BOSTON -- When the stock market was soaring, there was perhaps no higher flier than Fidelity Investments, the giant mutual fund group based here that changed the financial habits of millions of small investors during the 1980s.

So it was only fitting that when the bull market collapsed last October, Fidelity landed with a thunderous thud. Swamped by panicked customers who wanted to sell their mutual fund shares quickly, Fidelity was forced on Black Monday to dump into the collapsing market a whopping $500 million worth of stocks -- more than any other mutual fund and enough to make a substantial impact on the market's fall, according to two recent government studies.

Those studies -- one by the presidentially appointed Brady Commission and the other by the Securities and Exchange Commission -- have focused fresh attention on the role played by large mutual funds, particularly Fidelity, during the October market crisis. Some important questions remain unresolved.

For one thing, Fidelity disputes the Brady report's findings about its huge selloff on Black Monday. The commission said that Fidelity's $500 million worth of stock sales occurred during the first half-hour of trading on the New York Stock Exchange and represented an astounding 25 percent of the Big Board's volume before 10 a.m. But Fidelity says that while its orders were placed early in the morning, the trades were executed over the entire day, lessening their impact on the market's price swings.

"There were some inaccuracies in the Brady Commission report ... that I think were unfortunate, frankly," said J. Gary Burkhead, a Fidelity managing director and president of the firm's research and management company. Burkhead said that Fidelity's own review of its trading records indicates the firm was responsible for only about 9 percent or 10 percent of the NYSE's volume during the first half hour. The SEC report generally sided with Fidelity's position, though it characterized the fund group's role in the market fall as significant.

Robert Glauber, executive director of the Brady Commission's staff, said that he was "not permitted to take any position regarding any specific institution" involved in the events of Black Monday. In fact, Fidelity is not referred to by name in the Brady report, but in the face of press reports and circumstantial evidence, the company has acknowledged it was the "one mutual fund group" the Brady report said sold $500 million in stocks on Oct. 19.

Fidelity executives are not pleased with the treatment they received from the Brady Commission, though they praise many of the report's overall findings. "While it was true that Fidelity's name was not used, {the data in the report} was used in a way that it was fairly hard not to figure out," who was being referred to, said Robert C. Pozen, Fidelity's senior vice president and general counsel. "Also, as you know, there seem to have been leaks to the papers as to some of this data. We did not like that." In response, Glauber said that it was "not clear" to him whether the Brady staff had been responsible for the press stories.

Beyond the specific debate about Fidelity's selling activity during the October crisis, there is also developing in Washington a broader discussion about the ways in which the world's rapidly changing financial markets may be leaving small investors behind. The numerous studies about Black Monday make one lesson clear: At the moment of the stock market's most severe test in nearly 60 years, it was large institutional investors, not individuals, who made the key decisions.

"The October experience illustrates how a relatively few, aggressive, professional market participants can produce dramatic swings in market prices," the Brady report said.

One thing that distinguishes Fidelity's case from the continuing debates about computer-driven program trading at Wall Street's big"Frankly, we hadn't anticipated a series of events like October 16 through 19." -- J. Gary Burkhead, a Fidelity managing director investment houses or the so-called portfolio insurance strategies of large pension funds is that Fidelity acts, in theory at least, as a kind of democratic representative for its millions of small shareholders. Its actions in the market hold the force of a major institutional power, but its buy and sell decisions are in large part dictated by the shifting sentiments of its retail customers.

Fidelity officials argue that if their massive stock sales during the October crisis did help push the market down -- and they differ with the Brady Commission over how much impact their selling had -- it only reflected the collective will of thousands of small investors who wanted out of the market in a hurry. Those investors expressed their will by inundating Fidelity's 24-hour, toll-free telephone lines with sell orders during the weekend leading up to Oct. 19.

Fidelity handled 2.2 million calls from customers during the week of Black Monday, almost double the average. "By Monday morning, the redemptions {requests by customers to sell their fund shares} that had accumulated through that weekend were 10 times the experience that we'd ever had," Burkhead recalled.

By executing these orders en masse, Fidelity officials contend, the fund group allowed its customers to achieve what they could not have hoped to accomplish on their own: quick, efficient transactions designed to attract the best possible price.

"The SEC has instances where brokerage firms were putting their own accounts in front of customers," said Pozen. "We were really purely driven to serve this selling wave. Viewed in that perspective, we were the best thing for the small shareholder."

Pozen's view even seems to be shared by the chairman of the SEC, David S. Ruder. Pressed on why he did not favor giving individual investors priority over institutions when the stock exchange's trading system becomes clogged with orders, Ruder said that to do so would send the wrong signal to the big players in the financial markets. Ruder then suggested that if small investors wanted to be fully protected against potential abuses, they should invest in mutual funds, which have the clout to compete with Wall Street's giants.

