New York Stock Exchange Shutdown Barraged With Criticism
The Sandy Superstorm, which led to the longest weather-related shutdown of US stock trading since 1888, proved this week how vulnerable the financial markets remain to disasters.
**NYSE Decision to Halt Trading**
Last week many brokers in New York began preparing for the incoming natural disaster – contingency plans were set in motion and staff were relocated in case of communications’ and networks’ failure. Primary dealers in the bond market, officials from the Treasury Department and the New York Federal Reserve and executives from the Securities Industry and Financial Market Association (SIFMA) met over the weekend to discuss the situation in light of a major auction of Treasury bills scheduled for Monday 29 October.
Back in 2009 NYSE Euronext, the corporation that operates the New York Stock Exchange, proposed an arrangement which involved shutting down the trading floor in Manhattan and carrying out the trading over NYSE Arca, an all-electronic market the company acquired in 2006. Minutes after 4 pm on Sunday as Sandy was Northeast Coast-bound bringing winds up to 75 miles per hour, executives at NYSE Euronext said they would put the aforementioned plan into action. At that time the New York Mercantile Exchange (NYMEX), a commodity futures exchange owned by CME Group of Chicago, had already stated it was closing down its trading floor at 11 Wall Street. If truly invoked, the contingency plan meant that brokers and banks would have had to send their programmers into Manhattan Sunday night to test the systems.
“They could have left the electronic exchanges open,” Mark Turner, head of U.S. sales trading at Instinet, said in a phone interview for Bloomberg. “But with people unable to access their offices, it could have been like the Friday after Thanksgiving where volume would be extremely light, which opens the door for volatility.”
!m[The Wall Street Journal Argues: Why Put Traders’ Lives at Risk?](/uploads/story/714/thumbs/pic1_inline.png)At 6.30 PM there was a conference call between executives at NYSE Euronext and their biggest customers, most of whom opposed the back-up plan arguing the prospect of malfunctions was too great and risked crashing the market altogether. Three more conference calls were arranged by SIFMA with increasingly more representatives from the Securities Exchange Commission and Financial Industry Regulatory Authority as well as executives from the Investment Company Institute, the national association of investment companies. At the 7.30 PM conference, sources of Bloomberg claim there were at least 100 attendees and a growing consensus –no stock trading should be taking place in the US on Monday.
At 11 PM, seven hours after NYSE Euronext said it intends to invoke its contingency plan, the announcement of equity trading suspension came out. The market remained closed for two days and reopened on Wednesday with relatively high volumes – 6.33 billion shares were bought and sold, 7 percent above the three-month average.
**Harsh Criticism and the Wall Street Journal’s Response**
On 1 November the Wall Street Journal ran an article condemning the barrage of criticism that ensued after the NYSE Euronext made the decision to close down trading for two days.
One of the loudest critics out there was former SEC chairman Arthur Levitt who said the exchange was “crippled” and its closure would damage the institution’s image. Christopher Nagy, former electronic-brokerage executive, told the Journal that “The whole saga has demonstrated just how little the exchanges have prepared for a natural, pandemic or terrorist threat since 9/11”. On Twitter, messages hinted that rival exchanges, most notably the Nasdaq OMX Group, were ready to go on Monday and it was solely the NYSE, which “made the call”. At some point false news was spreading around the social networks claiming the NYSE trading floor was flooded with water.
David Weidner, columnist for the Wall Street Journal, disagrees with Mr Levitt on whether the NYSE will see its image suffer as a result of those two days lost in trading. According to him the shutdown was necessary because the human costs, which could have been incurred, outweigh any and all economic costs. In the end, it was fair to everyone – if trading ensued on Monday, some larger brokers and banks surely would have been able to afford relocating and would have participated in the markets, while others would have been left on the sidelines. One of the main aspirations of stock trading – fairness and equal chance for all participants, would have been completely ignored.
“Though not always obvious, economic cost guides the debate about whether the NYSE closed for the right reasons. That’s fine. Money is important. But the fact we’re not talking about the human costs today? That’s proof the NYSE made the right choice.” were Mr Weidner’s final thoughts in his Wall Street Journal article.
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