REBOUND ON WALL STREET : The System : A Few Glitches and Trading Delays, but Mostly A-OK
Friday’s stock plunge and Monday’s rebound struck the nation’s market trading system with technical snafus and trading delays but spared it the kind of chaos that prompted panicked calls for reform after the October, 1987, crash.
In the face of the heaviest trading volume in two years, computerized equipment went on the fritz at the American Stock Exchange and the National Assn. of Securities Dealers. Delays were reported in the trading of over-the-counter stocks and in options on stock indexes.
To compound investors’ confusion, the approximately 100,000 display monitors of the leading stock-quote provider, Quotron Systems, went haywire briefly Monday morning.
The plunge brought to the surface several philosophical complaints about the market system. Some investors complained bitterly about program trading, the computer-driven techniques that allow investors to play stock and futures markets simultaneously. Others contended that the drop pointed up the weaknesses of the systems by which stock prices are set on the New York Stock Exchange and in the over-the-counter markets.
But traders generally conceded that the markets’ vast computerized trading systems worked well. The “back office” bookkeeping tasks were handled smoothly, and, partly because of the assurances of the Federal Reserve Board, major investment firms had no fear Monday that they would be caught in a cash crunch in case the plunge worsened.
“On the technical side, I would give the system pretty high marks,” said Jack Barbanel, president of First Global Asset Management of Princeton, N.J., in a comment that was widely echoed.
Some investors reported that they were delayed for many minutes when they tried to call in orders for the over-the-counter stocks. “You couldn’t get anybody to answer the phone, or you found you were 12th in line,” said one trader.
But investors generally blamed the problem on the enormous volume of orders that were called in, rather than on any attempt by broker-dealers to avoid buying shares in a falling market. After the 1987 crash, several market makers were disciplined for not accepting calls.
“In a situation like that, there’s not much you can do to avoid some delay; how many people can you have answering the phones?” said Jon Groveman, head of equity trading at the Ladenburg, Thalmann & Co. brokerage in New York.
The over-the-counter market was hit hard Monday morning as investors sold shares in a wave that mirrored Friday’s last-hour selloff in blue-chip shares. The wave took its toll on the so-called small order execution system of the NASD, which automatically completes small trades in 2,700 of the most popular over-the-counter stocks.
The prices on those stocks were changing so quickly--at 10 times the usual rate--that the NASD closed the automated system from 9:38 to 10:02 a.m. EDT. “That really threw us a curve, right off the bat,” said William Sulya, head of over-the-counter trading for A. G. Edwards & Sons in St. Louis. While brokers could circumvent the disabled electronic systems and call in orders, “some investors may not have gotten as good a price as they might have.”
Joseph Hardiman, NASD president, contended that the disabling did not hurt any investor. “This was just a minor snafu,” he said. “Our market handled things well.”
At the American Stock Exchange, a system that sends printed buy and sell orders to the exchange floor delayed the execution of some trades. The hardware broke down at about 11:45 a.m. and was completely restored at about 1 p.m., a spokesman said.
Monday morning’s unsettled mood also took its toll on the trading of options on stock indexes, traders said.
