Regulators Yet to Issue Recommendation : SEC Considers Voluntary Halt in Trading

Securities and Exchange Commission Chairman David S. Ruder said Monday that federal securities regulators have considered urging a brief voluntary trading halt in the plunging stock market but cautioned that they have recommended no action so far.

Ruder told reporters he has been consulting with New York Stock Exchange Chairman John J. Phelan about the market’s dizzying free fall, but has not yet recommended that trading be interrupted. Earlier this month he had proposed temporary trading halts of perhaps 30 minutes, as well as volume limits to control the volatility caused by program trading.

“I’m not afraid to say that there is some point, and I don’t know what that point is, that I would be quite anxious to talk to the New York Stock Exchange about a very temporary halt in trading,” Ruder said Monday.

Ruder, who spoke to reporters after speaking to an American Stock Exchange-sponsored investors’ conference, cautioned that any trading halt would have to be approved by the stock exchanges. He stressed that the SEC does not have the legal authority to order a trading halt except by presidential order, which would be unprecedented.

On Oct. 6, during a less dramatic decline in the markets, Ruder told an audience of Chicago investors that regulators were considering various controls on automated program trading. Primarily under consideration, he said then, was a temporary halt in trading, together with limits on the total position of any one trader in computer-controlled index trading.

Such controls, he suggested then, would “decrease panic, increase market awareness of the real size of market imbalances and encourage market professionals to offset those imbalances.”

On Monday, as panic selling of unprecedented volatility sent the Dow Jones industrial average plunging 508 points, Ruder told reporters that a trading halt on the scale he contemplated would have little or no impact on the fundamentals that have fueled the market nose dive.

Speaking in the morning, when the market had already tumbled 200 points, Ruder said an SEC analysis of Friday’s 108-point drop concluded that the collapse was aggravated by--but not caused by--the automated programs he would like to control.

“We are aware, dealing with Friday’s markets, that there were underlying fundamentals causing the market decline and that there was, in addition, so-called program trading,” Ruder said.

Among the fundamentals pulling down the market last week, he explained, were rising interest rates, the unyielding U.S. trade deficit, persistent tension in the Persian Gulf and hints last week by Treasury Secretary James A. Baker III that the battered U.S. dollar should fall further against the West German mark.

Baker made his dollar policy more explicit over the weekend and tensions in the gulf were heightened Monday by a U.S. strike against an Iranian oil platform, even as the dollar fell further and interest rates rose again.

Ruder added that he considered the precipitous Wall Street collapse a matter of serious concern but added that it was not yet clear what impact it would have on the real economy, which is still showing signs of expansion.

“It does cause me concern,” he said. “The volatility is something that we all need to be worried about.

“We’ll have to wait, however, the end of this period to find out whether this volatility has indeed been a terribly negative factor” for the economy, Ruder said.