Economic Report of the President

ates fully negotiable by May 1976. The deregulation of fixed commissionrates illustrates the efficiency gains that follow deregulation.Since the total deregulation of commission rates, average commissionscharged to customers have decreased. Services which were previouslyprovided jointly whether customers used them or not, arenow substantially unbundled.Financial DisclosureThe Securities Exchange Act of 1933 required financial disclosurefor corporations seeking to raise capital through the issuance of newsecurities. The Securities Exchange Act of 1934 required periodic financialdisclosure for corporations with publicly traded securities.One of the motivations for this original legislation was a belief thatcorporations must be forced to disclose financial information inorder to protect the interests of investors. In recent years there hasbeen concern that these requirements have precluded new securityissues thus inhibiting the efficiency of the capital market. Additionally,a growing body of scholarship has questioned whether these requirementshave served the interests of investors. Recently, some ofthese stringent disclosure requirements were ended for certain typesof corporations. Specifically, corporations with less than $3 million inassets and 500 stockholders are now exempt from the filing requirementsof the Securities Exchange Act of 1934.The SEC has also recently allowed, on an experimental basis, somefirms issuing new securities to use "shelf registration'* forms, thuseliminating the requirement to file for each new security issue. Theinitiation of shelf registration is expected to reduce the costs of raisingequity capital, allowing firms to manage their risk more efficientlyby entering the capital markets more often.Industry StructureBefore 1980, stocks listed on stock exchanges could not be tradedby members of those stock exchanges in any other markets. This barrierto entry was partially lifted in June 1980, when the SEC approvedRule 19c-3. This rule allows members of stock exchanges totrade securities in other markets that were listed on those stock exchangesafter May 1979.Stock exchange members are now also allowed to execute trades inthe "19c-3 securities" in markets other than the stock exchanges.The market share of non-19c-3 stocks on the Over-the-Counter(OTG) markets is considerably less than the OTC market share for19c-3 securities. This larger market share for the OTC in 19c-3 securitiessuggests that, for some exchange members, it is more efficientto execute orders on the OTC rather than on the stock ex-120