Several legal and regulatory developments have made corners more difficult. For instance, the NYSE and Open Board Rule of November 30, 1868 required corporations to register all securities sold at the exchange and provide 30-day notice on any new issues. This made the float of the company much more open public knowledge. This came about because the Legislative committee of the NYSE launched an investigation of corners, from an increased concern of members of the “Big Board” on the negative impact of corners on market transactions.
The 1934 Securities Act imposed a mandatory margin requirement between 50% and 75% under the control of the Federal Reserve Board, which increased the capital needed to control large blocks of stock. Then, in 1968, the Williams Act required the filing with the SEC of any one person or group of persons who have acquired a beneficial ownership of more than 5% of a stock issue within 10 days of share acquisition. This made large shareholders that own more than 5% of the company stock visible insiders, because their holdings are tracked by the SEC — up to this time insiders were invisible to the public. If you know what you are doing today, you can monitor large shareholders with relative ease.
The Governing Committee of the New York Stock Exchange de-listed Stutz Motors after its corner in 1920, setting a stern precedence that effectively voided the contract between short seller and manipulator. Delisting prevents manipulators who are caught from distributing their position at the stock exchange to short-sellers after the corner. Manipulators can still profit from high prices short- sellers have to pay for the borrowed shares but, with this rule, they lost the liquidity to sell their vast holdings they had enjoyed before 1920. As a result, this Stutz Motor corner was the last publicly detected intentional corner on the New York Stock Exchange — the RCA corner was unintentional.
– Doc Brown
BIO: Doc Brown is a national expert on the stock market. His courses “How to Make a Million Dollar Portfolio from Scratch” at the Oxford Club is a national bestseller. Dr. Brown’s research appears in some of the most prestigious academic journals in the field of finance. See Journal of Financial Research and Financial Management. Scott is an associate professor of finance in the Graduate School of Business at the University of Puerto Rico.
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