SHUTTING DOWN securities markets is more likely to aggravate crashes and panics than to mitigate them. David S. Ruder, the chairman of the Securities and Exchange Commission, is pressing Congress for wider authority to impose temporary suspensions of trading and to restrict hours in emergencies. But far from reassuring traders, the possibility of sudden and unexpected halts is likely to make the stock markets seem a more dangerous place to put money.
The SEC's report on the October crash, like the Brady Commission's similar report last month, does its greatest service by providing a clear and illuminating account of what happened. The two analyses are quite consistent with each other, and together they provide an excellent explanation.
The Brady Commission gave special emphasis to the extraordinary concentration in the ownership and management of securities. The market was swept downward by enormous volumes of stocks and options thrown hastily onto it by a remarkably small number of sellers, chiefly mutual funds and portfolio insurers.
The portfolio insurance strategy was, in effect, a fire escape that collapsed when too many people crowded onto it. The idea was that institutions owning large portfolios of stock could protect themselves from a drop in that market by quickly selling futures. But when many sold simultaneously, the futures market gave way and dropped as though it had no bottom.
Investors aren't likely to make that mistake again. As the two commissions have made clear, the markets for stocks, futures and options are in fact all one huge integrated market and all move to the same music. Mr. Ruder is quite right in believing that they all ought to be under one regulatory authority and that the authority ought to be the SEC.
The rival Commodity Futures Trading Commission is putting up a great fight to retain regulatory jurisdiction over stock index futures. But there is a natural and desirable division of labor between the SEC and the CFTC: the SEC's proper concern is securities, and the CFTC's is commodities. Stock indices are not commodities.
The October crash was caused not by flawed regulation, but by the cresting of a classic speculative boom. In the aftermath, the experts have pointed to many regulatory improvements that can usefully be made, but few of them are urgent. That's fortunate, since neither Congress nor the Reagan administration seems to be in any great hurry to pass new legislation.