At 6:30 p.m. on Sunday night, with Hurricane Sandy bearing down on the U.S. East Coast, New York Stock Exchange operator NYSE Euronext had more immediate problems: a revolt from the trading firms that are its lifeblood.
NYSE officials, including global head of sales Christine Sandler, told the firms that while the exchange would shut down its physical trading floor it was planning to open for business on Monday as an electronic-only trading venue for the first time.
But dealers trading shares were skeptical, according to interviews with about a dozen people privy to discussions including senior exchange officials, Wall Street executives, traders and other sources.
The final choice after more than two days of discussions, these sources said, came down to this: whether to use an unproven system to keep the markets open while risking employees’ safety, or close for the day and play it safe.
If the NYSE had opened for business its electronic systems may have had to handle more than double the volume it had averaged in recent weeks, a prospect that worried market participants already reeling from a series of embarrassing market snafus this year.
The firms also did not want their employees to have to report to work in the midst of the worst storm to hit New York City since at least 1938, a storm that was forecast to bring flooding, punishing winds and widespread power outages.
“It was, ‘Please don’t do this. The market is not ready,’” one of the sources said.
Late on Sunday night, the NYSE and other exchanges finally decided to close the market on Monday, the first time the Big Board had done so for bad weather since Hurricane Gloria in 1985. While the NYSE took the lead in closing trading in stocks and options, the final decision was collectively taken by all the exchanges, including Nasdaq OMX and CME Group Inc.
In the end, most market participants agreed that NYSE, other exchanges and regulators made the right call, but many on Wall Street still griped about how long it took to reach that decision.
The fact that such a choice took a series of long, complicated discussions signals the enormity of what was at stake. In the event, the storm made landfall on the U.S. East Coast on Monday evening, bringing widespread flooding and extensive power outages to many areas, including Lower Manhattan, home to Wall Street and the exchange.
As the trading closure extends into Tuesday and possibly beyond, analysts estimate that exchanges and banks are losing tens of millions of dollars in revenues every day. Numerous companies have postponed their earnings announcements, and plans of at least six firms to go public have been disrupted.
Late on Monday night, NYSE and Nasdaq said that on Tuesday they would run tests as part of a new contingency plan to see if an electronic-only market could resume equity trading in major names as soon as Wednesday, if the NYSE floor is not reopened.
Overall the storm is likely to cause tens of billions of dollars in economic losses, according to estimates from disaster modelling firms and economists.
NYSE’s contingency plan was put in place several months ago in co-ordination with its member firms, a spokesman said. The concerns that were voiced on Sunday by brokers were largely due to the fact that the hurricane was approaching and New York’s subways, buses and other transport were being halted that night.
The firms had already reduced the number of staff who were expected to come into their offices, and that was going to make it difficult to properly monitor the changes required for the new routine, the spokesman said. The concerns were amplified by the risks posed to employees themselves by the storm.
The weekend discussions are also a symptom of how much stock trading in the United States has changed. When Gloria hit in the 1980s, the New York Stock Exchange was by far the biggest game in town, and could essentially make decisions about the market unilaterally.
Over the past 10 years, however, dozens of alternative exchanges and other trading venues have popped up, taking market share away from the NYSE. That meant the NYSE had to consider if it could afford to be left out if the alternative trading venues that are all electronic were to open for business as usual.
The NYSE remains the largest stock exchange in the United States, however, responsible for more than 25 per cent of U.S. equity trading volume, and had the biggest voice in the talks.