Start of a Trading Career

20 YEARS that was FAST

October 21, 1987
THE MARKET TURMOIL: A NEW ORDER OF TRADING; Officials Halt Trading In Several Futures Pits
By JULIA M. FLYNN, SPECIAL TO THE NEW YORK TIMES
LEAD: In an unprecedented move, exchange officials temporarily halted trading today in several of Chicago's financial futures pits because large numbers of the stocks underlying the indexes had stopped trading on the New York Stock Exchange.
In an unprecedented move, exchange officials temporarily halted trading today in several of Chicago's financial futures pits because large numbers of the stocks underlying the indexes had stopped trading on the New York Stock Exchange.
About 11:15 this morning, officials at the Chicago Mercantile Exchange and the Chicago Board Options Exchange announced to their members that trading would stop in the Standard & Poor's 500 futures contract, on the Merc, and both the S.&P. 100 and 500 options contracts, on the C.B.O.E., until a higher percentage of stocks underlying the indexes began trading again in New York.
Trading of futures and options was also suspended on the American Stock Exchange, the Pacific Exchange, the New York Futures Exchange and the Kansas City Board of Trade.
Stock index futures are contracts that represent a bundle of underlying stocks and they are bought or sold according to a person's hunch on which way the actual index will move. They thus enable investors to speculate on broad market climbs and hedge against market tumbles. Usually, futures prices swing more dramatically than the underlying stock prices because traders try to anticipate market swings.
''Futures prices often overshoot the market on the way up or down,'' said Eugene M. Lerner, a Northwestern University finance professor. That may help explain the heavy trading volume and violent price swings that shook Chicago's futures pits in the last two days. And as a ''shadow market'' to the stock exchanges, events in the futures market, including today's trading halts, are often determined by the New York Stock Exchange.
By 12:05 P.M., all three contracts on the Merc and the C.B.O.E. had resumed trading. ''The halt does not bode ill for the markets in general,'' said Alger B. Chapman, chairman of the Chicago Board Options Exchange. ''It's strictly a technical requirement, and indeed may take a little pressure off the market.'' After the halts, the stock market staged a rally, and the Dow Jones industrial average closed up by 102.27 points, to 1,841.01.
As the stock market reversed itself, stock index futures followed. By the time trading was halted, the S.&P. 500 futures contract was down roughly 40 points. By the close, the contract for December delivery closed up 14.75, compared with an 80.75 drop Monday. About 786,205 contracts were traded on the exchange, nearly 100,000 more than were traded Monday.


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