At the 1996 Republican National Convention in San Diego, an official from Sherwood Securities personally active in the Grand Old Party made an astonishing discovery a lobbyist for American florists was circling delegates with a million dollar smile. Oh, boy.
Dennis Marino, president of the Jersey City-based market maker, does not tell the story in flowery tones, but in a voice filled with horror at the thought of how another group traders are amateurs of checkbook diplomacy inside Washington's corridors of power.
Next time the government repeals some special tax on a bunch of red roses, perhaps that million-dollar smile is the reason. But Marino is not amused and continues his story:
"He [the official] was having drinks and ran into a young lady, the lobbyist for American florists. They chatted awhile and she told him how the florists raised one million dollars in political contributions in the previous twelve months. One million dollars."
Marino mentions this almost religiously, he says, whenever he talks to traders about political action committees (PAC), and for good reason he's now chairman of the Security Traders Association's fledging PAC, the STA Political Action Committee (STAPAC). STA President John Tognino and Laura Cooley are STAPAC's president and treasurer, respectively. (Cooley serves as a strategic consultant to the STA.)
Harnessing Support
Tognino credits Marino for harnessing support among STA members. "When Dennis became STA chairman, one of his priorities was starting a PAC. He said enough was enough, we needed to be active in Washington," Tognino said, referring to Marino's 12-month stint as STA chairman that ended last October.
Marino's drive initially resulted in the formation of a committee to look at the business of PACs. The committee was headed by Andy Brooks, an activist on the STA's Institutional Committee and head of trading at T. Rowe Price in Baltimore.
Now just twelve-months old, STAPAC has a serious purpose, and that is to support congressional candidates that the STA believes hold a balanced view on securities market-structure and policy.
So far, STAPAC has raised a little more than $100,000, contributing some of that money in turn to five Democrats and four Republicans on Capitol Hill.
The five Democrats are Rep. Tom Manton (D-N.Y.); Rep. John Dingle (D-Mich.); Rep. Tony Hall (D-Ohio); Rep. Dianna DeGette (D-Colo.); and Rep. Paul Kanjorski (D-Pa). The four on the Republican side are Sen. Alphonse M. D'Amato (R-N.Y.); Sen. Phil Gramm (R-Texas); Rep. Rick White (R-Wash.); Rep. Michael Oxley (R-Ohio); and Rep. Robert Bennett (R-Ohio).
"It was a bit funny, and yet it was a bit frightening," said Marino of the San Diego epiphany. "When you think about it, if an industry like the florists believes it is important enough to have political representation and can raise one million dollars, it shows how anemic our efforts have been in this business."
Highly Respected
Marino is one of the most highly-respected executives in the Wall Street equity-trading business, and he speaks like he is fighting for the lives of his professional colleagues, and maybe he is.
With the stock market generally roaring, these are not bad times for traders. But a storm may be whipping up. Blame some well-calculated market change namely, the order handling rules that ultimately has narrowed spreads more than 30 percent and made limit orders practically profitless. The widespread trading in teenies that followed, reportedly narrowed spreads still further, by another ten percent.
The local florists in Dorchester, Mass. and Brooklyn, N.Y. would storm Congress with machetes if they were forced to sell carnations to customers at the same prices the florists pay their suppliers.
Admittedly, this is a bad comparison with the drama of the order handling rules designed, in fairness, for individual investor protection but one Nasdaq trader couldn't help making the analogy. "The government is beating us up," he complained. "We have to fight the government bare-knuckled."
Record trading volume and intelligent trading helped many desks finish last year with good harvests. But once volume slows, as it may some day, sooner or later, the math could look altogether horrible, some traders say.
A Voice
STAPAC, however, is about more than order handling rules and teenies. It is about having a voice at the world's toughest political dogfight on Capitol Hill. "With all that is going on in our industry, there are many, many important issues that affect our individual members, and we want to be heard more in Washington," Tognino said.
Under Tognino's leadership, the STA wasted no time making its Washington presence felt, retaining a seasoned Capitol Hill attorney turned lobbyist, Stephen Blumenthal, hiring a separate lobbying firm to fight a new transaction fee on Nasdaq trades, opening a Washington office and meeting with regulators. Tognino himself testified in Congress last year on decimilization.
Last January, the STA inaugurated a financial-industry conference in Washington attended by top legislators, including the aforementioned Gramm, D'Amato, Bennet, Oxley and White.
But the STA's campaign this year to solicit contributions for STAPAC among its 7,000 U.S.-based members may overshadow anything that has happened before.
