Abstract: The Stock Market and the States: Securities Regulation, 1907-1933

Daniel S. Holt


In this paper, I argue that securities regulation at the state level was a key, but overlooked, component in the institutional development of a broad market in corporate securities in the early twentieth century. I examine the operations of state public service commissions in New York and Wisconsin, which were tasked with regulating the capital issues of electric and gas utilities and street railways. I also discuss securities commissions created under state "blue sky" laws, which targeted securities dealers and high-risk, speculative stock promotions in oil, mining, and upstart industrial ventures. In both cases, state regulators were concerned with the issue of watered stock, which they believed masked the value of corporations and encouraged speculation on the part of those least prepared to engage in it. Regulators used their authority to shape the kinds of investments offered to the novice small investor, to suppress speculation, and steer small savers into safe, stable investments. These regulations helped spark, and operated in tension with, financial industry efforts to court small investors and helped contribute to the public legitimacy of the stock market by the 1920s.