Financial markets: some current problems and future prospects

Abstract

The current financial market problem considered in this Keynote Address is the public perception that recent innovations have made financial markets too volatile." Actually, average daily volatility is only moderately higher than in the placid 1950's and 1960's and far below the levels reached in the 1930's. Merely appealing to the facts, however, is unlikely to overturn this deeply ingrained perception. The focus here instead will be on one of the solutions currently being explored by the exchanges and their regulators for mitigating the problems, real and perceptual, posed by episodes of extreme volatility such as those of October 19 and 20, 1989 or October 13, 1989. That solution, proposed originally by the Brady Commission and endorsed recently by the Securities Industry Association, calls for coordinating existing circuit-breakers into a single, integrated system of trading halts during periods of great market stress. The case for installing circuit-breakers, whether separately or in concert is reviewed and the prospects for achieving further Integration of existing circuit breakers is appraised.