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U.S. Treasury Secretary Steven Mnuchin has sparked a global debate by suggesting New York’s trading day could be shortened for a time to help calm stock markets rocked by coronavirus.

Tim Shufelt: Calls for markets to close intensify amid global economic crash

So far only stock markets in the Philippines and Sri Lanka appear to have opted for a suspension, with no major financial centre following suit, although four European Union countries have temporarily banned short-selling of shares.

IS IT RARE TO SUSPEND?

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Markets have been closed many times, in many different countries and for many different reasons that have made pricing shares temporarily unreliable.

The New York Stock Exchange (NYSE), for example, closed for four days following the 9/11 attacks in 2001, for two days during a severe hurricane in 2012, and for the rest of the day after President John F Kennedy’s assassination in 1963.

Greece shut its stock market for nearly five weeks in 2015 at the height of its debt crisis. China kept a lot of its markets closed for longer than usual over the Lunar New Year.

Although markets did not close during the 2008 global financial crisis, there are concerns that with many dealers having to work from back up sites or home, volumes could be patchier during the coronavirus outbreak. Brokers in Australia have been asked to trade less to ease the strain.

HOW WOULD A SHUTDOWN START?

A shutdown could be ordered by governments, or by securities regulators who are legally obliged to close markets if they no longer believe they are orderly enough to produce reliable prices for investors.

WHICH MARKETS CAN BE SHUT?

Suspensions have traditionally focused on stock markets as that is where small investors are most exposed.

There are already roadbumps known as circuit breakers to deal with extremes in trading, and they have been triggered several times on the NYSE in recent sessions to halt dealings for a few minutes.

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The closure of stock exchanges would affect other markets like derivatives and bonds given close links between them.

But not all trading in shares, derivatives and bonds are done on exchanges, with large volumes executed “over the counter” or OTC, and bilaterally between banks or between banks and their biggest customers like asset managers.

OTC trading would need to be stopped as well to avoid users having an unfair advantage over other market participants. OTC trading base prices stem in many cases from exchanges.

Some of the biggest moves are being seen in the currency market as investors dump sterling and other currencies in favour of the dollar, but there is no talk of suspending trading in what is a $5 trillion, 24-hour-a-day market.

DOES IT HAVE TO BE COORDINATED?

For an orderly shutdown, there would need to be some coordination among leading financial centres in the United States, Europe, Japan and China. This could be done through the Group of 20 Economies (G20), an umbrella body for global regulators like the Financial Stability Board.

To be effective, speedy consensus would be needed to avoid countries going it alone and creating confusion or disparities. Some big companies are listed in several countries.

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WHAT ARE THE RISKS?

Failure to get consensus for coordinated action would create a patchwork of responses with potentially reduced impact.

Four EU countries have gone ahead with bans on short selling but others have refused to follow suit. The bans have not stopped a broad market rout in shares across Europe.

Derivatives exchanges say that halting trading could trigger contractual clauses with the potential to generate defaults.

There is also the risk of even bigger falls once an exchange reopens: the leading stock index in the Philippines sank by nearly a quarter when the exchange reopened on Thursday after a two-day suspension.

WHO WANTS ONE?

So far no major politician or central banker has called for suspension in trading.

Exchanges in Europe, the United States and Hong Kong have rejected the idea of suspending trading, saying that closing markets won’t address the underlying cause of volatility, worries over how much coronavirus will damage the economy.

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Bank of England Governor Andrew Bailey said on Wednesday that as long as markets are not out of control, then keeping them open is important. The London Stock Exchange has said it has no plans to suspend trading.

Stacey Cunningham, president of NYSE, said that despite closing the trading floor, where dealers work shoulder-to-shoulder, to avoid infection, electronic trading will continue under normal hours.

Terry Duffy, chief executive of CME, the world’s biggest derivatives exchange, said markets are global and closures or shortening hours would simply send investors elsewhere.

Malaysia’s Securities Commission and stock exchange said on Thursday that markets would stay open, despite calls from stockbrokers for a shutdown.

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