Black Monday

On Monday October 19, 1987, the value of stocks plummeted on markets around the world, with the Dow-Jones Industrial Average (the main index measuring market activity in the United States) failing 508.32 points to close at 1738.42. The 22-percent fall was the largest one-day decline to have occurred since 1914. A presidential commission was appointed to investigate the causes of the crash and both the commission and the SEC issued reports.

In part, investors' concern about the U.S. federal budget and international trade deficits were found to be responsible. Comments made by the U.S. secretary of the treasury, who criticized foreign economic policies and hinted that the Reagan administration would let the U.S. dollar's value decline further against other currencies, may also have contributed. But, in the view of many analysts and the presidential commission, the key factor was program trading, a recent development on Wall Street in which computers are programmed to order the buying or selling automatically of a large volume of shares when certain circumstances occur.

The commission, named the Presidential Task Force on Market Mechanisms, but known as the Brady Commission, also criticized "specialists" on the floor of the New York Stock Exchange. These money makers, the commission said, neglected their duty by not becoming buyers of last resort and by treating small investors "capriciously." The SEC joined in faulting computerized trading and exchange specialists as well as citing a negative turn in investor psychology. Both the Brady Commission and the SEC called for greater regulation.

On February 4, 1988, the New York Stock Exchange established safeguards which forbid the use of its electronic order system for program trading whenever the Dow-Jones Industrial Average increases or drops 50 points in a single day.

Meantime, the stock market recovered and began another upward climb, with the Dow-Jones Industrial Average topping 3000 in the early 1990s. But stock markets can be highly volatile, and wide fluctuations are expected to continue over time.