Senate Panel to Look Into Oct. 19 Crash

Sen. William Proxmire (D-Wis.), chairman of the Senate Banking Committee, said Thursday that he wants to learn the cause of the Oct. 19 stock market crash to determine if present laws and regulations should be changed or if new ones are needed.

“It is high time that we re-examine the fundamental role of our trading systems and capital markets,” Proxmire said in announcing that the committee will hold four days of hearings into the crash, beginning Feb. 2.

Proxmire said government agencies and self-regulatory organizations have now had enough time “to conduct their autopsies of the crash. Congress must now do its job of determining what regulatory or legislative changes are needed.”

In a letter to witnesses, Proxmire said: “We would be particularly interested in any recommendations--legislative or otherwise--which you believe would improve the efficiency and integrity of our capital markets systems and decrease the probability of an international stock market panic in the future.”

A Look at Fed, SEC

He said the committee will examine the desirability and advantage of having all financial instruments focused in one government agency.

Proxmire said he also wants to determine the role of the Federal Reserve Board during the crisis, the adequacy of the Securities and Exchange Commission’s capital requirements for brokers and dealers and the extent to which the SEC coordinated or exchanged information with its regulatory counterparts in Japan, England and West Germany immediately before and subsequent to Oct. 19.

Among other issues the committee will study, according to Proxmire, are:

- A comparison of the performance of the specialist system used by the exchanges versus the dealer system used by the over-the-counter market during the week. To what extent was there a continuity of trading in one trading system versus the other, and what, if anything, can be learned by comparing the performance of the two systems during that week?

- How did techniques such as portfolio insurance and index arbitrage contribute to the speed and depth of the decline of stock prices on Oct. 19?

- Through what channels did the Fed provide liquidity to the financial system? What are the relative merits of providing liquidity through the discount window relative to providing emergency funds through open market operations?

Review of Riegle’s Proposals

Proxmire said the committee also will examine recommendations by Sen. Donald W. Riegle Jr. (D-Mich.), chairman of the banking panel’s securities subcommittee.

Among Riegle’s proposals is the creation of an International Securities Regulatory Commission to regulate and coordinate international securities markets to help avoid future panics.

He also recommends the creation of a new special advisory committee to study the securities markets and increased funding and staff for the SEC’s division of market regulation and investment management.