Brokerage Days: From Penny Ante Alley to A “Wirehouse” - Part 2

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When I went to work for this wirehouse in the early 1980s, I had to serve a six month apprenticeship before I could sit for my Series 7 or Registered Representative exam, my Blue Sky exam, and other strangely named exams. This was a requirement for new brokers working for member firms of the New York Stock Exchange. So you were not a broker until you served your apprenticeship and passed the exams. Dewey, Cheatam, and Howe had a policy: flunk the exam and you are fired. No one flunked.

One of things you learn during this time, in fact, on the very first day, is one cannot trade on inside information or, more accurately, “non-public, material information.” That is, information which can have a major effect on a stock such as an earnings announcement. Say you are Martha Stewart and you learn from an insider that a public company in which you are an investor is going to issue some bad news on earnings. And you learn this before the information is announced to the public and you sell your stock. That is illegal. Really, really illegal.

When Martha Stewart went on trial for doing this, her defense lawyers never let her take the stand. In my opinion, the reason they didn’t is Martha Stewart was a Shearson stockbroker for 15 years. Believe me, that you can’t trade on inside information is drummed into you during stockbroker training. If her attorney’s had put her on the stand, the prosecution could have produced all the documents she had signed swearing to know and uphold the rules of the exchange and the securities laws. We all had to do this.

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A view of the floor of the NYSE from the Member's Gallery. When I was an apprentice broker we got to go on the floor for about an hour while our floor brokers explained what they did and what everyone else was doing.

[Image courtesy of Wikipedia.]