NEW YORK, MARCH 3 -- Two stocks traded on the American Stock Exchange have been reassigned to new market makers because of erratic trading in the securities during last October's market crisis, Wall Street officials said today.
The reassignment of the two stocks, The Washington Post Co. and Continental Materials Corp., brings to seven the number of stocks taken away from market makers by the Amex and the New York Stock Exchange because of poor performance during the October collapse. All the earlier reassignments had been by the NYSE.
Stock exchange market makers, also known as specialists, are supposed to help maintain orderly trading in particular stocks under their control. Specialist firms at the Amex and the NYSE hold exclusive franchises for easing trading in a group of stocks.
Market makers attempt to make profits by trading for themselves while executing orders for other traders in the stock. They can run into trouble in a volatile market when their desire to avoid heavy losses comes in conflict with their obligation to maintain orderly trading.
Since the October market collapse, the specialist system has faced criticism because some specialists were unable to maintain orderly markets under enormous selling pressure. At the Amex, many stocks were late in opening and a few, including The Washington Post, did not trade at all on Oct. 19 and Oct. 20, the height of the market crisis.
Reassigning stocks from one specialist to another is the main disciplinary tool available to the stock exchanges, which are charged with regulating their own specialists. Since October, the NYSE has taken away five stocks from five specialist firms because of poor performance during the market crisis. The NYSE committee in charge of reallocations met tonight to consider other reassignments.
In confirming the reallocations of Continental Materials and Washington Post stocks, an Amex spokesman said the actions followed a formal review by the exchange's performance committee, which began examining specialist performance last October. The Amex spokesman declined additional comment.
Sources familiar with the Amex review said it would likely be completed in time for a meeting of the exchange's board of governors next Thursday. The sources said that other stocks might be reallocated to new specialists then.
The committee's review is expected to address other aspects of the Amex's performance during October in addition to its specialist system.
Martin Cohen, vice president of The Washington Post Co., declined comment. Englander Capital Corp., which had been the specialist in Post stock before today's action by the Amex, could not be reached. The new specialists for Continental Materials and the Post were not disclosed.
Continental Materials shares lost nearly half their value on Oct. 19 and 20, plummeting from a close of $26 per share on Friday, Oct. 16, to a close of $14.25 on Tuesday, Oct. 20. Executives at Continental, a Chicago building materials manufacturer and supplier, asked the Amex in October to investigate the performance of their specialist, Cohen, Cohn & Duffy Inc.
James Gidwitz, Continental's chairman, said today that he had been informed by the Amex that the exchange "reviewed whatever internal records they had, and interviewed the specialist, and determined that the stock's volatility had been beyond what they considered to be normal, considering the circumstances."
Officials at Cohen, Cohn & Duffy could not be reached tonight.
Gidwitz said he first became seriously concerned about trading patterns in Continental's stock on Oct. 16, when the price of the shares fell from $31.375 to $26. "That's when I hit the ceiling," he said. "It seemed that the price of our stock was dropping fairly rapidly on relatively small volumes."
The reassignments at the Amex and recent similar actions at the NYSE come as some in Congress are questioning whether the Securities and Exchange Commission should be granted increased powers to directly regulate specialist performance. The SEC oversees self-regulation of specialists by the Amex and NYSE but does not have authority to reallocate stocks.
An SEC spokeswoman declined to comment on whether the commission believed the stock exchanges were adequately supervising specialist performance or on whether the SEC would seek broader powers to discipline market makers.