OTA on Financial Services Industry

A 1990 OTA report, Electronic Bulls and Bears: U.S. Securities Markets and Information Technology,  notes that “Computer-assisted trading strategies can cause short-term price volatility, or spread selling or buying pressure from one market to others.”  The report was written in response to requests by the House Committee on Energy and Commerce and the House Committee on Government Operations to assess the role of communication and information technologies in the securities markets.

OTA said, “Futures and options markets are criticized for developing products that are suspected of increasing the likelihood of a market crash. These problems call for a re-examination of public policies including changes in the regulatory structure.”  The report also states, “The private sector cannot achieve, without government assistance, some of the necessary adjustments to keep American markets strongly competitive and to protect American investors and financial systems.”

In another 1990 report, Trading Around the Clock: Global Securities Markets and Information Technology, OTA describes the forces encouraging the development of international securities markets, the obstacles that must be overcome, and the major sources of unnecessary risk.  The report describes three possible international regulatory schemes and states, “Effective response to a major securities market break will in the future require international as well as domestic actions. The central issue may be how to prevent a liquidity crisis from becoming a solvency crisis.”

In a 1984 report, Effects of Information Technology on Financial Services Systems, OTA described new technologies and other changes in the financial service industry and warned that in large amounts of funds were being moved from accounts that are insured and closely supervised to accounts that offer higher return but have little, if any, Federal protection.  This report was part of a study requested in 1982 by the House Committee on Banking, Finance, and Urban Affairs; the House Committee on Energy and Commerce and the Senate Committee on Banking, Housing, and Urban Affairs.  The committees requested OTA to study the impacts of information processing and telecommunication technologies on financial service systems.