Storm Over Wall Street Going Dark
Traders Magazine Online News, November 12, 2012
The securities industry had been set for more than three months to carry out its annual test of how trading firms, market operators and their utilities could operate through an emergency using backup sites, backup communications and disaster recovery facilities.
The date: Oct. 27.
The Business Continuity Test coordinated by the Securities Industry and Financial Markets Association along with the Financial Information Forum would take place two days ahead of the arrival of Hurricane Sandy, the largest storm ever spawned in the Atlantic Ocean.
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“It was very timely, said Karl Schimmeck, vice president of financial services operations at SIFMA.
Participants in the 11th annual edition of the event included brokers, market data suppliers and technology service bureaus, as well as global banks, regional banks and financial advisers, according to Schimmeck.
The practice: Allow market participants to transmit dummy orders to markets, receive simulated execution reports, and conduct settlement and payment tests. Equities, options, futures, fixed-income, foreign exchange and commercial paper market operators all were “open” for business.
Before Hurricane Sandy—or any other storm—hit.
The testing window was from 9 a.m. to 1 p.m. Eastern time Saturday. The broad industry effort only uncovered “little issues,” Schimmeck said. Nothing that would preclude markets from opening two days later, with backup systems, if they so chose.
But they still chose not to.
By Sunday night, after as many as 14 hours of “epic” phone calls involving as many as 800 market participants at a time, the nation’s stock exchanges, led by the New York Stock Exchange, chose to shut down. Before Sandy reached landfall.
NYSE chief executive Duncan Niederauer, in a post-storm interview on the floor of the exchange, said it would have been “irresponsible” to have opened for trading because its members and other participants would have “a lot of people in harm’s way,” even if markets operated only electronically.
The storm caused $6 billion in business losses and more than $20 billion in physical damage, according to IHS Global Insight, a Boston analytics firm. Morgan Stanley and other Wall Street firms’ offices near the Hudson waterfront got shut down for weeks.
And, of course, all national exchanges chose to shut down for two days, an unprecedented move in an era when trading can take place entirely electronically. Particularly so, since the markets themselves are all housed in highly secure facilities, across the Hudson River in New Jersey.
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