Stock market safeguards
In the wake of Friday's market plunge, the nation's financial exchanges are bracing for what could be the first test of procedures that would temporarily halt trading if stock prices declined steeply.
The plans for such a halt were adopted after the crash.
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But some traders and exchange officials are concerned about the impact of a trading halt. Moreover, some market professionals said they were distressed that other proposed changes that were considered necessary after the crash have not yet been adopted. Exchange officials said the changes in their operations since have put the market in much better shape than when the crash occurred. The changes are wide-ranging. They include a reorganization of the computerized systems that execute trades, an expansion of the trading floors and an increase in the amount of capital that specialists on the floors of the exchanges are required to have.
Specialists, who maintain the markets for stocks, are required to buy shares when there are no other buyers. The exchanges began their preparations on Friday after the stock market sold off sharply in the late afternoon, with the Dow Jones industrial average plunging Yesterday several exchanges were still clearing through the disarray of Friday to prepare for the resumption of trading on Monday.
Firms on several exchanges, including the American Stock Exchange and the Chicago Mercantile Exchange, were required to come to work and resolve any trading disputes remaining from Friday.
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At the New York Stock Exchange, officials examined the capital positions of its specialists and member firms, and Mr. Grasso reviewed the computer systems with his staff.
Officials with the New York Stock Exchange also kept in contact with officials from the Treasury Department, the Securities and Exchange Commission and the Federal Reserve. Yesterday, the Federal Reserve said it would accommodate all demands for money. Worries About 'Circuit Breakers'.
Nevertheless, officials in the securities and futures industries were nervously discussing what effect one new trading rule might have Monday. The rule, which imposes a trading halt, or ''circuit breaker,'' requires markets to close once they have fallen a particular number of points.
Under the proposals adopted by the exchanges last year, the stock markets will stop trading for an hour if the Dow Jones industrial average falls points.
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After that time, if the average falls another points, markets will close for two hours. Since the proposal were adopted, officials with every major exchange have privately expressed concern about how the circuit breakers would work in a falling market and about whether they would prove counterproductive.
For example, a report by the National Association of Securities Dealers, which oversees the over-the-counter stock market, concluded that circuit breakers ''may cause investors to rush to execute their orders before the market closes. But under pressure from Congressional and regulatory officials to make changes in the trading rules after the crash, the securities and futures exchanges agreed to implement the circuit breakers.
Brodsky, president of the Chicago Mercantile Exchange, said yesterday, ''but no one has come up with a solution that seems better. Some traders cited Friday's experience as a sign that circuit breakers may cause trouble. A preliminary limit on trading was set off in in the Chicago futures markets, which stops a contract from falling further once it drops 12 points.
After the market is reopened, the limit is imposed at 30 points down. Pressure on the Stock Market.
Traders and some exchange officials said that once the futures and options markets closed, selling pressure began to build in the stock market. Leibler, the president of the Amex, said continued index arbitrage - computerized trading that takes advantage of the price differences between the stock and futures markets - ''would have put greater pressure on the stock market.
Friday's plunge also raised concerns among some industry officials that several large problems from the crash have not yet been resolved.
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In particular, these officials said some recommended changes had not been made in the clearing and settlement system, the mechanism for transferring money among brokerage firms, their customers, the stock and commodities exchanges and the banks.
Through it, cash is shifted from buyer to seller when trades are made. After the crash, a Presidential task force recommended unifying the separate clearing systems. Such a proposal has yet to be adopted. Room for Debate asks whether shorefront homeowners should have to open their land to all comers. Log In Register Now Help Home Page Today's Paper Video Most Popular. Politics Education Texas N. Wide-Ranging Changes Exchange officials said the changes in their operations since have put the market in much better shape than when the crash occurred.
Clearing the Disarray Yesterday several exchanges were still clearing through the disarray of Friday to prepare for the resumption of trading on Monday. Worries About 'Circuit Breakers' Nevertheless, officials in the securities and futures industries were nervously discussing what effect one new trading rule might have Monday.
Pressure on the Stock Market Traders and some exchange officials said that once the futures and options markets closed, selling pressure began to build in the stock market. Sweep to a Win Over the Heat.