Reform on Wall Street

AS chairman of the New York Stock Exchange (NYSE), John Phelan Jr. - who recently announced that he would retire at the end of this year - quickly became known for his calm style of leadership. Asked after the tumultuous market crash of Oct. 19, 1987 if he was sleeping well at night, Mr. Phelan said yes. Stock market crashes, he said, were ``rare occasions,'' and since he had had his crash, the weeks ahead didn't look so bad. The Oct. 19 downturn, when the Dow Jones industrial average plummeted 508 points, was not, however, to be Phelan's only test. On Oct. 13, 1989 the market began another volatile ride, shedding 190 points. But again, Phelan was the statesman - quietly persuading traders to curb the excesses of computer-driven program trading.

Phelan is now garnering well-deserved accolades. And yet, for all its prestige, never have the NYSE, and Wall Street, faced greater challenges: The brokerage industry is shrinking, a process not expected to end soon. Individual investors have fled the market for safer investments. And the NYSE is no longer the big player on the financial block. That honor has passed to Tokyo, with the largest global stock exchange.

Little wonder that the NYSE search committee will have to find someone of major stature to replace Phelan. And the Big Board - and Wall Street - need to expand the reforms he began.

The small investor has to be shown why it is safe to return to the market. Conflicts between the various factions (traders, specialists, brokerage houses) within the NYSE have been calmed. But during the go-go years of the 1980s, the historic purpose of the stock market has been diverted away from being a conduit for the flow of capital to emerging or growing public companies to speculative ventures.

In recent years the market of the National Association of Securities Dealers (NASDAQ) has passed the American Stock Exchange, the ``other'' major New York stock exchange, in terms of volume and listed companies.

There's a lesson here for the NYSE. If the Big Board is to remain competitive it will have to serve a far larger public than just the speculators. That is something John Phelan understood.