Reflections on the Role and Functioning of the Organized Exchanges.

While supplying the capital necessary for production, investors postpone consumption in favor of later claims. Speculators seek to profit from anticipated price revaluations. Intrinsic value speculators, seeking undervalued stocks to buy and overvalued ones to sell short, are the repairmen of the system, moving prices closer to values. Purely technical speculation, however, may promote wide price swings that seriously misrepresent values. Excessive fluctuations could be reduced by returning to the pre-ticker system of calling separate auctions for each security in turn, providing a more realistic supply/demand interaction and probably eliminating the need for the specialist appointed to "make a market." Organized exchanges might well reevaluate the specialist's role. Commodity exchanges operate without them, as does the London exchange, with three times the NYSE membership and six times the listed stocks. Rather than "stability, continuity, and depth," markets should aim for completeness, perfect supply/demand equilibrium, and liquidity. 19 pp. (See also P-4667.) (MW)