May Day 1975, despite dire predictions that grass would grow on Wall Street, the NYSE gave in to SEC and institutional pressure and dropped fixed commission rates. Big institutional customers now negotiate commissions with NYSE members an important factor in increasing competition for business on the exchanges.
A month later, the SEC won another battle. The NYSE and the American Stock Exchange began reporting over their stock transaction tapes all trades both on and off the exchanges' floors.
Before this, NYSE and AMEX tapes reflected only trades between members carried out on the exchange floors. This effectively kept the public in the dark about the price at which stocks were trading on regional exchanges and over the counter.
The new consolidated tape means that if a person wants to buy AT&T, for example, he can learn which exchange is offering the stock at the best price by looking at the tape. Then he can place his order at that exchange.
In the 1975 legislation, Congress went directly to the heart of the NYSE by attacking the so-called Rule 390. Under the rule, member firms are allowed to trade NYSE registered shares only on the New York Stock Exchange and a few other exchanges. The rule precludes trading the stocks over the counter where better prices might be available.
Rule 390 protects the role of specialists. Each NYSE stock has a specialist who handles trades, gets commissions on each trade, and is supposed to maintain an orderly market in the stock.
To critics of the NYSE, Rule 390 helps perpetuate the monopoly enjoyed by the specialists. Boosters of 390 say that the specialist insures that customers' orders will be executed properly. To do away with Rule 390 is to invite chaos, say those who favor the specialist system.
In pressing for an alternative to 390, Congress in the 1975 legislation established a National Market Advisory Board.
Since the fall of 1975, the 15-member board of SEC officials, public representatives and broker-dealers has met two days a month, mostly at the SEC in Washington .
This month, it will make one of the periodic reports to Congress that a new regulatory body is not needed at present to oversea the still unformed national market system.
The board by statute, must come up with "steps . . . to facilitate the establishment of a national market system." It must decide whether Congress will be satisfied with some modification of Rule 390, or if there must be an entirely new approach that might render the NYSE useless.
The SEC already has weighed in with its alternative to Rule 390. it proposes a computerized national market system called CLOB (Composit Limit Order Book). Brokers would feed all buy and sell orders into the computer. The brokers also would tell the computer the buy or sell price at which to exercise a trade and the quantity of stock involved.
For example, suppose an investor wants to sell 1,000 shares of XYZ Corp., a NYSE traded company, at no lower than $25.50 a share. Under Rule 390, XYZ would be sold through a specialist on the floor of any exchange trading the security.
If the commission's CLOB were adopted, the XYZ offer would be fed into a national computer system. Potential buyers all over the country would be instantly aware of the offer.
The big exchanges, along with the National Association of Securities Dealers, formed a trade group called the National Market Association (NMA: to produce an alternative to the SEC's CLOB.
So far, at least, the board is unimpressed with progress made by the NMA, according to John J. Scanlon, chairman of the board.
Like all others involved in the formation of a national market system, the SEC has had its share of criticism. Rep. John E. Moss (D-Calif.), who played a significant role in writing the 1975 act, has put heat on the SEC, which he criticized last fall for "timidity and reluctance . . . to disturb the status quo."
What promises to cause problems for the SEC's CLOB is its cost. Scanlon estimated that a CLOB system would cost about $20 million, including one year of operation.
As the national market system looms larger, even the New York Stock Exchange has eased its opposition.With the departure last May of NYSE Chairman James J. Needham, the system lost one of its most outspoken critics.
This year, the SEC plans to press for improved communications between markets. But it will be another three to five years before a national market system of some kind will be in operation.