A MONTH after the stock-market crash, life goes on. Ordinary folk have stopped asking one another about the movements of the Dow during the day, and the stock-exchange closings are back to their routine place in the nightly newscast. But various efforts to study and perhaps modify the way Wall Street does business are just getting under way. There is the Brady Commission, as well as a commission under Nicholas DeB. Katzenbach (in place before the crash) to study computer-driven ``program trading.'' Congressional committees will be taking testimony. Wall Street links to options markets, as well as to overseas trading markets, deserve study.Skip to next paragraph
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And the so-called specialist system in use on the New York Stock Exchange is likely to be the focus of considerable attention. The specialist firms, or marketmakers, are not household names like big brokerages such as Merrill Lynch or PaineWebber. But they play a crucial role. Each stock traded on the Big Board is assigned to a specialist who is at the center of the action on the exchange floor, bringing buyers and sellers together and ensuring that trading goes on in an orderly manner, with prices rising and falling only a fraction of a point at a time.
Marketmakers generally do quite well as moneymakers. But in case of an imbalance between buyers and sellers, as happened when so many wanted to sell on Oct. 19 and 20, the specialist is required to buy or sell on his own account to keep things flowing. If that is impossible, trading in a particular stock can be halted - typically for half an hour.
This allows time for the word to get out, via computer links, so that more potential buyers or sellers can come forward. The specialist is required to announce as soon as possible after a halt what he expects the stock's price to be when trading resumes. The idea is not to prop up a stock at a particular price but to keep as close as possible to the market-clearing price - the one at which buyers and sellers meet.
The criticism of the specialist system has been that many of the firms were undercapitalized and couldn't buy up enough of the stocks in which they make markets to prevent a trading halt. During a trading halt, there is no true current price for a stock - only the prediction of the level at which it will reopen. This plays hob with market indexes and futures. Hence the references to ``market meltdown.''
But to spend any time at the New York Stock Exchange is to get a sense of the pride taken there in ensuring the best, fairest price for every trade made on its floor. The specialist system, with a live, human being there on the floor every single moment the stock is open for trading, is not to be tampered with lightly, exchange officials insist.
We'll have to see. The problems may prove to lie not with the specialists but with banks that didn't act quickly enough to extend credit to them.
In any case, though, we suspect that the most useful reforms, if indeed any prove necessary, will be those that improve the connections between people and technology. We may have speed-of-light computer links, sophisticated trading programs, and the like. But individual human beings still have to sort through news from the markets to make the best investment decisions they can.