Four of Wall Street's biggest firms said today they had indefinitely suspended a highly profitable computerized method of trading stocks because of widespread criticism that it is causing volatility and destroying investor confidence. The announcements by Salomon Brothers Inc., Morgan Stanley & Co., PaineWebber Inc. and Bear Stearns & Co. came amid an uproar about so-called index-arbitrage program trading and a protracted slump in the stock market since the October crash nearly seven months ago. The firms' actions came a week after the New York Stock Exchange intensified post-crash limits on program trading, blamed for causing enormous swings in stock prices for reasons unrelated to underlying values. Salomon and Morgan are among the most significant users of the technique, which uses high-volume computers to sell stocks in New York and buy equivalent stock-index futures in Chicago, or vice versa, to profit from fleeting price disparities. Bear Stearns and PaineWebber is considered a smaller user of program trading. Salomon, Morgan and Painewebber said they were suspending the technique as of today for their own accounts although they would continue to do it for customers if requested. Bear Stearns said it had suspended the technique for its own account as well as customer accounts as of last Thursday, but didn't publicize it until the other firms made announcements today. ``I think it's certainly a move in the right direction,'' said Jack Barbanel, head of commodities and financial futures at the New York brokerage Gruntal & Co. ``It's meaningul because at least there's beginning to be an acknowledgment to the public perception that program trading causes turbulence.'' Large numbers of investors have complained to the NYSE and their brokers that program trading has compelled them to get out of stocks because they believe it has made the market more like a gambling casino. Brokers also are growing resentful of the relatively small number of program traders. Moreover, there is a belief in the securities industry that lawmakers will take severe legislative action aimed at restoring investor confidence unless brokerage firms can find ways to reform themselves. ``We have decided to suspend any non-customer-related index arbitrage activity with the goal of furthering the serious analysis of the role of index arbitrage in market volatility,'' PaineWebber's chairman and chief executive, Donald B. Marron, said in a statement. ``It is our hope that all interest regulators and market participants work together in an objective manner to find an intelligent and mutually acceptable solution to this issue.'' John Gutfreund, chairman and chief executive of Salomon, said in a statement that his firm ``will abstain from all domestic stock index propriatary arbitrage for the present time.'' ``It is necessary for all to work toward the goal of restoring confidence in and guaranteeing the vibrancy of the marketplace,'' he said. Morgan said in a statement that ``the efforts of our industry, the exchanges, the regulators and Congress should be directed towards expanding liquidity, reducing volatility and restoring public confidence in the equity markets.'' ``We have no present intention of starting again. That doesn't mean we won't do it again,'' Alan C. Greenberg, Bear Stearns' chairman and chief executive, said in an answer to a telephone query. ``The profit is greatly overstated. If everybody thinks it's so important (to stop), we'll give in to it.''
