NEW YORK -- Thirty minutes before the opening bell rang out over the cavernous floor of the New York Stock Exchange last Monday morning -- a day likely to be remembered as "Black Monday," 1987 -- a group of the most influential men in U.S. finance assembled in the sixth floor office of the stock exchange's chairman, John J. Phelan Jr.

On chairs hastily arranged around Phelan's desk sat the chief executives of the country's largest investment banks and brokerages: William A. Schreyer, chairman of Merrill Lynch & Co.; John H. Gutfreund, chairman of Salomon Brothers Inc.; Peter T. Buchanan, chief executive of First Boston Corp.; S. Parker Gilbert, chairman of Morgan, Stanley & Co., and about 10 others.

Phelan had summoned them by telephone shortly after dawn. He knew that a crisis was at hand, and he wanted support and advice from the exchange's richest and most powerful members. Between them, the men who arrived in his office controlled hundreds of billions of dollars in assets.

Like a tidal wave, panic in the world's financial markets was sweeping inexorably toward Wall Street that Monday morning. When the meeting in Phelan's office began, the London stock market was concluding its worst day ever; prices were down about 10 percent amid massive selling. The Tokyo market had closed just hours before, and it too had suffered a record-setting collapse.

"We knew it could be a bad day," First Boston's Buchanan recalled. "But I don't think anybody {at the meeting} anticipated what actually happened."

Phelan outlined his plans and sounded out the assembled chief executives. The exchange chairman said that unless the members felt differently, he was going to try to keep the stock market open all day long, no matter how severe the crisis became.

Phelan remembered telling them, "Here's what we're going to do -- anybody got any other ideas?"

"There was a very clear consensus -- I think it was unanimous -- that the markets should remain open as probably the first priority," Buchanan said. "I recall that several of us offered to help out with the specialists {firms that facilitate stock trading on the exchange floor} if we were asked."

Concerns also were voiced about the impact on the stock market that day of computerized trading programs, especially those that generate large, simultaneous trades of stocks in New York and stock futures in Chicago. Phelan said that he, too, was concerned that computer trades might exacerbate a market collapse, but he did not propose that morning -- as he would later -- that member firms suspend computer-assisted trading at the New York exchange.

The meeting in Phelan's office -- the only such gathering of the week -- ended shortly before the stock market opened at 9:30 a.m. Then the worst one-day plunge in U.S. history -- 508 points on the Dow Jones industrial average -- began. The chief executives returned to their respective Wall Street headquarters, there to endure one of the most trying days in their careers.

Whether it portended a deep economic crisis or was merely a shocking, short-lived panic -- it is yet too early to say which -- economists, historians and policymakers will search in the months and years ahead for the causes of the calamity that occurred on the floors of the country's major exchanges last Monday.

Already, blame is being parceled out by politicians, investors and Wall Street executives. Some point to underlying economic problems that have unnerved investors, such as the huge trade and budget deficits. Others cite structural weaknesses in the financial markets themselves, particularly the computerized trading programs that have come into wide use by large institutional investors in recent years. Many believe those computer programs have contributed significantly to market volatility.

Much of the important technical data describing precisely what happened in the U.S. financial markets on Monday is as yet unavailable, buried in the overloaded computer systems of the major exchanges in New York and Chicago. But some numbers have been produced, and they provide at least a preliminary picture of what occurred Monday.

What follows -- based on the available data and interviews with dozens of key Wall Street executives, traders, investors and government officials -- is the story of Black Monday, from the opening of the futures markets in Chicago to the final bell on the floor of the New York Stock Exchange.

Panic in the Pits

It began Monday in the Chicago futures pits, where pandemonium reigns even on a routine day.

Minutes before trading in S&P 500 stock index futures began at the Chicago Mercantile Exchange at 8:30 a.m. Central time, hundreds of traders jammed together to hear what is known as the "opening call," a declaration of the expected opening prices of the futures contracts that are traded through shouting, wild hand signals, and eye contact in the pit.

S&P futures contracts, which began trading on the Chicago Merc just five years ago, are one of a number of new financial products that have changed the way U.S. markets function.

The contracts bought and sold in the pit allow investors to speculate on the overall movement of the stock market in New York, as measured by the Standard & Poor's index of 500 leading corporations.

Investors can buy an index futures contract -- an obligation to buy or sell the index package at a given price at a given future time -- in hopes that the stock market will move up. They also can sell futures contracts "short," speculating that index prices will fall in the weeks or months ahead.

The opening call in the pit that morning stunned the crowd of traders, several said later, even though they knew that panic selling of stocks in London and Tokyo -- and on Wall Street the previous week, when the Dow had twice suffered record plunges -- would create a heavy downdraft in the futures markets that morning.

Few were prepared for the free fall that occurred in the first minutes after the pit's opening. The S&P index price plummeted 18 points -- more in five minutes than in all of Friday, which had seen the worst drop ever.

