Clearance and Settlement Reform

The Stock, Options, and Futures Markets Are Still at Risk Gao ID: GGD-90-33 April 11, 1990

GAO evaluated the progress made in response to the President's Working Group on Financial Markets' recommendations for clearance and settlement reforms after the October 1987 stock market crash, focusing on: (1) the processing of information about trades; (2) procedures used by clearing organizations to manage financial risks; and (3) payments to and from clearing organizations.

GAO found that: (1) the exchanges' and clearing organizations' upgrades enabled the trade processing system to handle larger volumes and made it less vulnerable to delays; (2) clearing organizations made less progress in improving financial risk management, since there was not an intermarket sharing system to evaluate intermarket risks when clearing members participated in multiple markets; and (3) despite some progress in reducing cash flows and ensuring prompt payments, federal and self-regulatory organizations failed to implement all of the intermarket Working Group recommendations designed to reduce cash demands.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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