Exchange of Heat

Like steam in a pot, a hot controversy is building up between Wall Street and the Securities and Exchange Commission--and the man in the middle is Lyndon Johnson. Pleased by the market's 100-point rise since he took office, Johnson last week courteously received New York Stock Exchange President Keith Funston at the White House. But while the President tries to keep Wall Street friendly to his Administration, the SEC is relentlessly moving in on what it considers the Street's abuses. The most obvious sign of the dispute at the moment is the SEC's attempt to curb a clubby coterie of insiders on the Exchange, but the real issues are much deeper and broader. Says a top SEC official: "On some vital issues there is a basic gap between the securities business and us that cannot be bridged."

The Easiest Target. The struggle has been going on since a special SEC study group reported last summer that many investors were underprotected and overcharged by the Exchange and by brokers (TIME, July 26). Some of the SEC's proposed reforms were adopted by market leaders; last week, for example, Funston's Big Board tightened its standards for corporate listings, and recently it toughened rules covering market letters and brokerage research departments. But that is not nearly enough for the SEC. Among other things, it wants to: 1) reduce the commissions that investors pay for trading in "odd lots"--fewer than 100 shares; 2) formally order the Exchange's stock "specialists" to buy when stocks are dropping and sell when they are rising sharply in order to soften price swings; and 3) severely restrict or abolish the Exchange's floor traders, who buy and sell for their own accounts.

As its first target, the SEC shrewdly picked the easiest--the floor traders, whom it tried to abolish as far back as 1945. It argues that the traders unfairly benefit from inside information and have no responsibility to the public.

The Exchange tried to meet such objections by presenting its own proposals to tighten floor trading, but the SEC found the proposals unsatisfactory, last month curtly broke off negotiations on the issue.

Since there are only 34 fulltime floor traders, many Wall Streeters wonder why the Exchange is fighting so hard for so few. Funston & Co. figure that surrendering too easily there would make it easier for the SEC to put restrictions on odd-lot firms and the 350 stock specialists. The Exchange wants to regulate itself as much as possible, feels that the SEC's proposed restrictions would give Washington immense controls over Wall Street and destroy the delicate balance of power now shared by the SEC and the Exchange.

Lyndon & Keith. Many Wall Streeters have chafed under the tough and vigorous SEC that John Kennedy appointed, but figured that Lyndon Johnson would give them a better shake, and were encouraged in this belief by persistent hints on the Street that Johnson and Funston had developed a chummy "Lyndon and Keith" relationship. When Funston requested an interview with Johnson, in fact, many Wall Streeters and Washington officials felt that he might try to influence the President in the controversy with the SEC. Funston had half an hour at the White House, but said later that the subject of the controversy had never come up. He also dropped in on SEC Chairman William L. Gary--but got no further toward reaching a compromise.

Congress is complaining that Chairman Gary has been perhaps too patient with Wall Street, but, in fact, the SEC under Gary has become more active than at any time since the 1930s. It is likely to stay that way, even if Gary follows his plan to return to his Columbia law professorship this autumn. One tipoff came last week, when Johnson made his first appointment to the five-man commission. He picked a stern and experienced regulator, Hugh F. Owens, who as administrator of the Oklahoma Securities Commission cleaned up many abuses in his state.

This file is automatically generated by a robot program, so reader's discretion is required.