Morgan Stanley Is Swinging Back to Program Trading
NEW YORK -- Morgan Stanley & Co. thinks the stock market needs more program trading again.</br></br>In a decision that some traders fear could bring a return to wild price swings in stocks, Morgan Stanley said yesterday it is resuming "stock-index arbitrage" program trading for its own account. Nine months ago, Morgan and other major securities firms made a splashy pullback from such trading -- which is a common and controversial form of computer-aided program trading.</br></br>Rampant program trading by brokerage firms was blamed by many traders for contributing to the October 1987 stock market crash. No other trading technique so closely links the stock-index futures market in Chicago and the trading of stocks themselves in New York.</br></br>"I think we might go back to the Wild West days. I don't think anyone likes it," money manager James J. Cramer of Cramer & Co. said of the Morgan Stanley decision.</br></br>Before Morgan and the other firms backed away from doing index arbitrage for their own accounts in May 1988, index arbitrage was blamed on many days for wide swings in stock prices.