James Marshall
A commuter reads the New York Post ’ s rundown of the 1987 Stock Market Crash .
making calls to New York and Washington from an office in the presidential palace , where he had been scheduled to have breakfast .
In Chicago , the S & P 500 futures pit had opened on time , and the tension was fierce . The subdued crowd in the normally seething pit was smaller than usual . Melamed waited for the opening bell and saw the opening price . At first , he couldn ’ t believe it . The spooz ( the traders ’ nickname for the popular contract ) had dropped 7 % on the first trade , a staggering decline .
“ There were blank stares . No one could believe it was happening . Some people began to leave the pit ,” a senior Merc trader later recalled .
Portfolio insurers sold more than three thousand spooz contracts in the first thirty minutes , and the futures price seemed to be falling more steeply than the S & P index itself .
This was an illusion . When Chicago opened at 8:30 am ( 9:30 am in New York ), many of the S & P 500 stocks had not yet actually started trading on the floor of the NYSE because there were no buyers . In that interval , the S & P 500 index was being calculated with stale prices from Friday , making the stocks seem far more expensive than the futures contracts — far more expensive , in fact , than they actually were .
Nevertheless , index arbitrageurs began their familiar dance , with a slight but devastating variation . As usual , they sold stocks heavily in New York , and in the first 90 minutes , the Dow dropped 208 points , more than 9 %, the loss predicted for the entire day . However , instead of immediately buying the S & P 500 futures , a number of index arbitrageurs held back , waiting for even lower prices in Chicago . And by not buying , of course , they helped guarantee that prices in Chicago would continue to fall .
By 11 am in New York , most of the stocks on the Big Board were open for trading , and there was a brief rally . After 40 minutes , though , it was snuffed out . With the S & P 500 futures still dropping in Chicago , the Dow now sank under wave after wave of sell orders from all kinds of professional investors — mutual fund managers , index arbitrageurs , and Wall Street ’ s own proprietary trading desks .
By then SEC Chairman David Ruder had returned to his office from the Mayflower Hotel after giving a half-hour speech at a conference there sponsored by the American Stock Exchange .
Needless to say , it had been an uneasy audience ; people were slipping out to the pay phones in the hall to check on the market . The SEC chairman had been surrounded by a scrum of journalists the minute he stepped from the podium . They pressed him to know if any steps had been taken to close the plunging market — perhaps because , two weeks earlier , Ruder had given a speech saying that a brief trading halt might be wise during a disorderly market collapse . With professorial caution , he told them that no discussions had been held but “ anything is possible … There is some point , and I don ’ t know what that point is , that I would be interested in talking to the NYSE about a temporary , very temporary halt in trading .”
Trading halts in individual stocks were the cornerstone of Phelan ’ s last-gasp plan to preserve the exchange . He had
24 FINANCIAL HISTORY | Winter 2018 | www . MoAF . org