Forget how much Dick Grasso was paid. OK, ignore how much Dick Grasso was paid. The question it leaves behind is; just what is the chairman of the Stock Exchange supposed to do, anyway?
The answer is that the Chairman has two jobs. First, he’s supposed to represent the interests of the stock exchange’s owners – the traders who own the exchange’s 1,300 seats. That attracting foreign firms to the exchange, getting firms to jump from other exchanges, such as the NASDAQ, or attracting initial public offerings). In general, the more trading, the merrier those 1,300 seat owners will be.
But the second job is regulating those 1,300 traders to make sure they don’t rob, cheat, or steal. For example, a customer wants to by Megablob Corporation stock for 37 dollars and 50 cents. On the floor, somebody’s offering to sell it for 37 dollars and 40 cents. So the broker buys it for the lower price, and then sells it to his own client for the higher price, making a dime a share. I’m shocked! Well, it doesn’t happen as often as it might, because the chairman is supposed to take the people who do it aside and…well, it gets unpleasant.
Wait, that sounds familiar. A bunch of folks collectively own the pieces of an American institution. They hire a guy to run their affairs and help them make money. But that guy is also expected to regulate them, to take them aside when they get out of line.
The Chairman of the Stock Exchange? No! The Commissioner of Baseball!
Bud Selig has the same job Dick Grasso did – to represent the members of a group – instead of 1,300 traders, the 30 franchise owners -- and, at the same time, curb their excesses. And baseball often draws the same criticism as the stock exchange – that the head man is too interested in promoting the short-term interests of his owners, and not in making them shape up.
Some big investors think it’s time to give it up this model, and turn the regulation of the stock exchange over to some outside group, like the SEC, or an independent group of regulators. But there’s a better answer; the New York Stock Exchange needs a Judge Landis.
In 1919, gangsters had bribed players to throw the World Series and the public was up in arms. So the owners turned to a well-known federal judge named Kenesaw Mountain Landis to bail them out. Landis demanded the authority to regulate the owners’ actions and promised them a revitalized game in return. So they made Landis commissioners, and he delivered. (Although, on the downside, he was an arbitrary, anti-labor, autocrat who perpetuated baseball’s shameful apartheid system.)
The stock exchange doesn’t need a new structure. It needs a Judge Landis. It needs someone who understands that a well-regulated market is going to make more money for its traders in the long run, because they won’t suffer embarrassments such as this one. It took a scandal for baseball’s owners to see the light. Maybe the stock exchange’s owners are starting to get the picture.
Grasso and Landis
Forget how much Dick Grasso was paid. OK, ignore how much Dick Grasso was paid. The question it leaves behind is; just what is the chairman of the Stock Exchange supposed to do, anyway?
The answer is that the Chairman has two jobs. First, he’s supposed to represent the interests of the stock exchange’s owners – the traders who own the exchange’s 1,300 seats. That attracting foreign firms to the exchange, getting firms to jump from other exchanges, such as the NASDAQ, or attracting initial public offerings). In general, the more trading, the merrier those 1,300 seat owners will be.
But the second job is regulating those 1,300 traders to make sure they don’t rob, cheat, or steal. For example, a customer wants to by Megablob Corporation stock for 37 dollars and 50 cents. On the floor, somebody’s offering to sell it for 37 dollars and 40 cents. So the broker buys it for the lower price, and then sells it to his own client for the higher price, making a dime a share. I’m shocked! Well, it doesn’t happen as often as it might, because the chairman is supposed to take the people who do it aside and…well, it gets unpleasant.
Wait, that sounds familiar. A bunch of folks collectively own the pieces of an American institution. They hire a guy to run their affairs and help them make money. But that guy is also expected to regulate them, to take them aside when they get out of line.
The Chairman of the Stock Exchange? No! The Commissioner of Baseball!
Bud Selig has the same job Dick Grasso did – to represent the members of a group – instead of 1,300 traders, the 30 franchise owners -- and, at the same time, curb their excesses. And baseball often draws the same criticism as the stock exchange – that the head man is too interested in promoting the short-term interests of his owners, and not in making them shape up.
Some big investors think it’s time to give it up this model, and turn the regulation of the stock exchange over to some outside group, like the SEC, or an independent group of regulators. But there’s a better answer; the New York Stock Exchange needs a Judge Landis.
In 1919, gangsters had bribed players to throw the World Series and the public was up in arms. So the owners turned to a well-known federal judge named Kenesaw Mountain Landis to bail them out. Landis demanded the authority to regulate the owners’ actions and promised them a revitalized game in return. So they made Landis commissioners, and he delivered. (Although, on the downside, he was an arbitrary, anti-labor, autocrat who perpetuated baseball’s shameful apartheid system.)
The stock exchange doesn’t need a new structure. It needs a Judge Landis. It needs someone who understands that a well-regulated market is going to make more money for its traders in the long run, because they won’t suffer embarrassments such as this one. It took a scandal for baseball’s owners to see the light. Maybe the stock exchange’s owners are starting to get the picture.