If a bus driver walks into a stockbroker's office, opens a suitcase with $1 million he just inherited and says he wants to make some high-risk investments, how should the broker treat him?

As a man whose investment horizons are limited by a bus driver's salary? Or as a wealthy man free to make sophisticated investment decisions?

A. George Saks, a lawyer for Smith Barney, Harris Upham & Co. in New York, told the Securities and Exchange Commission yesterday that he uses that example when teaching brokers how to live up to an industry rule that investments they recommend must be suitable for their customers.

Saks told the bus driver story as regulators and industry officials wrestled with the question of whether investors who lost large sums of money in the stock market plunge Oct. 19 did so because they had their money in unsuitable investments -- meaning investments they could not afford and did not fully understand.

Widespread customer complaints after the market cracked indicated that investors suffered heavy losses in options and futures. Both are considered potentially high-risk investments.

The round-table discussion, led by SEC Commissioner Aulana L. Peters, was part of the agency's examination of problems exposed by the market's precipitous fall. The discussion also focused on how to improve the training and knowledge of stock brokers and how to alert investors and brokerage firms to avoid brokers cited for improper practices.

Defining a suitable investment turned out to be the day's most perplexing question, however. Several panelists admitted they did not know how to define the concept, but said it was more important than ever in an era of volatile markets and complex investment products.

SEC Chairman David Ruder asked, "Should we, as a regulatory matter, say there are some areas in which we will identify product that is too dangerous for the average investor to engage in? I think of naked put options on the S&P 100 index, which apparently cost a lot of people a lot of money in this last go-around. There may be some people ... who shouldn't have the opportunity to engage in these transactions which have a high degree of risk."

Naked put options are a way of betting that stock prices will not fall. The investor sells options, promising to buy shares a few weeks or months later at current prices, regardless of what happens in the stock market. If stocks keep rising -- or at least do not fall -- the investor gets to keep the fee received when the put option was sold. But if prices plunge, the person who sold naked puts is left exposed.

The seller must make good on the promise even if it means buying stock for far more than it is worth. In the Oct. 19 crash, some naked puts on the Standard & Poor's 100 index produced losses of more than $10,000 on an investment that at best could have made only a few hundred dollars profit.

Lawyer Edward Brodsky of New York, who represents unhappy investors in their cases against brokerage firms, said, "Many customers didn't have the foggiest notion of the kind of money they could lose in these options transactions and futures trading."

Brodsky said that a broker should refuse to make an investment for a customer if the broker thinks it is unsuitable, even if it means losing the customer. Other panelists disagreed.

Brodsky raised the hackles of other panelists when he suggested that any broker who has been disciplined by the industry reveal that fact to prospective clients. After that, he said, "Customers will think twice before dealing with that salesman."

James C. Treadway, a lawyer for PaineWebber Inc. in New York, called the proposal "absolutely ludicrous," saying, "I thought that branding people and wearing a red letter A around the neck went out quite a while ago."

Panelists said that it was difficult to get "bad actors" out of the securities business because the firms they leave fear they will be sued for slander if they inform other firms why the brokers were fired.