Happy Birthday, Big Board

ON May 17, 1792, two dozen stockbrokers, their business threatened by interlopers, met under a buttonwood tree on New York's Wall Street and entered into a trading compact. Two centuries later the New York Stock Exchange is still doing business near that site. And 200 years later the world's greatest exchange is again feeling the hot breath of eager competitors.

The challenges to the NYSE's preeminence as a clearinghouse for corporate securities are both domestic and international. At home, the Big Board is being elbowed not only by such established competitors as the American Stock Exchange, several regional exchanges, and the NASDAQ over-the-counter market, but also by new computerized trading networks that match up buyers and sellers directly. Meanwhile, as capital markets become ever more globalized, exchanges in Tokyo, London, and other world financial cent ers are becoming potent rivals to the NYSE; also, demand for worldwide, 24-hour trading is spawning still other computerized linkups that bypass the exchanges.

In this computer age, some observers believe that the Big Board's vast trading floor - where harried traders still shoulder their way through crowds to scream out buy and sell orders - is an anachronism that must inevitably disappear. But defenders of the system, while acknowledging that extensive high technology has already come to the NYSE, contend that human judgment can never be eliminated from securities trading, where computer-magnified mistakes can quickly set off devastating stampedes in sensitiv e capital markets.

But as the premier symbol of America capitalism enters its third century, the central issues for the capital markets go beyond technology and efficiency. No procedural advances will be beneficial in the long run if they squeeze small investors out of the markets, make securities trading a manipulable insiders' game, or reduce the information securities issuers are required to provide to investors.

The effectiveness of capital markets as agents for economic growth is linked to the integrity of the process by which risk is matched with reward. Having learned this lesson (sometimes painfully, as in 1929), the Big Board must never forget it.