The Crash of '87

The beginning of the week of October 19, 1987 witnessed the most catastrophic stock market crash ever, with America's Wall Street nosediving by 500 points, Tokyo's stocks plummeting 15 per cent, and the London market all but collapsing. In some respects, the slump was worse than the 1929 crash, following a six-month-long decline in what had been a five-year bullish market. The causes go much deeper than American blame on West Germany, relating to major structural changes in the world economy and conflicting national policies. Rising trade surpluses of US competitors and aggressive zaitek (high-tech finance) speculation artificially buoyed markets. However, a substantial increase in lending rates and the US trade deficit suddenly ruptured this equation, resulting in a slump that serves as another reminder of global economic ailments and the urgent need for structural reform.

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There was another resounding market crash. The prices early dropped from 5 to 30 points and the sales exceeded 7.5 million dollars but a moderate rally in the afternoon wiped out half the previous declines. The rally was partly due to the recovery of the Chicago wheat pit, where early losses of about 4 cents per bushel were reduced to less than 2 cents.

Trading in the Bombay cotton exchange continued to be dull. The switching up of transactions from Broach April-May to July-August contract was the main feature. Price movements were narrow in the absence of important operations.

SEBI has enlisted the expertise of prominent India-born economists, including Raghuram Rajan, Marti Subramanyam, and Kaushik Basu, to overhaul India's corporate debt market. The advisory committee recommends allowing trading in euro bonds, establishing a repo market, and introducing "debt managers" to provide two-way quotes. The panel also advocates for a more liberal view on short selling to enhance liquidity and suggests bringing private debt placements by unlisted companies under SEBI's jurisdiction.