"The bigger the financial assets in the PAC, the more work we can do and the more impact we can have," Tognino said. "That's what we are aiming for."
STAPAC will particularly eye members of the Senate Banking, Housing and Urban Affairs Committee and the House Commerce Committee, because these committees have jurisdiction over securities laws and the Securities and Exchange Commission.
While the SEC is the federal agency created by Securities Exchange Act of 1934 to administer that act and the Securities Act of 1933, and has rule-making authority, Congress can pass laws to curtail the SEC's authority. Additionally, Congress appropriates the SEC's budget.
Federal Candidates
Under the law, individuals can contribute up to $5,000 in a calendar year to a PAC, according to the "Almanac of Federal PACs," by Edward Zuckerman. A PAC, in turn, with as few as two persons, can contribute up to $5,000 to federal candidates each year.
There is no overall annual limit on total contributions when PACs raise money from at least 50 persons. In the 1991-1992 election cycle, PACs raised $385 million, spending $9 million more than they raised. PACs have critics, of course, and are sometimes controversial.
"As PACs have gained influence, they have become increasingly the object of criticism," noted Herbert E. Alexander, director of the Citizens Research Foundation and professor of political science at the University of Southern California in Los Angeles.
"Poll data indicates that a majority of Americans feel that too much money is spent on elections, and those with money to spend on elections have too much influence over government," Alexander said.
Former President George Bush denounced big-money influence in politics and called for the abolition of PACs. Some lawmakers loudly complain that their dependency on PACs hurts the legislative process.
One critic blames the savings and loan crisis in the late 1980s partly on special-interest money at work in Washington, citing Charles H. Keating and his failed Lincoln Savings and Loan Association.
Marino is aware of the criticism. "Campaign financing is a rather sensitive subject, and it may appear like an inappropriate time for the STA to form a PAC," Marino said. "The fact is, that is how things are politically done in this country, and we want to do it within the letter of the law."
That fact of life, of course, can be traced to the waning influence of party political machines in this century, in the days of Tammany Hall in New York and Boss Daly in Chicago.
A brief history may be instructive. Party political influence, as Alexander noted, diminished successively since the Civil Service replaced party-controlled patronage as a means for filling government jobs; since government-sponsored social services replaced those which urban party organizations had used to attract the allegiance of voters. PACs are filling this void.
"They represent loyal constituencies, they fund primary and general elections and, some would say, they even discipline' the votes of Members of Congress," Alexander said.
Well-Heeled Group
It may seem extraordinary that a well-heeled group of Wall Street traders are financing a PAC to influence the political process. Back in the old days, this overt category of political activism was the province of labor unions and the downtrodden. But as the trader above said, "We have to fight the government bare-knuckled." Several traders and other Wall Street professionals praised the STA's initiative.
Is STAPAC attempting to somehow discipline members of Congress that do not follow the STA party line? Perhaps. "We want to be heard more in Washington," Tognino insisted. "We want to give those candidates that support the STA's position an opportunity to get elected."
There are signs that the STA's stepped-up activity in Washington is succeeding. Some crusading congressman have taken up the issues of alleged abuses on SOES. Earlier this year, the General Accounting Office embarked on a study of SOES at the request of Rep. Gary Ackerman (D-N.Y.); Rep. Sam Gejdenson (D-Conn.) and Rep. Charles Schumer (D-N.Y.)
Big Question
The big question is: How much will STAPAC raise? Outsiders might guess that the war chest could stretch to many millions of dollars. Individually, some top traders will take home several million dollars in year-end bonuses. They surely would not miss a four-figure sum. But many other traders will have more modest paydays.
"It is really subjective," Marino said. "It depends upon where an individual may be in his development. I just think it is important that whatever traders can afford, even if it is $20, it is essential they recognize that we have to be part of the political process."
STAPAC's contribution drive is starting to pick-up steam. STA members will each receive a solicitation in the mail as well as a brochure outlining STAPAC's mission. The first contributions came when STAPAC made presentations to Sherwood Securities, Knight Securities and Troster Singer, all large neighboring firms in Jersey City. STAPAC was pleased.
"Traders will have to write checks to get the attention of lawmakers," said Patrick Ryan, president and veteran trader at McLean, Va.-based Ryan, Lee & Co., a lifetime Washington-area resident.
"Sometimes," he added, "it takes a bite in the butt to wake people up and stop them saying, Gee I didn't know [Congress] was passing laws that could hurt us.' We've got to get involved."
Traders Magazine is the official publication of the Security Traders Association. The editorial content in the publication, however, is independently produced. Therefore, this story should not be mistaken as a solicitation in behalf of STAPAC.
