Wall Street crash plans

Press, 12 October 1988, Page 36

Wall Street crash plans

New York These are lazy days on Wall Street. Nicely lazy for investors who have seen the Dow Jones industrial average drift up 7.6 per cent this year, and sadly quiet for underemployed brokers on the floor of the New York Stock Exchange. The panic of the crash, almost a year ago, fades in their memory. So does pressure for change in the way that America’s securities business is run and regulated. Mr John Phelan, the chairman of the exchange, has become comfortably philosophical about the lessons of the crash. Where once he called for a single agency to oversee all America’s securities and futures markets, and for stricter margins to dampen speculation in futures, today he says that the exchange must live “in the world as it is.” Asked how the securities markets' systems would react differently if there was a crash on October 19, 1988, he said that there would be: © Better communications between America’s various exchanges. @ A price freeze (in

effect, a trading freeze) on the Chicago futures market for the Standard and Poors 500 futures contract if its price fell the equivalent of 100 points on the Dow. © A partial disconnection, at that point, of the futures market and the New York Stock Exchange. Arbitrage orders and program-trading orders to the Stock Exchange would be parked unacted-upon for five minutes, to see what sort of order imbalance they threatened to create. Too big an imbalance would lead to trading-halts in the 50 biggest shares. © A fall of 250 points in the Dow in one day would halt trading on the Stock Exchange for one hour. Trading would be stopped for another two hours if the index fell another 150 points. To his credit, Mr Phelan is openly unenthusiastic about such enforced pauses for reflection. He regards them as a dutiful experiment. The job of a proper market is to signal an unhappy collapse in share prices without its trading systems breaking down. —Copyright, the “Economist.”