But Fidelity's selling during the October market crisis cannot be completely explained by the mutual fund's obligations to its retail customers. To a significant extent, it was Fidelity's unique blend of technology and marketing -- the same innovative system responsible for the fund group's extraordinary growth during the bull market -- that was behind its stock dumping.

One startling statistic in the Brady Commission report was its finding that on Oct. 19, three large mutual fund groups (Fidelity concedes that it was one of them) were net sellers of $913 million worth of stocks, while the rest of the mutual fund industry, constituting hundreds of funds, was a net buyer of $134 million of stocks. So while the vast majority of mutual fund managers spent Black Monday shopping for bargains in the stock market, Fidelity and two of its largest competitors were unloading shares as if there were going to be no tomorrow.

Part of the reason, according to analysts, regulators and Fidelity officials, traces to the history of the fund group's exceptional success during the 1982 to 1987 bull market.

For many years, mutual funds were relatively conservative investment vehicles. Investors tended to keep their money in funds for relatively long periods of time, in part because they paid substantial sales fees at the time of their initial purchases.

After three decades as a traditional mutual fund group, changes at Fidelity began when Edward C. Johnson III ascended to the chairmanship during the 1970s. Ambitious and innovative, Johnson began to transform Fidelity's relationship with its customers.

The company marketed its fund products directly to small investors, eschewing up-front sales fees and serving up a dazzling array of new funds and financial products -- it currently offers 148 different portfolios. Most of Fidelity's important innovations involved providing customers virtually instant access to their money around the clock, and allowing them to shift their investments at little cost from one fund to another. By using Fidelity's toll-free telephone lines, customers could redeem stock fund shares into cash in just 24 hours.

More than anything, Fidelity marketed aggressively, boldly emphasizing the performance of its most successful funds. The well-known Magellan Fund, managed by Peter Lynch, became its flagship, with $8 billion in assets currently under management. Altogether, the company created a highly liquid, performance-driven, nontraditional mutual fund group that put small investors closely in touch with their money.

The financial results were nothing short of breathtaking. Between 1982 and 1986, Fidelity's revenue shot from $169.7 million to $804.1 million and its customer accounts sprouted from 1.3 million to 4.7 million. By some measures, it is now the largest mutual fund group in the country.

"They invested very heavily into marketing and technology and they also happened to have good performance in some of their funds," said A. Michael Lipper, a mutual fund analyst and president of Lipper Analytical Services.

The speed, liquidity and specialization built into Fidelity's system was never more keenly felt than when the stock market began to crack and break between Oct. 16 and Oct. 19. As customer redemption requests poured over the phone lines -- many callers were frustrated by busy signals because of the enormous volume -- Fidelity's portfolio managers came under sudden pressure to raise cash for their investors.

Fidelity officials said that their portfolio managers attempted to maintain cash reserves equal to two or three times the highest peak redemption levels experienced by a fund in the past. But since redemption requests that weekend ran 10 times above historical levels, there was not enough cash on hand. In addition, while fund managers have authority to borrow from Fidelity's lines of credit -- which have been increased since October by a "substantial amount" according to Burkhead -- such borrowing was done reluctantly, because it could force even larger stock sales if the market failed to stabilize within several days.

"We wanted to maintain a reserve in case the situation were to worsen," Burkhead said. "Frankly, we hadn't anticipated a series of events like October 16 through 19."

At first, the company's portfolio managers tried to resist selling stocks into a falling market. But on Friday, when the Dow dropped 108 points and selling pressure began to mount, the number of redemption requests began to overwhelm Fidelity.

"On Friday, our net redemptions were considerably higher than our sales," said general counsel Pozen. "And then redemptions came in pretty heavily over the weekend. You get to the point where it's sort of difficult to keep resisting" broad stock sales to raise cash.

Over the weekend, senior executives met at Fidelity's downtown Boston headquarters to establish guidelines for stock sales and to plan an efficient trading strategy. The selling began in Europe even before the New York markets opened Monday, though Fidelity executives emphasize that the sales overseas were only of foreign stocks, not U.S. securities.

Fidelity's selling may have had a substantial impact on the market's performance in October, but it has had no less impact on the mutual fund group's growth streak. In recent months, "sales activity in the aggregate is down significantly from prior periods," Burkhead said.

As for the immediate future, the bull market's high flier has drawn in its wings, battening down for what may become a long, cold winter in the financial markets. Fidelity remains profitable, but is shifting its strategy for growth.

That doesn't mean, however, that Fidelity has backed away from the ambitious strategy that made it the country's fastest-growing -- and on Oct. 19, most active -- mutual fund. "Come what may, Fidelity is committed to the expansion of our investment and money management capabilities," Burkhead said.