WASHINGTON — October's stock market collapse was triggered by an "unprecedented change in investors' perceptions" and not by technical trading strategies that went awry, government regulators said Monday.
The staff of the Commodities Futures Trading Commission, in a final report, said it could find no evidence to support the "persistent assertion" that program trading strategies, including speculation in stock indexes, was at fault for the stock plunge Oct. 19.
In fact, the report suggested, the market crash was the culmination of a drop in stock prices that had begun months before.
"The bull market in stocks that started several years ago began to trend down in late August and the downward trend was accentuated in early October."
The panel, which regulates futures markets such as the Chicago Mercantile Exchange, issued its report on the eve of the release of a study by its sister agency, the Securities and Exchange Commission.
The SEC study is also expected to deal with the circumstances surrounding the 508-point drop in the Dow Jones industrial index on Oct. 19, and the market instability that has followed.
Both studies add to a growing number of government reports on the stock market collapse, including an analysis by a commission headed by Nicholas Brady that called for a single agency--possibly the Federal Reserve--to oversee financial markets.
Technical Trading Absolved
The study by commodities regulators, however, recommended no major structural changes in regulation of the futures market.
"Current futures market surveillance is sound," the report said. However, it said that improved data collection would be desirable, as would "better sharing of accurate, timely information" among the various markets.
Monday's report said the CFTC staff supports "the belief that the massive wave of selling that engulfed both the stock and futures markets on Oct. 19 was precipitated by an unprecedented change in investors' perceptions and was not initiated by technical trading strategies which interacted with each other and the stock market."
The change in perceptions, it went on, built from the previous week's experience, as stock prices began to slide.
"Many investors acted simultaneously and in unprecedented volumes upon those changed perceptions," the study concluded.
The report repeated many of the assertions of preliminary CFTC studies issued in December and January, namely the rejection of suggestions that complex schemes that linked trading in stocks with trading in stock indexes led to the downward spiral in stock prices.
In addition to today's SEC report, the Senate Banking Committee will begin a week of hearings on the stock market crash.
The leadoff witness is Brady to discuss his commission's recommendations, followed by Federal Reserve Board Chairman Alan S. Greenspan.