The Fall Could Have Been Worse : Wall Street: Analysts say controls on computerized program trading may have kept the markets from plunging even further on Friday and Tuesday.

It could have been worse.

The stock market’s 120-point nose-dive on Friday--and it’s harrowing 75-point slide before closing 41 points lower Tuesday--signal the success, not the failure, of recently enacted controls on volatile computerized trading, analysts and traders said Tuesday.

Indeed, according to some securities analysts, without the controls, the events of the past few days would have been even darker.

Known as “circuit breakers,” these controls on computerized trading kick in whenever the market goes down 50 points, slowing the massive computer-triggered stock selloffs that can fuel a downward spiral.

“I think the circuit breakers worked pretty well,” said Joseph Tigue, managing editor of Standard and Poor’s “Outlook” newsletter. “If it weren’t for what we have in effect, it would have gone down a lot more. . . . On Friday, it should have gone down a lot more.”

At the same time, however, Securities and Exchange Commission Chairman Richard Breeden said Tuesday that the agency would examine both the circuit breakers and the controls on stock-index options, speculative investments that bet on the broad market’s direction.

Brandon Becker, deputy director of the SEC’s division of market regulation, said the action came partly in response to a request from Rep. Edward J. Markey (D-Mass.), chairman of the House Subcommittee on Telecommunications and Finance, and partly because the agency was concerned about the precipitous drops Friday and Tuesday.

“As part of (our) continuing responsibility, we seek to ensure that the rules and procedures in place are effective in maintaining fair and orderly markets,” Becker said.

Markey has asked the SEC to examine the role that the controls played Friday, and he has asked the agency to beef up its rules on trading in stock options.

Markey aide Jeff Duncan said Friday’s plunge happened on what is known on Wall Street as a double-witching day, when certain stock-index options were set to expire. Because not all of the exchanges that handle these options have agreed to regulate them, Markey wants the SEC to look at the role the options played in the market’s dive.

“The downward move in the market was exacerbated by program trading and portfolio management strategies, triggered by the fact that yesterday was a ‘double-witching day,’ ” Markey said of Friday’s selloff.

Markey said in a written statement that there is an “ongoing threat” to market stability when the price at which options expired was officially set at the end of the day rather than the beginning.

When prices are set at the close of the day, panic can be triggered by investors trying to dump options before their value plunges, Duncan said. If they are set when trading opens, specialists on the exchange floor can better regulate their sale.

Still, Markey and others said that those controls that are already in place helped slow the market’s fall.

According to a spokesman for the New York Stock Exchange, the regulations on computerized trading have gone into effect 40 times since their inception in 1990.

“The market is really not volatile now in the sense that it was in 1987 or 1989,” said John Bachman, managing director of Edward D. Jones & Co., a brokerage in St. Louis that mostly serves individual investors. “I am much more comfortable with it.”

But DeWitt Bowman, chief investment officer at the California Public Employees Retirement System, said he believes that the market is too volatile--and while he concedes that the circuit breaker controls may have slowed things down this time, he warns that they may not be so helpful next time around.

“You have to keep reviewing (the controls) to make sure they’re not having the opposite effect,” Bowman said. “What we’re getting now is more of a test.”