London Stock Exchange Urges More Use Of Arbitrage, Hedging in Crash Report --- Special to The Wall Street Journal
LONDON -- Participants in the British stock market should increase their use of arbitrage and hedging techniques to help prevent a repeat of the October stock market crash, London's stock exchange said Wednesday.</br></br>The recommendation, which contrasts with the sharp criticism of hedging and arbitrage techniques in similar reports on the New York market crash, came in a detailed study on the crash and its aftermath by the stock exchange's quality of markets unit.</br></br>Unlike U.S. reports on the crash, the study didn't propose any change in the regulatory system for the London stock market and didn't suggest the need for restrictions on trading during times of market volatility.</br></br>Trading systems "coped remarkably well" in the week of the Oct. 19 market crash, the report concluded.</br></br>Arbitrage and other index hedging techniques are relatively rare in Britain, the report said. The lack of these techniques caused the London options and futures markets to trade at a substantial discount to the cash market during the crash, the report adds.