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Issues Confronting the Stock Markets in a Period of Rising Institutionalization

Published online by Cambridge University Press:  19 October 2009

William C. Freund
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Extract

The facts of increased institutional trading on the nation's securities markets are by now well known. On the New York Stock Exchange (NYSE), the six major institutional groups—insurance companies, investment companies, noninsured pension funds, nonprofit institutions, common trusts, and mutual savings banks, now own more than one-fourth of the market value of listed shares compared with less than 16 percent at the end of 1956. But, ownership is merely the tip of the perennial iceberg, since institutional trading of stock has become much more significant than institutional ownership. This fact is pointed up in the recent SEC Study of Institutional Investors. It shows that there has been a relatively slow increase in the share of outstanding stock owned by institutions in all markets, but the institutional share of trading has mushroomed.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 7 , supplement s1 , March 1972 , pp. 1687 - 1690
Copyright
Copyright © School of Business Administration, University of Washington 1972

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References

1. Martin, William McChesney Jr., “The Securities Markets, A Report With Recommendations by William McChesney Martin Submitted to the New York Stock Exchange” (August 5, 1971).Google Scholar

2. American Stock Exchange data, first compiled for 1966, show growth in institutional activity from about 15 percent of public share volume in 1966 to 25 percent in 1969.

3. See also article, “Will Institutional Demands Outrun the Supply of Common Stock in the '70s?” by Freund, William C., Financial Analysts Journal (July–August 1971)Google Scholar.

4. Martin, “Martin Report,” pp. 3–4.

5. Martin, William McChesney Jr., New York Times (August 7, 1971), p. 29.Google Scholar

6. Martin, “Martin Report,” p. 15.

7. See Demsetz, Harold, “The Cost of Transacting,” Quarterly Journal of Economics (February 1968), pp. 33–53Google Scholar. Also see New York Stock Exchange, Economic Briefs on Commission Rates (August 1968), p. 16, pp. 33–42, and (May 1969), pp. 14–19.

8. SEC Commission Rate Hearings, Transcript 3780.

9. Ibid.

10. Martin, “Martin Report,” pp. 15–16.

11. A temporary moratorium may also help to clarify some legal ambiguities regarding institutional memberships, pending a resolution of the basic questions of commission rates and institutional membership on the Big Board and in other markets.