Word: crash
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Dates: during 1980-1989
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...Brady report says that while the Black Monday crash was triggered by fundamental problems like the trade deficit, it was exacerbated by the complex and poorly controlled interactions between the New York Stock Exchange and the Chicago Mercantile Exchange, which dominates the trading of stock-index futures. If dangerous stock dives are to be avoided, the Brady group contends, Chicago and New York will have to play by similar rules. The commission's central recommendation is that one agency -- preferably the Federal Reserve -- coordinate the activities of all U.S. financial markets. Currently, the Securities and Exchange Commission regulates the stock...
...Brady report identified portfolio insurance and index arbitrage as culprits in the Oct. 19 crash. Desperate to cut their losses when the stock market began to fall, money managers sold huge numbers of futures contracts. So many traders were following the same strategy that the downward spiral of prices accelerated in both New York and Chicago, and everyone got burned...
Melamed contends, with much justification, that crash investigators should look not at the trading pits of the Merc but at the specialist posts on the floor of the Big Board. The specialists are supposed to moderate price swings by "making a market" in particular stocks -- buying, if necessary, when no one else wants to. But on Black Monday the system virtually collapsed. Many of the 450 specialists were unable or unwilling to spend enough money to keep their stocks from going into free fall. Several specialist firms exhausted their capital and went out of business or were absorbed by bigger...
Congress is also pondering what action to take. Next month the Senate Banking Committee and the House Telecommunications Subcommittee will conduct hearings on the crash. For one thing, the committees may look into charges that trading in futures contracts based on the Major Market Index, a basket of 20 blue-chip stocks, was manipulated by several major investors on Oct. 20 to trigger an artificial rally in the stock market. The Commodity Futures Trading Commission investigated the accusation and found no evidence of wrongdoing, but the issue will not go away. Says one Senate Banking Committee staffer: "We want...
...broad consensus is emerging that at least some reforms are needed. But no one seems to agree on just what should be done. The question now is whether New York and Chicago can resolve their differences before they are engulfed by another crash...