"Everybody just had sell orders," said one trader. "We had huge, huge orders that we haven't ever had before."

"Brokers were saying, 'Give me a bid -- anywhere.' It was an absolutely scary, horrible feeling," said Jerry Friedman, an independent trader.

While there is sharp disagreement about the role played by computerized trading later on Monday, experts in both Chicago and New York agree that "program trades" were a primary factor in that initial collapse in the Chicago futures market, which signaled a later free fall on the New York Stock Exchange.

The experts disagree, however, about whether the first wave of computer trading in Chicago supported or undermined the overall performance of the country's financial markets on Monday.

The first wave of massive selling in the S&P futures pit, investors and exchange officials agree, was led by large institutional investors seeking so-called portfolio insurance.

Managers of many large pension and other funds responsible for tens of billions of dollars in stock holdings attempt to use the futures pit to protect themselves against precisely the sort of disaster that occurred Monday.

The managers own millions of shares of stock and are necessarily worried about what would happen to their assets if the market collapsed. One way to hedge their risk is to sell S&P futures short; if the market dives, they can then offset stock losses with profits gained by the futures contracts. Precise formulas, sometimes computerized, have been devised by fund managers to determine how many futures contracts need to be sold short in order to protect a fund's stock holdings against a crash.

The problem in the pit Monday morning, experts agree, was that too many institutional investors were trying to obtain their insurance too late. Everyone was selling S&P contracts at once, and in unprecedented amounts. The pit was overwhelmed by the volume, and prices went into a tailspin.

"These people were using us to write insurance in the midst of an earthquake," said William Brodsky, president of the Chicago Merc.

That morning, collapsing futures prices became an instant measure of where stock prices were headed. And since futures prices are monitored on computers by investors who trade stocks on Wall Street, it became clear within minutes that panic selling was about to occur in New York.

Dumping in New York

The collapse of futures prices in Chicago accelerated the disaster in New York, but the pressure to sell stocks on Wall Street was at first pent up like steam in a kettle.

With investors panicked by the free fall in futures, specialists in New York were swamped by sell orders and were forced to delay the opening of trading in many individual stocks.

That delay both increased the selling pressure and threw the moment-by-moment relationship between futures prices in Chicago and stock prices in New York drastically out of whack. Futures prices fell, but stock prices couldn't keep up because of the trading delays.

That widening gap, in turn, made it possible -- in theory at least -- for sophisticated investors to implement a second type of computer trading program: index arbitrage. With futures prices falling faster than stock prices, an investor could instantly profit from the gap by purchasing futures contracts and simultaneously selling the underlying, individual S&P stocks that make up the S&P 500 index.

Whether such computerized arbitrage trading occurred on a massive scale Monday is not clear, government officials said. Others in the market are convinced it did.

"Early in the day, index arbitrage may have been possible," said SEC Commissioner Joseph Grundfest, but he added that he doubted such massive computer trading occurred in the afternoon. "In order to answer that, people are going to need more data, more information, than they have now."

If index arbitrage occurred on a large scale, it would have substantially increased the stock market's fall, since a key element of the program is the sale of huge amounts of individual S&P stocks. Investigations by regulators of earlier declines in the market have not turned up evidence that index arbitrage contributed significantly to them, Grundfest said.

Available evidence about the early stock selling in New York does suggest that in the morning it was large institutions -- pension funds, corporations and other professional investors -- that led the panic, not individual investors.

Statistics generated by New York Stock Exchange computers show that single-block trades involving 200,000 or more shares -- that is, trades so large that they were likely made by institutional investors -- occurred mainly in the morning. Seventy-two such block trades occurred between 9:30 and 11:30 a.m., with the largest number -- 23 -- taking place between 10:30 and 11 a.m., when trading in many of the blue chip stocks finally opened after early delays. In contrast, only 22 such trades occurred between 1 p.m. and 3:30 p.m.

Similarly, single-block trades involving more than $10 million in stock market value were heavily concentrated in the morning. Sixty such trades occurred between the New York opening and 11:30 a.m., while only 36 occurred during the rest of the day, according to exchange statistics.

Those numbers are generally supported by the observations of traders, investors and exchange executives. They said that while the futures free fall in Chicago triggered a wave of morning selling by institutions in New York, panic selling by individual investors took over in the afternoon.

According to collated reports of telephone operators at Fidelity Investments, the large, Boston-based mutual fund company that serves 2.5 million individual investors, fears of small investors across the country escalated sharply Monday afternoon after the early selling waves in Chicago and New York had sent prices skidding downward.

"Nervous concern became high anxiety, and the exchanges {from stock funds} into money market funds shot up," said Rab Bertelsen, a Fidelity vice president.

The Final Plunge

It wasn't just computer trading and the fears of individual investors that shaped Monday's events. Many Wall Street executives and investors interviewed believe that the demeanor of leading government officials played an important role.

