The effect of government regulation on the stock-trading volume of the New York stock exchange

Federal regulation of the organized security markets designed to protect the public from price manipulation and to prevent the excessive diversion of bank credit into stock speculative channels became effective in 1934. This regulation has doubtless achieved, in part at least, its objectives. It has, however, at the same time apparently impaired the liquidity of the stock exchanges by tending to decrease trading volume and thus rendering stock prices more discontinuous. In general, trading by stock-exchange members for own account, especially floor trading, appears to have been affected more seriously than trading by the outside public. Odd-lot trading, however, has increased in recent years both relatively and absolutely, which suggests that the new controls may have operated to improve somewhat the confidence of small investors in common stocks as investment media. It would seem desiderable now to measure the gains of stock-exchange regulation against the losses involved, with a view to providing such modification as may make for the greatest public protection with the least injury to the quality of the market.