Federal officials ease rules on stock trading, accounting

Regulators seek to ensure market is orderly on likely reopening Monday

Terrorism Strikes America

The Nation

September 15, 2001|By William Patalon III | William Patalon III,SUN STAFF

After the longest trading halt since the Depression, U.S. stock markets are expected to resume operation Monday, and experts are counseling individual investors to remain calm and avoid panic.

In hopes of nurturing an orderly market, federal regulators are easing rules, including those related to corporate stock buybacks, and have changed several other regulations.

"We want to get the markets back up and running as soon as possible," said Harvey L. Pitt, chairman of the U.S. Securities and Exchange Commission.

Those changes include:

Public companies may buy back their own shares without meeting the timing and volume restrictions that would usually apply.

Public companies that repurchase their shares will not have to deal with adverse accounting consequences.

Brokerage firms may calculate net capital without considering the days the market was closed.

Mutual funds may borrow from, and lend to, related parties.

Requirements were relaxed for in-person attendance at mutual fund board meetings.

Accounting firms may provide bookkeeping services to, and help recover records for, clients with offices in and around the World Trade Center, without violating auditor independence rules.

To investors, the most relevant rule might be the one making it easier for public corporations to buy back their own shares. This will allow companies to more easily prop up their share price in case of a precipitous market decline, experts say.

The week's four-day trading layoff was forced by Tuesday's suicide attacks on the two World Trade Center towers. Terrorists rammed each skyscraper with a hijacked airliner. Both towers were toppled, damaging nearby buildings and creating enough debris to leave the country's financial center -- which is arguably the world's financial center -- looking like a war zone.

None of the markets opened Tuesday. Even if the markets reopen Monday, the trading suspension will have been the longest since 1933.

It's no sure bet, however, that stocks will trade Monday. Repair crews will give the vital computer-and-communications networks several test runs today to determine whether trading can resume at the New York Stock Exchange and on the Nasdaq stock market.

NYSE Chairman Richard Grasso is confident that those tests will go well. Even so, the repair, cleanup and rescue crews must create a corridor through the rubble that made the financial district impenetrable all this week.

The American Stock Exchange building will not reopen Monday. The building -- two blocks from the former World Trade Center -- has no water and electricity, and its air-handling units are stuffed with soot. Even so, the AMEX market may reopen because the NYSE has raised the possibility of offering some of its space to its rival.

It's time for trading to resume, professional investors say.

"The most important thing about free-market capitalism is liquidity," said Robert F. Mewshaw, president of Van Sant and Mewshaw, a money management firm. "It's most important to get the markets open to have that liquidity."

Above all else, stock exchange officials most want to see normal trading -- and not huge price gyrations, or sell-offs, that start early and never reverse course.

That remains a worry. Stocks had been backsliding badly even before the terrorist attacks, chiefly because of a string of poor economic reports. With the economy so weak, many analysts fear the terrorist attack might represent the kind of "shock" able to tip the economy into a full-blown recession -- and send stocks into a free fall.

All week, experts have been counseling investors not to panic, to hold their stocks for the long term and to reject wholesale selling. Lehman Brothers put out a note to clients saying that with the recent sell-off, stocks "have gone from very cheap to extremely cheap." Other advisers have emphasized the patriotism of holding and not selling stocks when the markets reopened.

Mutual fund companies have been trying to assess what their clients are going to do.

"So far, the signs have been encouraging the last few days," Gregg P. Stein, a Dreyfus Corp. spokesman, said yesterday. "We've had lower-than-normal call volumes in the last two days and, more importantly, lower expected redemptions" where clients trade in their mutual fund shares for cash.

If redemptions are too high, fund companies can't pay them out of the cash on hand, which forces them to sell stocks to raise money. If too many funds sell, that could hasten a sell-off.

But timeout from trading may give investors time to make reasoned decisions about what to do with their stocks.

Sun staff writers Bill Atkinson and Gus G. Sentementes and Bloomberg News contributed to this article.

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