Financial History Issue 124 (Winter 2018) | Page 24

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By Diana B. Henriques
Sometime before 8:30 am on Mon-
day, October 19, 1987, New York Stock
Exchange Chairman John Phelan asked
a secretary to track down Leo Melamed,
chairman of the executive committee at
the Chicago Mercantile Exchange, which
traded the wildly popular futures con-
tracts that were pegged to the Standard
& Poor’s 500 stock market index. Phelan,
who had cut his vacation short and flown
home on Saturday, could see how the day
was shaping up, and it made even the
worst fears of Friday night look optimistic.
Traders were predicting the Dow could
drop that morning by at least 9%, a stag-
gering percentage figure that was twice the
record-setting 108-point loss on Friday,
October 16, and almost within reach of
the historic daily losses in October 1929.
Tokyo had fallen sharply overnight, as
traders reacted to Friday’s epic decline in
New York. The Hong Kong markets had
plunged so far and so fast that officials
there decided to close their doors com-
pletely, to forestall total panic and wide-
spread defaults. London was already down
10%, in part because of $90 million worth
of sell orders from the trading desk at
Fidelity Investments in Boston. Fidelity’s
$9 billion Magellan Fund was the largest
22    FINANCIAL HISTORY  |  Winter 2018  | www.MoAF.org
stock mutual fund in the country; it was
chilling to think how much it would try to
sell when the Big Board opened.
The New York Stock Exchange’s DOT sys-
tem, which automatically delivered orders
to the trading floor, was being swamped
with orders, many of them apparently from
index arbitrageurs, who profited by exploit-
ing differences in the price of a stock index
and the price of the futures contract pegged
A trader on the floor of the New York Stock
Exchange shouts orders as stocks are devastated
during one of the most frantic days in the
exchange’s history, October 19, 1987.