CHICAGO — Ygal Baruch couldn't punch the numbers into his pocket calculator fast enough Monday.
In the electronic milliseconds it took to ignite the bright red diodes with a total, the price of a Standard & Poors 500 futures contract fell another $1,000 on the Chicago Mercantile Exchange.
"Can you believe that? I don't know what's happening," said Baruch, who normally trades the S&P 500 contract, the industry's most popular stock-index futures contract. On Monday, he stood on the sidelines with hundreds of other traders while the price of a single contract-- based on the stock value of 500 companies listed on New York Stock Exchange--plummeted almost $40,000.
It was an unprecedented freefall in the futures contract, created in 1982 and nurtured, until last week, by a bull market. Young traders in this pit, where business has boomed and fortunes have bloomed in recent months, were having their first confrontation with the bears and they did not like it.
"This is too big for me," said Scott A. Mitchel, 34. A trader for two years, he never before chose to watch rather than to participate in the hand waving, shouting pandemonium in the pits, where trading reached a frenzied pace in the final minutes Monday.
Fear was pandemic. "I'm scared. The risks are too great," said Lawrence Rossman, 47. "Even old-time traders are not going into the pit," added Rossman, who started trading only three months ago.
"I'll tell you how I feel but you can't use my name because I don't want my customers to know how scared I am," said another trader, putting his hand over his name tag.
They were not alone. Throughout the day, traders, many visibly pale and shaken, turned the lapels of their trading jackets inward to hide identity badges so they could not be mistakenly identified as bidders in trades--a mistake that could cost hundreds of thousands of dollars.
It was so frantic that when the day ended, nobody at the exchange was certain exactly how many contracts had been traded.
Volume was estimated to be at or near the previous record of 151,300 contracts changing hands in a single day. The exchange ordered traders to report back for a midnight to 3 a.m. session this morning to reconcile trades.
This comes on the heels of another session Saturday when traders spent much of the day attempting to reconcile trades made during a near-record day Friday.
Many of the traders, a group generally portrayed as flamboyant, carefree, big spenders, were big losers in the selloff. An extraordinary seven exchange seats were sold Monday, virtually all at fire-sale prices, $50,000 or more below the record $478,000 paid for a seat just six weeks ago. The price of a seat to trade only the S&P 500 index fell $55,000 on Monday to $125,000, with market insiders expecting another fall today, when traders will be forced to sell additional seats to cover trading losses.
"I know a lot of traders who took substantial hits," said Patrick Shannon, 32, a trader and member of a committee that polices activity in the S&P 500 trading pit. "Seat prices are going to fall apart."
Also to protect against losses, the mercantile exchange on Monday ordered a 50% increase in margin account balances, money on deposit to guarantee their trades.
The S&P 500 futures contract differs from futures contracts like those to deliver corn or wheat at a specific price on a specific date. The S&P 500, which represents a portfolio of stocks, is settled in cash. Rather than an actual commodity, it is an agreement to pay a specified amount on a given date based on the value of the stocks in S&P 500 index.
Because the futures markets are used by major traders and institutions to hedge investments and, in the case of the S&P 500, to arbitrage, most of Monday's volume was generated by institutional selling.
"Obviously, there were not many buyers," said Shannon, who executes trades for institutions. "Everybody was liquidating and it just doesn't get any crazier."
Traders were handicapped almost from the opening bell when the electronic ribbons of lights reporting New York Stock Exchange prices fell behind and stayed behind, running more than two hours late by the end of the day.
That meant traders were bidding on contracts without really knowing their value.