WASHINGTON — The stock market came close to shutting down the day after the Oct. 19 crash, a Chicago Board Options Exchange official said Wednesday at congressional hearings exploring the market's collapse.
CBOE President Charles Henry, in testimony to the House telecommunications and finance subcommittee, said a Securities and Exchange Commission employee called the CBOE on Oct. 20 to say that "the New York Stock Exchange would be closing in three to four minutes."
Henry said the SEC made a similar call to the Chicago Mercantile Exchange. He was the first exchange official to say that such a shutdown nearly occurred the day after the crash.
"I review these events . . . because it is important for you to realize the sense of fear and pessimism that grew as trading progressed on the morning of Oct. 20," Henry told the subcommittee.
An SEC official, who asked not to be identified, confirmed Henry's account and added that the agency had later called the CBOE to say there would be no exchange-wide trading halt after all. The official declined further comment.
However, Richard Grasso, executive vice president of the New York Stock Exchange, denied that his exchange was minutes away from calling a halt to trading on Oct. 20.
He told Reuters that a trading halt was only one option open to the exchange in the face of widespread market imbalances. But he said the exchange's overriding desire was "to keep the markets open if at all possible."
The threat of a closing by a major U.S. stock exchange is seen as a key ingredient in unraveling the stock market crash, and investor confidence would have been badly shaken by such a closure, analysts said.
For example, the worldwide stock collapse hit hardest in Hong Kong, where a weeklong shutdown shattered the image of the market. The Hong Kong exchange suffered the biggest losses of any market when it reopened.
On Black Monday, Oct. 19, SEC Chairman David S. Ruder made a controversial off-the-cuff statement to reporters that a shutdown was possible. Later, after it became apparent that Ruder's remark had unnerved the markets, the SEC vowed to keep trading going.
The next day, Henry said, the issue of a shutdown was again raised when the SEC told him in a telephone call at about 12:30 p.m. EST that the NYSE was set to announce an exchange-wide trading halt within minutes.
That day, chaotic trading had set in as specialists had difficulty matching sellers to buyers, and many stocks fell to huge losses, even though the Dow Jones industrial index ended 102.27 points higher.