Storm of Controversy:
Debate Over Wall Street's Two-Day Shutdown
Traders Magazine Online News, December 10, 2012
It was coincidence. But the scheduling couldn't have been better.
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.
"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.
"It was a gutsy call," said Tom Price, managing director and head of the Technology, Operations and Business Continuity Planning Group at SIFMA. "The markets always want to be open."
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 articipants 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.
The choice led to widespread back-channel criticism. Brokers and other exchange operators complained that the NYSE did not hold proper advance testing of its backup plan, which was to route all orders through Arca, its all-electronic exchange. Many of the NYSE's own members, one broker and one operator told Traders Magazine, would have had to scramble Sunday evening to check their connections with Arca and make sure all ancillary services, such as market data feeds, were in place and operating properly.
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