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Opinion | Black Monday lesson from 1987? Reform before a financial crisis makes us

It’s not just market volatility. We need to understand the deep structural forces sometimes beyond any single national regulator’s power

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People watch the Hang Seng Index on TV terminals outside a bank as the market plunges on Black Monday, October 19, 1987. Photo: SCMP Pictures
On October 19, 1987, after three days of decline in the New York stock market, the Hong Kong market dropped by 10.5 per cent after a rise of 89 per cent in the previous 12 months. Black Monday had triggered a worldwide stock crash.
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In US dollars terms, eight stock markets declined by 20-29 per cent, three by 30-39 per cent and three more (Hong Kong, Australia and Singapore) by more than 40 per cent. Total losses were estimated at US$1.7 trillion – nearly 10 per cent of the global economy in 1987.

The day after Black Monday, Hong Kong’s stock and futures exchanges suspended trading for the rest of the week. There was fear of panic selling, disorderly markets and customers’ inability to settle. The global meltdown was halted after the United States Federal Reserve stepped in with liquidity. No one wanted a repeat of the October 1929 crash and the Great Depression that followed.

In Hong Kong, HK$4 billion worth of loans were provided, half by the Exchange Fund and the balance by leading banks. On November 16, the governor appointed the Securities Review Committee to review the constitution, management and operations of both exchanges and their regulators.

The report essentially concluded that “the concept of self-regulation and market self-discipline had failed to develop in Hong Kong. What is equally unfortunate is that, faced with this, the supervisory bodies charged with overseeing the markets had lost effective control.”

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It recommended the establishment of an independent securities market regulator. In May 1989, the Securities and Futures Commission was established – this year, it celebrated its 35th anniversary.
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