Where were you Oct. 19, 1987?

Voices from the front

Ben Rubin on Oct. 19, 1987 Ben Rubin on Oct. 19, 1987

505.8 points down. Off 22%. $500 billion vaporized. Oct. 19, 1987. The end, or maybe not. Black Monday 1987 was the making or breaking point for many traders.

Cancel Crash, the documentary, playing on demand on AlphaTV revisits that fateful time and the trade heard ‘round the world.

Below are more of the stories of people who were affected by 1987. We invite you to add your own  stories to the comment area below, or to email them to me at kf@alphapages.com

505.8 points down. Off 22%. $500 billion vaporized. Oct. 19, 1987. The end, or maybe not. Black Monday 1987 was the making or breaking point for many traders.

The documentary Cancel Crash, showing on Alpha TV revisits that fateful day and the trade heard ‘round the world.

Below are more of the stories of people who were affected by 1987. We invite you to add your own stories to the comment area below, or to email them to me at kf@alphapages.com

At the time Leo Melamed, chairman emeritus of the CME Group, was heading up the CME and was in the thick of battle during that period. Although he has written books about Black Monday and the aftermath, here’s his succinct view point on that fateful day. 

1) Where were you on Oct. 19, 1987 and what do you remember most vividly?  

 On Oct. 19, 1987 I was in the eye of the storm. The equities’ market had gone up far beyond what the fundamentals could support at that time. I knew that futures would be blamed since we would clearly be first in the U.S. to reflect the terrible news. (Kill the messenger of bad tidings.) But futures were not to blame, the crash started in Japan, Hong Kong, and Singapore, then traveled to Great Britain (which actually had no futures market), and finally reflected itself at the NYSE and CME. I was desperately trying to keep our market operational and maintain communication between us and the NYSE as well as government officials.

The most vivid memory I have is talking to Alan Greenspan late that night when he asked me whether we would open the next morning given that some $2.5 billion would have to be paid to the shorts. I did not know.  I couldn't be certain till early the next morning. Fortunately the money from the longs came in and our market opened on time.

2) What if anything was learned from that event that helped grow/change the industry? 

We learned many things.  For instance, that the banks should be allowed to talk to each other about the respective positions of their customers so that bankers and regulators could gage who is in trouble and who is not.  The regulations in this respect were changed to reflect this need. Secondly, we learned that the market needs “circuit breakers” to provide some pause and breathing room to allow new orders to come to the market. Circuit breakers were instituted thereafter.

3) How was that event different from other crashes that happened since (ie. tech crash, 2008, etc.)

The 1987 crash was considerably different than crashes of today.  In 1987 all markets were still operating within a floor-based trading system and there were only a few points of order-entry: Basically, NYSE, NASDAQ, & the CME. Today all markets are technologically operated with many different points of entry. In the equities market there any number of electronic exchanges. Thus, today’s crashes are generally the result of technological glitches at one or another equities’ marketplace and sometimes the result of operational dislocations between the technology of one market and another. Point in fact, at the CME there have not been any major technological dislocations and with Globex, our market represents, more or less, a singular point of order-entry.

 

Peter Borish, chairman and CEO of Computer Trading Corporation, New York, was the director of research at Tudor Investment Corp. on Oct. 19, 1987. “I have mixed emotions about that day. We were extraordinarily concerned about the economy at that time and our model was patterned on the 1920s. On the 20th, when it [the market] bottomed, we were out. It was a bittersweet time.”

  Borish, who was a staff member of the Presidential Task Force on Market Mechanisms (Brady Commission)  to study the stock market decline of October 1987, sees  the current markets as better developed, which means  less likely to “crash” as they did in 1987. “This is a  market of stocks more than it is a stock market,” Borish  says. Today’s markets are better linked and we have  circuit breakers and technology that wasn’t there in  1987, he adds.

 “The good thing about 1987 was that it was the genesis of Robin Hood. We were thrilled that we were wrong about what might have happened to the economy,” says Borish, a founding board member of the Robin Hood Foundation. “Hedge fund managers don’t run away from a problem. They face it head on and they are very generous.”

The Robin Hood Foundation was conceived and created by Paul Tudor Jones following the 1987 crash. Dedicated to eliminating poverty in New York City, the 25-year-old venture philanthropy group has contributed in excess of $1.25 billion toward that goal since its inception.

 

Ben Rubin was the trader in the infamous Chicago Tribune front page picture who summed up in one look how most traders felt on that day.

Where were you on Oct. 19, 1987 and what do you remember most vividly? 

I was in the S&P pit. What I remember most was that the clearing firms came down and took most guys out of the pit and didn't let them trade because it was too dangerous. Only a few of us were left and we just tried to stay short because we knew what was going down. 

What were your lessons learned from that crash that carried you through other market crashes, such as 2008-09? 

Same lesson every other event teaches every trader. Discipline! I left the pit in 2006 and traded S&P e-mini's for three years and broke even! Now I make a living playing poker in Vegas with guys who have no discipline. Perfect for an ex-pit trader. 

How do you see the current situation playing out?

 If I had to look right now I would say somewhere soon we will see a down movement particularly if there is a big swing towards the conservatives in our political climate.


Stephen Johnson, CIO of Broad Street Capital Management, has strong memories of that period. In his words: 

Having traded the OEX as a market maker on the floor of the CBOE for the previous three years, I was well prepared as a newly hired and licensed financial consultant at Merrill Lynch.The previous week I bought at-the-money puts for my own account at $3 and sold them for $7 three days later, congratulating myself on how smart I was. On Black Monday they opened at $11 and went all the way to $119 before closing at $112.  

On Sept.3rd, 1987, newly appointed Fed Chairman Alan Greenspan hiked the discount rate. I took that as a very negative sign for the market, taking profits in both my clients' accounts (I only had my license since 8/15/87) and went to cash.The market continued up for six weeks but I stuck to my conviction even though my clients were complaining they were missing the bull market. After the crash I bought 6-month CDs. I built my initial book of business selling 6-month and 1-year CDs to those who were beaten up by the crash. It was hard convincing them to get back into stocks upon the maturation of their CDs. 

On Black Monday the retail rookies were popping up from their cubicles panicked, crying "What do I do?"  The seasoned brokers were unusually quiet, closing their office doors, withdrawing from the usual office chatter. I saw the opportunity and was mildly amused at the "professionals'" behavior although I dared not smile nor laugh.

Cancel Crash, the documentary that premieres here.

Black Monday Remembered

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