"It feels good that for once the New York Stock Exchange and the member firms have been able to carry out a successful lobbying effort in Washington when their own self-interest was really at stake," proclaimed the head of one of New York's biggest and most powerful brokerage firms.
While he didn't want his name attached to his perhaps premature boast, this Wall Street chieftain was talking about the onslaught of pressures - from both the Street and from corporate suites - that has been directed at the Securities and Exchange Commission as it contemplates what to do about NYSE Rule 390 and other off-board trading restrictions. This pressure, some of it coming through key members of Congress, is believed to have deflected the commission if not actually determined the final outcome.
The SEC, for its part, denies the lobbying campaign has affected its decision-making but acknowledges it has bogged down in deciding on whether or not to eliminate the rule, and whether to tie toward a national market system.
The New York Stock Exchange, with the most at stake in this proceeding, has argued, persuasively, that elimination of Rule 390 without having some national market system link-up already in place could lead to fragmented dealer markets springing up and would threaten the existence of the exchanges. This has been echoed by other exchanges and most of the brokers.
Rule 390 - like similar rules on other exchanges - is indeed a linch-pin for the way the present system of stock trading operates. It bars NYSE member firms from trading stocks directly with customers, requiring that they bring these trades to the floor of the stock exchange for execution.
Without Rule 390, the members would be free to begin making markets in securities, selling directly to brokerage customers and buying from them without ever setting eyes on an NYSE specialist.
And indeed Merrill Lynch, Pierce, Fenner & Smith and Dean Writter & Co., two of the every largest and most aggressive firms, indicated that if the rule was removed they would begin acting as dealers in selective securities - those with the highest trading interest.
The SEC, in a lengthy release last June, said that it had determined the rule was definitely anti-competitive but that it would hold hearings on whether it should be done away with by Jan. 1, 1978. The only reason, for retaining the rule, it stated, was the presentation of proof that the rule was necessary to carry out the objectives of the Securities Exchange Act for fair and orderly trading of securities.
The way the release was worded - with the burden of proof clearly placed on the exchanges - led many in the brokerage community to believe the SEC was intent on eliminating the rule by the beginning of next year.
But now, after August hearings and with the Jan. 1 deadline hearing, it looks virtually certain that no end to Rule 390 will be mandated by this date. It is even likely that there won't be a decision from the SEC by then.
"Should we miss the Jan. 1 date, and this will be true, it doesn't mean the Commission has lost the will to act properly," said Andrew M. Klein, head of the SEC's division of market regulation who is in charge of drafting options for the Commission on this question.
So why the delay?
"This is probably the most complex regulatory problem the Commission has ever confronted," Klein said. "It touches upon so many things, so many aspects of the securities industry, it is so bound up in the national market system and its objectives, the results of removing the rule are so difficult to unravel, that it's not an easy problem or one amenable to being isolated for consideration."
Klein also acknowledged the pressure campaign that has been waged by Wall Street but claimed it has had more effect on Congress, "where they've gotten a lot of mail, but it hasn't had any effect here."
One unique element in the current lobbying campaign is that it has been channeled through the chief executives of some of America's largest corporations. in the past the brokerage community has often felt frustrated in Washington because of its concentration in New York City, and therefore the narrow geographic base from which to lobby.
But NYSE Chairman William M. Batten, formerly the head of J.C. Penney and a long-time prominent member of the Business Council which is a forum for America's largest corporations, has enlisted these companies and others listed on the Big Board in making the case for the NYSE.The argument made to the companies is that their capital raising ability would be impaired if Rule 390 goes out the window.
And prominent investment bankers like Morgan Stanley and Goldman Sachs reportedly have also contacted some of their blue-chip clients, telling them that it might be harder to raise money in the stock market in the future, as if it isn't hard enough already.
"From the standpoint of generating a lot of letters from very distinguished people who urge the Commission to be cautious, to go slow, not to do it, they've been very effective in that," Klein conceded.
"But the Commission's determination in these areas is not a matter of a public vote or a popularity contest," he added. "We're involved in an intellectual process, considering the merits of a particular issue, and we're not in the business of having anyone make up our minds for us."
Some opinions do weigh in more heavily than others, especially those of the two Congressmen who were most responsible for enacting the 1975 Securities Exchange Act Amendments that mandated the national market system and also caused the current Rule 390 hearings to take place.
Both Rep. John E. Moss (D-Calif.) and Sen. Harrison A. Williams Jr. (D-N.J.) recently wrote letters to SEC Chairman Harold M. Williams, but took opposite positions.
Moss said the Commission should not indefinitely extend the off-board trading rules until some new market mechanisms are put into effect, presumably the core of a national market system, but should instead "establish a firm date" for removing the rules.
Sen. Williams said that the SEC should proceed with great caution and evaluate the risks involved in removing the off-board rules, and should eliminate them only if "synchronized with other steps calculated to build the technological and regulatory scaffolding of the national market system."
SEC Chairman Williams, responding to the Senator's letter on Oct. 21, said he wished to affirm "the Commission's commitment to resolving the question of their elimination in a manner which also gives appropriate weight to the Exchange Act, including the establishment of a national market system."
The interpretation placed on this letter by the industry is that the SEC will wait until there is a national market system in place before the off-board rules are removed, and that now the Commission is deciding how actively and by what means it should prod such a national market system in to existence.
Meanwhile, the Rule 390 proceeding has already had beneficial effects in generating momentum within the industry to create it's own version of a national market system before one is dictated from Washington. Like imminent death, the prospect of removing the off-board rules has served to powerfully concentrate the mind of the NYSE and the industry on the essential questions involved.