Proposals to stabilize markets are fairly modest
Individual investors are unlikely to take comfort in the ``cures'' that the Reagan administration's Working Group on Financial Markets recommended to President Reagan Monday. The group did not call for a curb on program trading or a buffer for volatility, moves demanded by large and small investors as well as members of Congress since the 508-point market fall Oct. 19.
The Reagan administration, which chose to distance itself from the more sweeping changes put forward in the Brady Commission report, set up the working group two months ago to decide what could be done, within the confines of current legislation, to prevent a repeat of Oct. 19. Headed by Treasury Secretary James Baker III, the panel was co-chaired by the heads of the Federal Reserve Board, the Securities and Exchange Commission, and the Commodity Futures Trading Commission.
The panel's main proposal, involving cross-market trading halts, or circuit breakers, is designed to go into effect only in ``dramatic'' circumstances. The report recommends coordinated halts of the markets for stocks, individual stock options, and stock index options and futures for one hour, if any one market falls 250 points from the previous day's closing, and two hours for a 400-point drop.
The group also concluded that current margin levels (requirements for a minimum account balance) for stock-related futures are ``adequate'' to protect the financial system.
Federal Reserve Board chairman Alan Greenspan said that he believes ``the crucial areas are already cured, either by the market levels, or by actions already taken by the [exchanges].'' The chairman, noting the concern that small investors have flown the market, said that ``they come back, they leave, they come back. I'm certain ... that they will be back.''
Not everyone on Wall Street or in Congress agrees.
Responding to the group's report, Rep. Edward Markey (D) of Massachusetts said it was ``a giant step backward'' from the president's first task force on the market, the Brady report.
Last week, five major Wall Street firms halted the use of stock index arbitrage for their own trading, and one company stopped the practice altogether.