Originally created 11/08/97

As market tumbles again, SEC chief warns industry against complacency



BOCA RATON, Fla. -- As the stock market went through another shaky day, the head of the Securities and Exchange Commission urged brokerage industry leaders still basking in last week's recovery not to be complacent.

And the chairman of the New York Stock Exchange said Friday, "When the wave comes, it's not going to look anything like last week."

As inflation jitters resurfaced in this country and a selloff resumed in leading Asian markets, stocks tumbled in U.S. trading with the Dow Jones industrial average down 195 points at one juncture. The heads of the nation's brokerage firms and stock exchanges, meanwhile, assembled at the Securities Industry Association's annual meeting at its tony Florida playground, still reflecting on Blue Monday and the next-day rebound of Oct. 28.

"Every part of the system was tested last week, and record (trading) volumes were handled smoothly. Trading was orderly," SEC Chairman Arthur Levitt Jr. told the group. But he was quick to add, "Let us not be complacent about what happened last week."

Mr. Levitt said he wasn't convinced that the recent wild ride was the true test of the market's strength. While the buying frenzy on Oct. 28 had pushed trading volume on the top two U.S. exchanges to a record of more than 2 billion shares, Mr. Levitt contended the market must be prepared to handle daily volumes of 4 billion to 6 billion shares in the near future.

Later, speaking to reporters attending the meeting, NYSE Chairman Richard Grasso was blunter: "You can never be confident that you're prepared for an event."

The market turmoil has kindled a debate -- on Wall Street and in Washington -- over the operation of so-called circuit breakers, temporary trading halts used for the first time in the Oct. 27 selloff. Since the plunge, some market participants and lawmakers have questioned whether the mandatory pauses, designed to give a steeply falling market a breather and halt panic selling, might actually worsen market instability.

The debate intensified at the industry group's meeting. Pressed on the issue by reporters, a top SEC official acknowledged there's been plenty of talk in government circles lately about the circuit breakers.

"As a general philosophy, you like markets to be ope and trading," said Richard Lindsey, director of the SEC's division of market regulation. The key question, he said, is "When do you want to take that strong action of shutting down a market?"

Testifying before a Senate panel last week, Levitt called the concerns about circuit breakers "legitimate" and promised that the market watchdog agency would study the trading curbs.

Grasso said Friday he wants Levitt and Treasury Secretary Robert Rubin "to call the quarterbacking position" on circuit breakers, which he termed an issue with "broad public policy implications."

"It won't necessarily be a very quick fix," Grasso suggested.

On Thursday, American Stock Exchange Chairman Richard Syron said circuit breakers "really do have a value" but that the market levels triggering them are "set too low" and should be adjusted each year.

The trading curbs were established in 1988 in response to the Black Monday crash of Oct. 19, 1987. Circuit breakers automatically halt trading on the NYSE for a half-hour when the Dow Jones industrial average drops by 350 points and for an hour when the blue-chip indicator falls by 550 points. They have been revised several times in recent years.