Government officials and executives said one key sequence of events began with a statement by Securities and Exchange Commission Chairman David Ruder about a possible closing of the New York Stock Exchange -- a remark some officials said was misleadingly reported by the media.

Ruder's statement rebounded into the financial markets from Washington's Mayflower Hotel, where Ruder delivered a midmorning speech to an overseas investors conference sponsored by the American Stock Exchange.

When Arthur Levitt, the Amex chairman, arrived at the Mayflower during Ruder's speech, "Right away I knew there was a problem. The groups of people in the hall were almost as large as the people listening to {Ruder}," Levitt recalled.

Mobbed by reporters, Levitt declined to comment about the collapsing stock markets in New York. "I didn't really know the extent of the carnage, and all that flashed through my mind was a recollection of what was said and done in 1929 -- and how fatuous, self-serving and incredible the statements of support for the market had been then."

Levitt pushed his way inside, and when Ruder's speech was completed he talked privately with the SEC chairman. Levitt said that Ruder told him he was anxious to return to his office, but that "he understood the press was anxious to talk with him. So we went out to see the press.

"The first question he responded to was one concerning a possible trading halt. I was surprised to hear him say he had been in touch with John Phelan and had given consideration to it. From that point on, the topic took up the rest of the press conference and he {Ruder} was on the defensive," Levitt recalled. Ruder, sought for comment last week, did not return phone calls.

During the Mayflower exchange, Ruder told reporters, "I am not afraid to say that there is some point -- and I don't know what that point is -- that I would be quite anxious to talk to the New York Stock Exchange about a temporary -- and very temporary -- halt in trading."

It is not clear whether Ruder was aware of the meeting between Phelan and Wall Street's leading executives early Monday morning, at which the financiers had agreed that a trading halt was to be avoided because it would undermine confidence in the markets and increase selling pressure during the suspension.

An SEC spokeswoman said that when Ruder discussed the trading halt with reporters, he was referring to earlier speeches he had delivered to financial audiences in which he had discussed a trading halt as a hypothetical alternative. Other government officials said that Ruder's remarks were blown out of proportion by reporters unfamiliar with the chairman's earlier speeches.

In any event, wide dissemination of Ruder's afternoon statement coincided with the worst pitch in stock prices of the day. Some Wall Street executives said reports of a possible trading halt panicked investors of all kinds, who feared they might have to move quickly to sell their stocks before a suspension occurred.

After a late morning recovery, the Dow average had spent the early afternoon slipping and firming in the pattern of a descending staircase. But at about 2 p.m. it began to sink steadily, and just after 3 p.m. collapsed into dramatic free fall. In the market's last hour, the Dow lost more than 200 points, falling from 1950.71 to its close of 1738.34.

During that last plunge, administration officials maintained a public silence, although Ruder issued a clarifying statement intended to ease fears about an immediate trading halt.

Phelan said he spoke by telephone during the afternoon with Ruder, White House chief of staff Howard H. Baker Jr., New York Federal Reserve Bank President E. Gerald Corrigan, and officials at the Treasury Department.

Phelan said he did not speak Monday with President Reagan, who was visiting his wife at Bethesda Naval Hospital, or with Treasury Secretary James A. Baker III, who was en route back to the United States from West Germany. He said he left a message for Federal Reserve Board Chairman Alan Greenspan, but Greenspan had already left Washington for Dallas, where he was scheduled to deliver a speech to a banking convention the next day. Greenspan later canceled the speech.

"Every once in a while, they {government officials} would ask what we thought was the cause of this," Phelan said. "I just thought it was a confluence of different kinds of things," he said, including inflation fears, rising interest rates, computer trading and the fact that the stock market had risen without a significant correction for five years.

As the week wore on and the market continued to swing wildly and with tremendous trading volume, Reagan tried to address one major Wall Street worry -- the large federal budget deficit -- by agreeing to enter negotiations with Congress to lower the deficit. At his press conference Thursday, the president also announced the appointment of a commission to look into the causes of the turbulence.

The Chicago Mercantile Exchange on Friday imposed trading regulations to limit price swings in its stock index futures and options contracts. A day earlier, the New York Stock Exchange announced that it would shorten trading hours for the rest of the week to enable firms to catch up with their order backlogs.

Some congressional Democrats criticized the administration's Monday posture, saying its silence reflected confusion. But others said there was nothing the government could have done or said to stop the afternoon's collapse.

"I don't know what any president can say under the circumstances, except what he did say {after the market closed}," said Sen. William Proxmire (D-Wis.), chairman of the Senate Banking Committee.

As for Reagan's brief, upbeat comments after the close of trade, which prompted criticism from some Democrats, Proxmire said, "I don't think anyone would expect him to say, 'Brother, we're in trouble -- you better bail out now.'"

Staff researcher Marianne Yen also contributed to this report.