A Lesson from Wall Street About Back Office Paper Work
In the late nineteen-sixties, much like today, the stock market was booming. By 1969, daily trading volume had hit 12,000,000 shares a day. While that’s a drop in the bucket compared to the 1,786,805,986 shares that the NYSE traded on the last day of May, this year, there is one big difference.
Today trades are done via computer. But, back in 1968, the NYSE was all about paper. And the late sixties boom lead to a lot of unfinished paperwork. In the period between 1960 and 1968, trade volume quadrupled, but work processes didn’t change.
So, what should have been great news for brokerage houses, ended up wrecking many of them because they just couldn’t keep up with the paperwork. They literally died from being buried under paperwork. In the words of the New Yorker Magazine “—offices were full of stock certificates, and trade documents were stacked halfway to the ceiling. Amid the chaos, dividend checks went unsent, trades were credited to the wrong accounts, and fraud spread; hundreds of millions of dollars in securities were stolen. And since the firms often didn’t process trades quickly enough, billions of dollars’ worth of transactions a month were simply cancelled. In 1968, the stock market started closing one day a week to let firms catch up on their work, but the brokerages’ bookkeeping woes caught up to them first, and more than a hundred firms went under. It took years—and the passage of an investor-protection bill—for the crisis to abate.”