Well that was a quick 30 years! Back in October 87' I was a 32 year old Equity Market Maker with County Nat West in London. On what came to be known as 'Black Monday' 19th October, world stock markets crashed across a period of 24 hours. Here is a my take on that day:)
Worked on the London Stock Exchange as an Equity Market Maker for County Nat West during the 87’ crash. It was the first ‘technology enabled’ market plummet of any note. Had worked in the 70’s on the face to face trading floor but with screen based / computer run trading it was a whole new ball game.
It was obvious on that Monday morning that we were seeing a level of volatility unseen previously. To make things worse London and the south east had been hit by massive winds and many workers struggled to into the City. Being a market maker you had an obligation to quote the stocks you traded in a particular ‘size’ ie 100,000 shares to brokers and half that to other market makers. The FT 100 index, which was a geometric mean, showed onscreen thru a live feed. The 100 prices were displayed in alphabetical order, Black if unchanged, blue if ticking upward and red for a downtick. That morning the FT 100 screen moved in waves of red prices occasionally turning momentarily blue for a short rally then going red once again. Through the morning the phones rang hot with those on the other end invariably sellers. What often made things worse was that lifelong broker friends came to you in an attempt to ‘improve’ a price but the market was all one way. Then about 10.30am something fortuitous happened for County Nat West....our computer system failed! There we were in the market crashing maelstrom not able to answer our phones because we no longer knew our stock positions. We could no longer display prices because of this. An hour went past and an eerie calm came over the dealing room while on screen we could see prices continuing to dive. It was costing us money because the prices of stocks we held were falling. However, we actually saved millions with the computer failure because in the crash answering the phones would have involved us buying even more falling stocks.
An odd / funny offshoot to this story from 87’ was the fact that not being able to answer the phones attracted the attention of the Bank of England. Mid morning, like something out of Monty Python, the Bank sent a messenger across the City on foot to come knock on the door and ask why we weren’t answering our phones
😊 He told us we were naughty boys not meeting our Market Making obligations...we told him that our computers were down, didn’t know our positions and therefore couldn’t deal!
The implications of the 87’ crash were both immediate and longer term. The Investment Banks who had geared up in The Deregulation of ‘Big Bang’ in 85’ suddenly fuelled a market contraction lasting right into the early nineties. Thousands of Financial Market jobs were cut. Market activity fell significantly and many firms also cut their involvement. One of the key things that had happened in 87’ was the practice of ‘Programmed Trades’. This involved pre-planned ‘what if’ scenarios being drawn up for clients / investors. Thus, if the market index fell so many points in a set time the computer would automatically order particular shares to be sold (without human intervention) This was a questionable practice in normal times but proved disastrous in a rapidly falling market. Literally pouring oil onto the fire
🔥
In the eventual investigations that followed 87’ programmed trades were identified and restricted. A bit like ‘short selling’ Financial stocks being banned after the GFC in 08’.
#87crash
Worked on the London Stock Exchange as an Equity Market Maker for County Nat West during the 87’ crash. It was the first ‘technology enabled’ market plummet of any note. Had worked in the 70’s on the face to face trading floor but with screen based / computer run trading it was a whole new ball game.
It was obvious on that Monday morning that we were seeing a level of volatility unseen previously. To make things worse London and the south east had been hit by massive winds and many workers struggled to into the City. Being a market maker you had an obligation to quote the stocks you traded in a particular ‘size’ ie 100,000 shares to brokers and half that to other market makers. The FT 100 index, which was a geometric mean, showed onscreen thru a live feed. The 100 prices were displayed in alphabetical order, Black if unchanged, blue if ticking upward and red for a downtick. That morning the FT 100 screen moved in waves of red prices occasionally turning momentarily blue for a short rally then going red once again. Through the morning the phones rang hot with those on the other end invariably sellers. What often made things worse was that lifelong broker friends came to you in an attempt to ‘improve’ a price but the market was all one way. Then about 10.30am something fortuitous happened for County Nat West....our computer system failed! There we were in the market crashing maelstrom not able to answer our phones because we no longer knew our stock positions. We could no longer display prices because of this. An hour went past and an eerie calm came over the dealing room while on screen we could see prices continuing to dive. It was costing us money because the prices of stocks we held were falling. However, we actually saved millions with the computer failure because in the crash answering the phones would have involved us buying even more falling stocks.
An odd / funny offshoot to this story from 87’ was the fact that not being able to answer the phones attracted the attention of the Bank of England. Mid morning, like something out of Monty Python, the Bank sent a messenger across the City on foot to come knock on the door and ask why we weren’t answering our phones
😊 He told us we were naughty boys not meeting our Market Making obligations...we told him that our computers were down, didn’t know our positions and therefore couldn’t deal!The implications of the 87’ crash were both immediate and longer term. The Investment Banks who had geared up in The Deregulation of ‘Big Bang’ in 85’ suddenly fuelled a market contraction lasting right into the early nineties. Thousands of Financial Market jobs were cut. Market activity fell significantly and many firms also cut their involvement. One of the key things that had happened in 87’ was the practice of ‘Programmed Trades’. This involved pre-planned ‘what if’ scenarios being drawn up for clients / investors. Thus, if the market index fell so many points in a set time the computer would automatically order particular shares to be sold (without human intervention) This was a questionable practice in normal times but proved disastrous in a rapidly falling market. Literally pouring oil onto the fire
🔥In the eventual investigations that followed 87’ programmed trades were identified and restricted. A bit like ‘short selling’ Financial stocks being banned after the GFC in 08’.
#87crash
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