The Securities and Exchange Commission, in a report on the October 1989 market drop, is calling on the nation's two major stock exchanges 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 on Oct. 13, 1989, and a subsequent sharp rise on Oct. 16.But the report cited several problems in the handling of trading on the exchanges and at the automated National Association 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 marketmakers, known in the industry as specialists, failed to perform adequately during the volatile trading and said the exchanges should review performances and take "appropriate remedial action."
Specialists generally match up 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 during volatile times.
It also said the NYSE, Amex and regional stock exchanges should consider developing capital levels for specialists based on individual stocks. Specialists are required to "make markets" for trading of particular stocks.
The Amex said in a statement that it continually reviews specialists' performance, did so for the October 1989 market drop and "has taken appropriate action where warranted."
"However, we believe that overall our specialists performed exceptionally well during this difficult period," the statement said.