Exchanges Asked to Tighten ‘Specialists’ Rules

The Securities and Exchange Commission, in a report on the October, 1989, market drop, called on the nation’s two major stock exchanges Friday to tighten performance standards for professionals who regulate trading flow.

The SEC said the New York and American stock exchanges performed well overall during the 190-point tumble in the Dow Jones industrial average Oct. 13, 1989, and during a sharp rise on Oct. 16.

But the report cited several problems on the exchanges and at the automated National Assn. of Securities Dealers system, and called for several revisions in how trading is regulated.

The SEC’s division of market regulation said some exchange floor market makers, known in the industry as specialists, failed to perform adequately during the volatile trading.

The market regulation division said the exchanges should review performances and take “appropriate remedial action.”

Specialists generally match buyers and sellers of stock but are required to correct imbalances by making purchases or sales from their own supplies when necessary to maintain fair and orderly markets.

The SEC report said the exchanges should use their authority to reallocate stocks when they determine that specialists display a “substantial or continued failure” to maintain orderly markets.

It also said the NYSE, Amex and regional stock exchanges should consider developing capital levels for specialists.

The Amex said in a statement that it continually reviews specialists’ performance.

An NYSE spokesman could not be reached for comment.

The report was the second part of the SEC’s analysis of the 1989 market slide.

In June, the SEC concluded that the drop was accelerated by index arbitrage and other program trading strategies.