Fear Quiets Turbulent Pit at Merc : Higher Ante Puts Smaller Traders on Chicago Sidelines

At the Chicago Mercantile Exchange, part of the familiar crowd was missing Tuesday from the usually turbulent pit where the Standard & Poor’s 500 futures contract is traded.

The center of the pit, normally jammed with hand-waving, shouting traders, was as empty as the hole in a doughnut. Fear and restrictions by clearing houses, by the exchange and by brokerage firms combined to inhibit trading and stabilize the volatile market.

“They’re throwing around $500 chips like it’s Las Vegas. That’s too much for little guys,” said Thomas M. Hunter Jr., 37, who fills orders for brokerage houses.

“The little guy is out and he should be,” said Robert S. Alpert, a veteran trader and member of the committee that polices trading in the pit.

They were kept out, according to a number of exchange sources, by a combination of factors, including:

A 50-minute suspension of trading just when it appeared the market would drop sharply. Exchange officials said the suspension was forced by chaos in the New York Stock Exchange. When the delay in trading ended, a single S&P; contract was worth $15,000 more than it was worth when trading was suspended. The contract is a cash amount based on the stock price of 500 widely held New York Stock Exchange companies.

A jump from $50,000 to $150,000 in the minimum amount of cash traders were required to have on deposit with clearing houses that process their trades. The higher minimum drove an estimated 100 small traders out of the pit and onto the sidelines, slowing trading. One clearing house reportedly increased its minimum cash deposit to $200,000 and a second refused to allow any trading by its members.

A decision by a few brokerage houses, worried about the liquidity of some traders, not to allow those brokers to trade. This too caused scores of individuals to move to the sidelines.

A move by some traders only to liquidate contracts for their clients but not to initiate new trades. This also slowed trading, helped to lessen price volatility and inhibited speculation.

“They did a lot of good today,” said trader Ron Burd, 40. “The trading suspension helped the bulls to feel secure.”

Other Exchanges Act

“Brokers didn’t seem incredibly anxious to get trades filled,” said trader January S. Young, 31.

Other Chicago commodity markets also moved to inhibit trading. At the Chicago Board of Trade, traders of the major market index of 20 stocks were required to increase the cash accounts they use to guarantee their trades by 60%. And at the Chicago Board Options Exchange, where both stock options and futures contracts are traded, operations were suspended for two hours because of delays at the New York Stock Exchange.

At the Mercantile Exchange, the S&P; 500 futures contract fluctuated in $500 and $1,000 increments Tuesday for the second consecutive day. Normally the contract, the most widely traded stock futures contract and one considered a benchmark, moves up or down in $25 increments.

The S&P; 500 contract closed up $7,300 on Tuesday after dropping a record $40,000 on Monday. Although trading fell back more than 30% from Monday’s record 162,022 contracts there was still a dramatic volatility in the S&P; 500, with prices moving in a $30,500 range during the day.

“It’s surreal, like walking through a Salvadore Dali painting,” said trader Young.

If there were signs of stability beginning to appear in the commodities markets, there were also reminders of the beatings many traders suffered in the panicky trading last week and Monday.

In the last two days, 21 membership seats on the Chicago Mercantile Exchange were sold.