AFTER THE stock market crash of 1987, when in one day investors lost half a trillion dollars, a great cry went up for an investigation into its causes. The investigation was duly held under the man who is now the secretary of the Treasury. It found a number of gaps and anomalies in market regulation and made a series of sensible proposals. Now, 2 1/2 years later, despite another warning tremor in the market last fall and another committee's similar findings last week, no legislation -- none -- has been enacted on any of these recommendations.
Probably the most important of them addresses the curious fact that stock trading is regulated by one federal agency but stock index futures by another -- with not much coordination between them. That's important, the Treasury argues, because a fall in stock prices can be greatly accelerated by plays in stock index futures. The Treasury points out that these episodes of heart-stopping drops in prices are becoming more frequent. The administration wants one regulator, the Securities and Exchange Commission, to have authority over the markets in both stocks and stock futures. At present, stock futures trading is under the separate (and frequently rival) Commodity Futures Trading Commission.
The reason for this odd division of labor is entirely historical -- futures trading developed in the markets for agricultural commodities, with the result that futures in stock prices are now traded in the same exchanges as futures in wheat and pork bellies. That also leads to jurisdictional friction in Congress, where the stock index futures come under the agriculture committees with all the other futures, while stocks come under the committees that deal with financial regulation.
The differences among them will shortly be illustrated when the Senate Agriculture Committee brings to the floor its bill imposing a series of reforms on the commodities traders in response to the Chicago scandals last year. It's a good bill. The administration is going to try to attach to it an amendment that would take the stock index futures away from the CFTC and give them to the SEC. The futures traders, and most of the Agriculture Committee, are resisting furiously.
The traders fear that the SEC would regulate them with much closer attention to their impact on the stock markets and, by raising margin requirements, would make them put up more of their own money in each trade. That's exactly what it ought to do. A market crash is a major threat to the whole economy. Fragmented regulation is dangerous.