Preliminary Observations on the Market Crash of October 1987

T-GGD-88-10: Published: Feb 5, 1988. Publicly Released: Feb 5, 1988.

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GAO discussed issues and problems concerning the October 1987 stock market crash. GAO noted that: (1) the Federal Reserve System (FRS) effectively met its responsibilities during the crisis, but could face difficulties with future crises if Congress relaxed Banking Act of 1933 restrictions; (2) the equity and futures markets have developed intermarket and international linkages; (3) the U.S. markets' automated trading systems were severely strained by trading volumes and market pressures; (4) individual investors faced unnecessary difficulties in gaining access to trading systems; and (5) no intermarket interagency contingency plans existed to facilitate regulatory agencies' decisionmaking or communication processes. GAO believes that the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), FRS, and the Department of the Treasury should immediately develop contingency plans and agreements concerning: (1) dissemination of information about CFTC and SEC decisionmaking and communication processes; (2) crisis intervention procedures; and (3) FRS liquidity support mechanisms for market participants.

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