System Failure

Computer-launched program trades have been widely blamed for the severity of the Oct. 19 crash. Most analyses of Black Monday, however, have assumed that the stock-exchange computers on the receiving end of the selling torrent held up fairly well. Not so, says a report released last week by the General Accounting Office, the congressional investigative arm. According to the GAO, the computer systems that handle securities trading on the New York Stock Exchange suffered repeated breakdowns the week of the crash, adding significantly to the confusion and fueling the selling panic. "The October crash was a crisis that nearly became a disaster," said Comptroller General Charles Bowsher, head of the GAO. "Somebody's got to take a hard look at these systems."

The report claims that shutdowns occurred in almost every component of the complex trading systems, from the printers on the exchange floors to the phalanxes of minicomputers that do the bulk of the N.Y.S.E.'s back-office work. Part of the Big Board's designated order turnaround (DOT) system, which transmits orders from brokerage firms to the floor of the exchange, crashed four times on Oct. 19. The next day, a system that stores standing orders to buy or sell shares at a predetermined price stopped three times. One still unidentified software glitch temporarily misplaced transaction reports involving some 4.3 million shares. Many brokers, uncertain whether the computers were registering their sell orders, just kept selling to make sure.

The GAO study faulted the Securities and Exchange Commission for paying inadequate attention to the vulnerabilities that computers have created in the securities markets. Said a GAO aide: "The SEC doesn't have a staff that can go in and analyze a computer system to see if it functions correctly." That could change quickly. The N.Y.S.E. has begun to beef up the capacity of its computers, and the SEC is keeping close tabs on the process.