Hi Bob Thanks for all those details.
I heard this third hand—it was not about a system crash-- at the time Morgan Stanley trading systems were probably the best in the industry—I think what I heard was there was surprise that the automated systems had parameters that created a spiral of rapid trading into falling prices—also I think Morgan Stanley offset equity losses with gains in currency trades. They subsequently modified their software to include a circuit breaker-- a mechanism to shut down trading when the market falls too fast or individual securities trade dramatically outside the normal range. What I meant by a ride was not that it necessarily ended in a loss but that there was tension over the course of that day. My personal recollection is only what I heard from colleagues in our investment department. Computers now account for 50 to 90 percent of stock market trades on a given day. > Stock exchanges can now execute trades in less than a half a millionth of a > second—more than a million times faster than the human mind can make a > decision. Donna Y [email protected] > On Aug 10, 2019, at 1:00 AM, Robert Bernecky <[email protected]> wrote: > > Hi, Donna, > > As I recall, on Black Monday, Morgan Stanley was still one of > our (I.P. Sharp) major customers running SHARP APL on a suitable > number of their mainframes, which were likely IBM 308x complexes. > > The story I heard from an insider ran along the following lines, > about the sorts of failures that arose that day: > > 1. Trading volumes and currency volumes were so high that some > "traditional" trading companies, with their automated systems > written in C-likelanguages, suffered from integer overflow, > which did NOT crash their systems. Rather, they merely > collected a (2*32) or similar residue on the volumes and > other numeric data of interest, which resulted in traders > being given extremely misleading data (clearly no longer > information at this point...), which resulted > in the traders working themselves into very deep holes. > > 2. Other companies, running COBOL-like languages, crashed when > their code encountered integer overflows. Being sensible firms, > they had written transaction logs, which faithfully tracked all > work that day. When the systems came back up, they carefully > replayed all the transactions, hit the integer overflows, and crashed. > > 3. Even other companies, running some other languages, were > unable to keep up with trade rates, and although they did not crash, > fell far behind, giving traders misleading data, which became > more misleading as the day went on. > > 4. Morgan, and presumably others running APLish systems, > observed two effects: First, the systems did slow down, due to > the high trading volumes. They did not crash, because integer > overflow merely meant that ongoing computations were in > floating point, rather than in integer. > This caused further slowdown, but not disasterously so. > > 5. Morgan made money that day. Not a lot, but certainly more than > their competitors. > > I no longer have contacts with people who are/were at Morgan, > but as the story I heard is not in line with the "Morgan Stanley > was taken for a ride" claim, it would nice to learn more about > what really happened. > > Bob > > On 2019-08-09 7:59 p.m., Donna Y wrote: >>> Investigations after the October 19, 1987 crash revealed that what would >>> have been a normal down day in a correction that had begun in August was >>> turned into the heart-stopping, portfolio destroying 1987 crash by >>> uncontrolled automated waves of sell-programs that flooded in from >>> program-trading firms and overwhelmed the market. As their ‘portfolio >>> insurance’ protective stops were successively hit the automated sell orders >>> came so fast on top of each other at ever lower prices that market-makers >>> could not match them up with buyers. Very quickly there were no buyers >>> anyway, and the decline just plunged into a dark bottomless hole. >> This was the beginning of programmed trading. >> >> At the insurance company where I worked the investment department was not >> even affected but I heard Morgan Stanley was taken on a ride by their new >> program trading software. >> >> Natural disasters like what happened with the earthquake in Japan you >> mention are not predicted but even a tweet from Trump can perturb the market >> or as what happened in 1981: >> >>> The selling spree was set off by Joe Granville's January 1981 newsletter, >>> which advised investors to "sell everything". It was later described by >>> Business Week magazine as "a mindless wave of selling that destroyed >>> billions of dollars in stock value from a forecaster who drops his pants in >>> public to get attention." >> >> Donna Y >> [email protected] >> >> >>> On Aug 9, 2019, at 7:09 PM, Jose Mario Quintana >>> <[email protected]> wrote: >>> >>> Regarding Black Monday, apparently, the ones who knew better did not have >>> enough conviction to short the S&P500 in any considerable amount before the >>> event occurred. >> ---------------------------------------------------------------------- >> For information about J forums see http://www.jsoftware.com/forums.htm > > -- > Robert Bernecky > Snake Island Research Inc > 18 Fifth Street > Ward's Island > Toronto, Ontario M5J 2B9 > > [email protected] > tel: +1 416 203 0854 > text/cell: +1 416 996 4286 > > > ---------------------------------------------------------------------- > For information about J forums see http://www.jsoftware.com/forums.htm ---------------------------------------------------------------------- For information about J forums see http://www.jsoftware.com/forums.htm
