WASHINGTON, November 4: The recent use of circuit-breakers to halt stock market trading is getting mixed reviews in the nation's capital. But count the Federal Reserve among those who frown on the outright suspension of market activity.

The New York Stock Exchange (NYSE) instituted circuit-breakers after the stock market crash of October 1987 to prevent panic selling in the event of a large drop in equity prices. The idea was to halt trading to give participants time to soberly reassess any overreactions in the market and come up with a strategy to protect their investments.

The circuit-breaker rules were triggered for the first time last week, first for 30 minutes then for a full hour, as the Dow Jones Industrial Average plunged 534 points, the largest one-day point decline in US history. What followed was a broad reassessment of whether suspending trading had the desired effect, or whether it exacerbated concern about the market's stability.

Fed officials are among those raising concerns about using circuit-breakers. Stopping trading, officials note, acts to increase uncertainty because liquidity and the flow of information are cut off. ``The scariest scenario for investors and regulators is not watching the market gyrate - it's knowing that the market isn't functioning and that liquidity has frozen'' says one senior Fed official. ``Instead, authorities must work to keep markets operating during times of extreme volatility and uncertainty'', the official notes.

Suspension of trading can have a psychological effect that transcends the very forces driving a sharp drop in stockprices, Fed officials say. Foreign and domestic investors alike may get antsy about news reports that the stock markets' losses were so great that authorities closed the market down. Greenspan - who headed the central bank's highly successful efforts to keep the US financial system working - voiced similar concerns last week.``My own personal view has never been wholly friendly to circuit-breakers stopping markets because I'm concerned as to how in the world are you going to get them started again,'' Greenspan told the joint economic committee last week.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.