Developments Since the Market Crash of October 1987

GAO discussed federal and self-regulatory organizations' efforts to improve stock market operations following the October 1987 market crash. GAO found that the New York Stock Exchange (NYSE): (1) upgraded its order processing systems; (2) installed new equipment to handle odd-lot orders; (3) installed additional automated specialist books to reduce its reliance on card printers; and (4) added more specialist trading posts. GAO also found that NYSE planned to: (1) increase system handling capability to 1 billion shares daily by December 1989; (2) test its automated order processing systems in a 600-million-share day by April 1988; and (3) develop its system's capability to differentiate between basket trading strategies. GAO also found that there were conflicting views: (1) over the use of daily price limits on index products to control price swings; and (2) regarding NYSE restrictions on the use of the Designated Order Turnaround System for index arbitrage when the Dow Jones average moves 50 points in a day. GAO believes that the President's Working Group on Financial Markets has the potential to resolve intermarket regulatory disagreements.