to collate everything at the end of the trading day, to note which buyer had
purchased which stock from which seller, and to post the money transfers
from and to the appropriate accounts, in effect acting as the automated book-
keeper for the entire equities market. Their screens showed an accelerating
pace of activity, but the computers were all running Chuck Searls’ Electra-
Clerk 2.4.0 software, and the Stratus mainframes were keeping up. There
were three outputs off each machine. One line went to the monitor screens.
Another went to tape backups. A third went to a paper printout, the ultimate
but most inconvenient record-keeping modality. The nature of the interfaces
demanded that each output come from a different internal board inside the
computers, but they were all the same output, and as a result nobody both-
ered with the permanent records. After all, there were a total of six machines
divided between two separate locations. This system was as secure as people
could make it.
Things could have been done differently. Each sale/purchase order could
have been sent out immediately, but that was untidy-the sheer administra-
tive volume would have taxed the abilities of the entire industry. Instead, the
purpose of DTC was lo bring order out of chaos. At the end of each day, the
transactions were organized by trading house, by stock issue, and by client,
in a hierarchical way, so that each house would write a limited number of
checks-funds transfers were mostly done electronically, but the principle
held. This way the houses would both save on administrative expense and
generate numerous means by which every player in the game could track and
measure its own activity for the purposes of internal audit and further mathe-
matical modeling of the market as a whole. Though seemingly an operation
of incomprehensible complexity, the use of computers made it as routine and
far more efficient than written entries in a passbook savings account.
“Wow, somebody’s dumping on Citibank,” the sys-con said.
The floor of the New York Stock Exchange was divided into three parts, the
largest of which had once been a garage. Construction was under way on a
fourth trading room, and local doomsayers were already noting that every
time the Exchange had increased its space, something bad had happened.
Some of the most rational and hard-nosed business types in all the world,
this community of professionals had its own institutional superstitions. The
floor was actually a collection of individual firms, each of which had a spe-
cialty area and responsibility for a discrete number of issues grouped by
type. One firm might have eight to fifteen pharmaceutical issues, for exam-
ple. Another managed a similar number of bank stocks. The real function of
the NYSE was to provide both liquidity and a benchmark. People could buy
and sell stocks anywhere from a lawyer’s office to a country-club dining
room. Most of the trading in major stocks happened in New York because
… it happened in New York, and that was that. The New York Stock Ex-
change was the oldest. There were also the American Stock Exchange,
Amex, and the newer National Association of Securities Dealers Automatic
Quotation, whose awkward name was compensated for by a snappy
acronym, NASDAQ. The NYSE was the most traditional in organization,
and some would say that it had been dragged kicking and screaming into the
world of automation. Somewhat haughty and stodgy-they regarded the
other markets as the minor leagues and themselves as the majors-it was
staffed by professionals who stood for most of the day at their kiosks, watch-
ing various displays, buying and selling and, like the trading houses, living
off the “middle” or “spread” positions which they anticipated. If the stock
market and its investors were the herd, they were the cowboys, and their job
was to keep track of things, to set the benchmark prices to which everyone
referred, to keep the herd organized and contained, in return for which the
best of them made a very good living that compensated for a physical work-
ing environment which at best was chaotic and unpleasant, and at its worst
really was remarkably close to standing in the way of a stampede.
The first rumblings of that stampede had already started. The sell-off of
Treasury notes was duly reported on the floor, and the people there traded
nervous looks and headshakes at the unreasonable development. Then they
learned that the Fed had responded sharply. The strong statement from the
chairman didn’t-couldn’t-disguise his unease, and would not have mat-
tered in any case. Few people listened to the statement beyond the announce-
ment of a change in the Discount Rate. That was the news. The rest of it was
spin control, and investors discounted all of that, preferring to rely on their
own analysis.
The sell orders started coming. The floor trader who specialized in bank
stocks was stunned by the phone call from Columbus, but that didn’t matter.
He announced that he had “five hundred Citi at three,” meaning five hun-
dred thousand shares of the stock of First National City Bank of New York
at eighty-three dollars, two full points under the posted price, clearly a move
to get out in a hurry. It was a good, attractive price, but the market hesitated
briefly before snapping them up, and then at “two and a half.”
Computers also kept track of trading because the traders didn’t entirely
trust themselves to stay on top of everything. A person could be on the phone
and miss something, after all, and therefore, to a remarkable degree, major
institutions were actually managed by computers, or more properly the soft-
ware that resided on them, which was in turn written by people who estab-
lished discrete sets of monitoring criteria. The computers didn’t understand
the market any more than those who programmed them, of course, but they
did have instructions: If “A” happens, then do “B.” The new generation of
programs, generically called “expert systems” (a more attractive term than
“artificial intelligence”) for their high degree of sophistication, were up-
dated on a daily basis with the status of benchmark issues from which they
electronically extrapolated the health of whole segments of the market.
Quarterly reports, industry trends, changes in management, were all given
numerical values and incorporated in the dynamic databases that the expert
systems examined and acted upon, entirely without the judgmental input of
human operators.
In this case the large and instant drop in the value of Citibank stock an-
nounced to the computers that they should initiate sell orders on other bank
stocks. Chemical Bank, which had had a rough time of late, the computers
remembered, had also dropped a few points in the last week, and at the three
institutions that used the same program, sell orders were issued electroni-
cally, dropping that issue an instant point and a half. That move on Chemical
Bank stock, linked with the fall of Citibank, attracted the immediate atten-
tion of other expert systems with the same operational protocols but differ-
ent benchmark banks, a fact that guaranteed a rippling effect across the
entire industry spectrum. Manufacturers Hanover was the next major bank
stock to head down, and now the programs were starting to search their inter-
nal protocols for what a fall in bank-stock values indicated as the next defen-
sive move in other key industries.
With the money reali/.ed by the Treasury sales, Columbus started buying
gold, both in the form of stocks and in gold futures, starling a trend from
currency and into precious metals. The sudden jump there went out on the
wires as well, and was noted by traders, both human and electronic. In all
cases the analysis was pretty much the same: a sell-off of government bonds,
plus a sudden jump in the Discount Rate, plus a run on the dollar, plus a
building crash in bank stocks, plus a jump in precious metals, all combined
to announce a dangerous inflationary predictor. Inflation was always bad for
the equities market. You didn’t need to have artificial intelligence to grasp
that. Neither computer programs nor human traders were panicking yet, but
everyone was leaning forward and watching the wires for developing trends,
and everyone wanted to be ahead of the trend, the better to protect their own
and their clients’ investments.
By this time the bond market was seriously rattled. Half a billion dollars,
dumped at the right time, had shaken loose another ten. The Eurodollar man-
agers who had been called back to their offices were not really in a fit state to
make rational decisions. The days and weeks had been long of late with the
international trade situation, and arriving singly back at their offices, each
asked the others what the devil was going on, only to learn that a lot of U.S.
Treasuries had been sold very short, and that the trend was continuing, now
augmented by a large and very astute American institution. But why? they