All this was playing out against a backdrop of technical problems this year, including Nasdaq’s inability to process Facebook Inc. orders fast enough when the social media company was going public and Knight Capital Group’s near-collapse due to a trading glitch that cost it $461-million (U.S.).
Exchange officials insisted that their decision to shut down the market was ultimately led by concerns about the safety of the financial community.
“This is not the time to be thinking about your own pocketbook, first you think about what is best for the markets,” an exchange official said.
The discussions around what to do as the storm approached started as early as Friday, the sources said. But they intensified as the weekend progressed and the storm stayed on course.
Often these discussions were contentious, as participants sought to further their own agendas.
Even within the major Wall Street banks, for example, different business units were sometimes at loggerheads over the best course. Fixed income desks were insisting the markets open, as there was a major U.S. Treasury auction on Monday. But the equities desks were uncomfortable, several participants on the calls said.
By Sunday afternoon, NYSE had held a series of discussions with floor brokers, NYSE employees and city officials, deciding that it should close its floor trading operations and move all NYSE-listed stocks to the electronic venue.
Even that decision was not unanimous. The number of people in favour of keeping the floor open and the number opposed were about even, with some saying the trading floor should never be closed, while others argued that people should not be expected to put themselves in harm’s way.
“People worried about the system and making sure there is enough liquidity, but this had more to do with human life and putting people in harm’s way,” said a trading firm executive who was involved in the discussions. Others noted that both safety and technical questions were big issues for people on the calls.
NYSE’s decision to open, which was announced around 4 p.m. on Sunday, was short-lived, as trading firms grappled with their own contingency plans. Moreover, the exchange’s back-up plan had not been tested since March 31, a worry after the market snafus of this year.
As the weather reports grew more dire on Sunday night, the Securities Industry and Financial Markets Association, which represents securities firms, banks and asset managers, added to the disagreement, voicing significant concerns about proceeding with trading.
Throughout the weekend, officials from the U.S. Securities and Exchange Commission were also on calls with the exchange operators and other market participants. SEC Chairman Mary Schapiro participated in at least one call with Nasdaq chief executive Robert Greifeld. She was also in e-mail contact with NYSE CEO Duncan Niederauer.
The substance of their conversation could not be learned. But sources familiar with the situation said the SEC did not make the decision to shutter the markets and the view presented on the various calls was uniform about the need to close.
By the time Ms. Sandler and other NYSE officials got on the 6:30 p.m. call, not only was the New York’s transport system about to grind to a halt but a large area of lower Manhattan, edging right up to the boundary of the New York Stock Exchange at 11 Wall St., faced a mandatory evacuation ordered by Mayor Michael Bloomberg. For the trading firms it was time to speak up.
Some of them, including Goldman Sachs Group Inc., CME’s NYMEX, and Citigroup Inc., were squarely in the flood-prone evacuation zone.
At 7:30 p.m., senior NYSE officials, including Mr. Niederauer, arranged for yet another call, this time with other industry participants – from rival exchanges to regulators – on the line.
“There was a healthy discussion about what-ifs, and scenarios and any way we could open the market,” said an official from a rival exchange.
A consensus quickly formed that the markets may have to close, said executives from three exchanges.
“This is not about, ‘hey, you have a floor, you couldn’t do it, we’re electronic and we could,’ we are not going to make a competitive issue about it,” said one person on the call.
By 10 p.m., Mr. Niederauer and SEC division of trading and markets director Robert Cook, among other market participants, had hammered out the plan to shut down fully.
“Sometimes you have to ask, ‘Guys, why are we trying to be heroes here? The risk-reward just doesn’t look too good’,” said one NYSE official.
At 11 p.m. on Sunday, the exchanges announced the stock and options markets would be closed on Monday. Employees of some firms did not get alerted about the decision until after midnight.