Page 50 - THE MARKET WHISPERER

48 PART 1 - Allow Me To Introduce You… To The Stock Exchange

by another on a large board facing the public. Because the shop’s interests
were diametrically opposed to those of the trader, swindling was endless,
and these shops were perceived as unreliable. A detailed description of
these activities is found in Edwin Lefèvre’s Reminiscences of a Stock Operator,
mentioned earlier as a biography of one of the biggest traders, Jesse
Livermore. In 1930, during the Great Depression, these shops were made
illegal, and the fun and games came to an end.

Establishing the SEC –
Securities and Exchange Commission

As part of the lessons learned from the Great Depression, and seeking to
prevent a future repetition of the processes that contributed to the 1929
Crash, the Congress established the first regulatory body to supervise the
United States capital markets. It was set up in 1934 and called the SEC,
the Securities and Exchange Commission. The SEC determined standards
geared to preventing the development of those factors that led to the Crash,
particularly manipulation of prices and use of insider information. Over
the years, the SEC instituted many regulatory changes which continue to
contribute to enhancing trust in the capital market.

When the public shows greater trust in the capital market, the market’s
activities expand and crash risks such as those of 1929 decrease. Regulatory
ordinances that seem obvious to us now were not in place in the past.
Currently, for example, a public company is obligated to convey significant
notifications to the public via conference calls, before conveying them to
insiders. Sound natural? That’s one of the regulations set by the SEC only
a few years ago. The SEC’s task has yet to be completed. In fact, it seems
it will never be completed. Insider information is still the most normal
way to make small capital gains in the market. It is Illegal and stinky, but
whenever there’s been a lot of money on the table, there are those looking
for the get-rich-quick shortcuts. Even today, only a small percentage of
those taking advantage of insider information are held accountable.