I was playing around with the open interest data for US futures markets when I noticed this:
My first reaction to this huge spike in open interest in S&P; stock index futures was to check if there was some mistake with the data. My next reaction was to google "October 1997 stock market crash". Below is the first entry which came up: the Wikipedia explanation of the October 27, 1997 mini-crash.
(emphasis mine) [my comment]
October 27, 1997 mini-crash
From Wikipedia, the free encyclopedia
The October 27, 1997 mini-crash is the name of a global stock market crash that was caused by an economic crisis in Asia. The points loss that the Dow Jones Industrial Average suffered on this day still ranks as the sixth biggest points loss in its 112-year existence. The crash halted trading of stocks on the New York Stock Exchange for the first time ever. This crash is considered a "mini-crash" because the percentage loss was relatively small compared to some other notable crashes. But after the crash, the markets still remained positive for 1997. [Because of a massive intervention by someone (ie: Treasury's ESF, directed by Rubin)]
The crash started overnight in Asia as Hong Kong's Hang Seng Index plummeted 6%. However, the most widely watched Asian market, Japan's Nikkei 225, only fell 2% on the day. The losses spread to the European markets where London's FTSE 100 Index fell 98.90 points, or just about 2%, to 4,871.30. Frankfurt's DAX index fell sharply as well. The U.S. markets were widely expected to open lower for the day. The Dow, NASDAQ, and S&P; 500 all sank, never going to positive territory. At 2:36 P.M., the Dow smashed through its first trading curb halt when it fell 350 points. Trading was halted for 30 minutes. When trading started again at 3:06 P.M., stocks continued their immense slide eventually pushing the Dow through the NYSE's second trading curb at 550 points and ending trading for the day at 3:35 P.M. The second halt in trading is usually an hour timeout, but since there was only 25 minutes left in trading for the session the New York Stock Exchange had no choice but to take the controversial action of closing the Exchange early. Nasdaq trading went on until 4:00 P.M as usual.
By the numbers
The reason why this action was so controversial is because when the Dow went through its first trading curb at 350 points, the loss in the Dow only equated to 4.54%, not nearly enough to justify halting trading. One must also consider the fact that the Dow has fallen more than 4.5% on eleven different occasions between 1945 and 1997. Currently, the New York Stock Exchange sets the curbs at 10, 20, and 30%, and determines how much 10, 20, and 30% exactly is in point terms by where the Dow finishes at the end of the quarter.
By the end of the day, the Dow Jones Industrial Average plummeted 554.26 points, or 7.18%, to 7,161.15. This was the 12th biggest percentage loss and 3rd biggest points loss on record. The NASDAQ Composite fell 7%, or 115.41 to 1,535.51. The S&P; 500 fell 64.63, or 6.86%, to 877.01. Several stock market analysts saw this crash as a "correction" to the overheated markets, which had doubled in value in 30 months. Even though this crash put the Dow down 12% from its all-time high of 8,259 on August 6, it still remained up from 1997's start level of 6,448.27. Volume also hit a record high. New York Stock Exchange volume topped 695 million shares, outstripping the previous record of 684 million shares traded on January 23, 1997. In 2006 terms, this would be considered extremely light volume. $663 billion in market capitalization was wiped out.
U.S. stock markets were widely expected to open lower for October 28, due to the Asian markets falling even more than they did on the 27th. Hong Kong's Hang Seng Index declined a staggering 14%. The Nikkei fell 4.26%. The U.S. stock markets initially continued their drop from the 27th, but abruptly ended, and began to climb. The Dow was down as much as 186 points by 10:06 A.M., and soon thereafter a rally started. By 10:20 A.M. The Dow was down only 25 points. Five minutes later, the Dow roared back into positive territory and was up 50 points. Nine minutes later at 10:34 A.M., the Dow rallied to a triple-digit advance up 137.27 points. Stock prices continued to soar in choppy trading throughout the rest of the day. At the close of trading at 4:00 P.M., the Dow finished with a record 337.17 point gain (recovering 61% of the previous day's loss) to close at 7,498.32. The market restored $384 billion of the $663 billion in market capitalization lost the previous day. One billion shares were traded on the New York Stock Exchange for the first time ever, with a volume of 1.21 billion shares. In 2006 terms, this amount is considered very light. The NASDAQ Composite also made a record gain on record volume, gaining 67.93 to 1,603.02. The NASDAQ also saw its first-ever one-billion share day with 1.23 billion shares changing hands.
My reaction: The reason for the huge spike in open interest in S&P; stock index futures was the October 1997 market crash caused by an economic crisis in Asia. Remember how the treasury's ESF buys equity futures to prevent and reverse such market crashes (from my entry on Treasury/ESF Interference In US Free Markets).
Why the treasury's ESF buys equity futures
I am sure that many people are confused about how options and futures can be used to manipulated gold and stocks. It is actually rather simple if you understand that Wall Street banks balanced their book. That is to say they match up their asset and liability. When a firm (ie: Goldman, JPMorgan, etc) sells S&P; futures to the ESF, it is establishing a short position or a liability in the stock market, and balancing this short position requires buying stocks.
So when the treasury's ESF bought 30,000 S&P; 500 futures contracts from Wall Street firms in October 1997, these firms then had to go out and buy an enormous quantity of stocks to bring their books into balance. This buying is what preempted a politically undesirable crash.
Conclusion: With data as obvious as the S&P; open interest graph above, how can anyone doubt stock market manipulation? (for more about stock market manipulation, see )
About the major entry that I have been working on (for the month), I obviously am not done today either, but I am nearly there. I have organized all the links, fleshed out the outline, and created the entry's graphics. All that is left is ten or twelve hours to pull it all together.
I am taking a break from working on this entry today, but I will get back to it tomorrow and try to finish up.