Path: utzoo!utgpu!water!watmath!clyde!rutgers!ames!pasteur!ucbvax!hplabs!hplabsz!taylor
From: taylor@hplabs.HP.COM (Dave Taylor)
Newsgroups: comp.society
Subject: Computers and the Stock Exchange
Message-ID: <1478@hplabsz.HPL.HP.COM>
Date: 25 Jan 88 23:11:24 GMT
Sender: taylor@hplabsz.HPL.HP.COM
Organization: Hewlett-Packard Laboratories, Software Technology Lab
Lines: 66
Approved: taylor@hplabs

The following is based on an article off the Associated Press newswire 
that appeared in todays Santa Cruz Sentinel.

- - - - -

Shearson Lehman Brothers Inc. Hailed in Limiting Computer Program
Trading on Wall Street

New York - A Wall Street assault on one form of computer-driven stock
trading intensified Friday when one of the biggest stock brokerage
firms, Shearson Lehman Brothers Inc., announced a limit on their use
of computer program trading.  The company blamed it for fanning what
they call `post crash volatility' and weakening investor confidence in
the stock market.

Many brokers hailed the announcement as a step towards limiting what
is widely seen as the harmful impact of `index-arbitage program
trading' [this is defined in the article as the use of computers to
simultaneously buy and seel large quantities of stocks and stock-index
futures].

An institutional stock manager at another firm put it this way; ``I think
Shearson wants to show that we as an industry group are not going to
let one tool destroy the confidence the investing public has enjoyed
for so many years.  I think it's an extremely good move.''

The blame for the October 19th crash of the stock market has been placed
on this index-arbitage program trading system by many analysts, with even
more agreeing that the resultant wild swings and panicked buying and 
selling of stocks were caused by this system.

There was even a presidential commission created to study the collapse,
their report stating that this program trading `certainly played a
role' in what happened.

A member of a firm that is boycotting brokerages that use index-arbitage
trading states; ``The institutions that aren't involved in index-arbitage
program trading are bringing their muscle to the plate to try and stop
it.  That's what causes the violent fluctuations in the marketplace,
and that's running people out of the market, both the instutions and
individual.  They just don't want to be involved in a market that moves
that much.''

The New York Stock Exchange, in an attempt to allay investor concern,
has also taken steps to limit index-arbitage program trading via its
main computer system when the Dow Jones industrial average moves more 
than 75 points in a single day.  They are also considering temporary
trading halts in volatile stocks which would make it more difficult
for program traders to calculate prices accurately [which would result
in the system being considerably less useful].

Other exchanges, including the Chicago Stock Exchange, are considering
similar limitations.

Shearson, in their statement to the press, said that ``index arbitage
program trading  had been suspended in response to concerns expressed
by clients that program trading may exacerbate market volatility.''

- - - - -

So it appears that the speed and power of the computer indeed has
finite limitations in certain areas...anyone care to surmise what
the ultimate long-term effects of this sort of limitation will
have?

						--- Dave Taylor