Summary: Pursuant to a congressional request, GAO: (1) assessed the computer systems of 10 member firms linked to the New York Stock Exchange (NYSE) for basket trading; (2) determined NYSE and member systems' capability to identify basket trades and differentiate between program trading strategies; and (3) determined whether system improvements since the October 1987 market crash permit more accurate reporting of various program trading strategies.
GAO found that the firms' computer systems: (1) ranged from large-scale computers to a microcomputer; (2) used their own software, NYSE software, or both for basket trading; and (3) could identify basket trades and modify the contents of a basket of stocks. GAO also found that NYSE: (1) computer systems could not differentiate between trading strategies, although 6 of the 10 member firms' computer systems could; (2) could not electronically monitor market participants' use of trading strategies or electronically enforce rules regarding their use; and (3) plans to develop the capability to identify trading strategies. In addition, GAO found that the four firms without the capability to identify trading strategies did not feel that such upgrades were necessary, since NYSE did not require that capability.
