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Celia Thompson of Carlsbad, CA asks:
Everyone has said that the mechanics of the market were changed following the 87 Crash. I wanted to find out what were these changes exactly?
Dr. Robert Glauber responds:
In 1987 the operating mechanisms, what we called the "plumbing," broke down - telephone lines backed up and investors couldn't get through to their brokers, market makers ran out of capital and went out of business, the futures market closed suddenly, and trading in many stocks was closed down because of order imbalances.
Today, the exchanges and the regulators have taken a number of steps to make the plumbing more "industrial strength." The New York Stock Exchange claims it can handle a two billion share day with no glitches (it handled 700 million shares [yesterday] with no trouble), the market makers have more capital, and "circuit breakers" have been installed to give investors a breathing spell when markets start moving too quickly (they triggered [yesterday] and there will be a lot of debate whether they helped or hurt). The regulators for the stock and futures markets and for the banking system meet regularly to coordinate their activities. So, while markets certainly can and will go down when investors decide prices are too high (they did [yesterday]), it is not very likely we'll have the chaos we had in 1987.
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