NEW YORK, JUNE 12 -- A blue-ribbon panel of American business today urged U.S. stock and futures exchanges to adopt several new defenses against wild swings in the market, including temporary halts in trading of between one and two hours to ease pressure on the system.
The 19-member panel, assembled by the New York Stock Exchange and chaired by General Motors Corp. Chairman Roger B. Smith, also gave a subtle but unmistakable endorsement of the Securities and Exchange Commission's effort to widen its mandate by adding to its authority the right to regulate the Chicago stock futures markets.
The panel was formed in December in response to concern that sharp, single-day swings were driving individual investors away from the nation's financial markets. Those worries were heightened by the "mini-crash" in stock prices last October, and by the perception that such volatility was fueled by computer-driven, large-scale buying and selling operations known as program trading.
In its 300-page report, the panel urged regulatory changes that among other things would help companies buy their own stock during periods of market stress. It called for introduction of new hedging mechanisms to protect individual investors against wild price swings and for improved surveillance by exchanges and regulators to detect abuses by operators trading in more than one market at once.
The proposals require approval of stock exchange directors and government regulators. Although the panel said its members adopted all eight recommendations by at least a 2 to 1 margin, the group was sharply divided on some of its most important conclusions.
In particular, Leo Melamed, chairman of the Chicago Mercantile Exchange, and two other panel members dissented publicly from the panel's recommendations that a single federal agency should regulate all exchanges. Under the current system, the Merc is regulated not by the SEC, but by the Commodity Futures Trading Commission.
Melamed said in a dissenting opinion that the panel had failed to prove that there would be any benefit from putting all regulation in the hands of a single agency. The panel's recommendation did not say specifically that the SEC should be the single regulator, but members of the group said that clearly was the majority's view.
Some dissent also was recorded by panel members who thought the group had been too timid in urging extra regulation to protect investors. Stephen B. Timbers, a panel member and a top executive of Kemper Financial Services Inc., a $60 billion investment management firm, said the recommendations were not strong enough to solve the problem of excessive market volatility.
To help calm markets in times of stress, the panel suggested a four-step system that would provide for suspensions of trading in the event of sharp rises or declines in stock prices.
For example, it urged a one-hour halt in trading on all stock and futures exchanges if the Dow Jones industrial average rose or fell 100 points from the previous day's close. If, when trading resumed, the average moved an additional 100 points, the markets would be shut down again, this time for 90 minutes. Each additional 100-point move would trigger a two-hour suspension. In theory, if the market opened down 100 points and re-opened three times with additional 100-point drops, the market would have been open for only four brief instances for the day.
"The chances of that happening, obviously, are extremely small," a stock exchange official said.