BLACK MONDAY - ONE YEAR LATER. Market reform on hold
IF you're still waiting for tough new laws to prevent another ``Black Monday,'' forget it - at least for this year. Congress is closing shop until January, and federal regulators are not expected to take major action until after a new administration takes charge in Washington.
Despite a series of important task-force studies and the work of several congressional committees, the Reagan administration and Congress have been unable to agree on a comprehensive stock market reform package.
The best known of these congressional committees, the Brady Commission, chaired by Nicholas Brady, now the United States Treasury secretary, proposed that the Federal Reserve Board coordinate most key market activities. That proposal, however, was rejected by Fed chairman Alan Greenspan.
``The constituency for stock market reform disappeared and there was no consensus between the public, the Congress, and the administration,'' says Rep. John Dingell (D) of Michigan, head of the House Committee on Energy and Commerce. That ``constituency,'' he says, is made up of the millions of people who invest relatively small amounts in the market.
But not all market experts decry the political and legislative inertia on market regulation.
``Why should we be particularly troubled?'' asks Eugene Lerner, professor of finance at the Kellogg Graduate School of Management at Northwestern University in Evanston, Ill. ``I'm certainly in favor of greater cooperation between the financial markets. ... But what would be the advantage of any rush to come up with legislation on `market reform'?''
One potential advantage, of course, might be to woo back investors.
Mindful of that, although the exchanges, regulatory agencies, and brokerage houses are still battling over the nature and degree of market regulation, the exchanges have made some changes on their own. The directors of the New York Stock Exchange and the Chicago Mercantile Exchange have approved a number of steps to better coordinate trading practices and communication between contacts involving equities and the futures markets. For example:
The two exchanges are working toward the use of ``circuit breakers'' - price limitations and uniform halts on trading to curb excessive movements in prices that could lead to a breakdown in trading, as happened last year.
The New York Stock Exchange has raised minimum capital requirements (from $100,000 to $1 million) for the 54 companies that make up the specialist trading system - the firms that service the markets for more than 2,000 listed stocks. Moreover, capital requirements will be raised over the next two years, presumably to the $2 million level, according to NYSE officials. They add that one expected result will be more mergers among specialist firms.
Rising stock prices may also help bring investors back.
The market has nudged upward since the beginning of this year. The Dow Jones industrial average, the most widely watched barometer of market activity, has climbed well over 20 percent since last Oct. 19. But the market still has a long way to go to recoup all of the 508 points lost on ``Black Monday'' alone.
``Little by little, investors have been returning,'' says Valery Craane, a retail broker with Merrill Lynch. ``But they will come back only as they feel more confident about the market, as well as the economy.''
Volume on the Big Board remains sluggish and prices have stayed in a narrow trading range. Fewer and fewer businesses and underwriters have been willing to introduce new stock offerings because of little investor interest. Investors now prefer essentially conservative investments, such as money-market funds or bank certificates of deposit.
In short, the stock market is no longer as important a financial player as it was before last October, contends Sara Johnson, an economist with Data Resources Inc. of Lexington, Mass. ``We certainly learned that the market is not a real indicator in terms of the performance of the economy,'' Ms. Johnson says.