To develop improvements in the stock market mechanism which would help prevent another "market break," it is important to understand the structure of the mechanism for stock market trading. Market makers and index arbitragers are only intermediaries between the patient and impatient traders who ultimately determine prices. Institutions for maintaining trust based upon accountability to customers in securities trading are scarce. The events of October 1987 unfolded as two distinct sets of events: a crash in which impatient sellers overwhelmed patient buyers, and a panic in which solvency worries took traders out of the markets. Proposals to improve the stock market mechanism should address the proper role of market makers, the lack of accountability of the mechanism to customers, and the differences between panics and crashes.
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