U.S. equity markets will reopen tomorrow after the longest weather-related shutdown in more than a century, resuming after the New York Stock Exchange was spared by Hurricane Sandy as it swept through New York yesterday.
The decision was announced in statements by NYSE Euronext, Nasdaq OMX Group Inc. (NDAQ) and Bats Global Markets Inc. The NYSE's headquarters are running on backup power and will keep using it if necessary all week, Larry Leibowitz, the chief operating officer, said in a phone interview. Fixed-income trading, halted at noon yesterday, will also reopen, under a recommendation by the Securities Industry and Financial Markets Association.
U.S. exchanges are in the second day of a suspension called to safeguard workers as Sandy barreled north, halting public transit and forcing evacuations in New York City. NYSE Euronext's building on Wall Street is near areas of Manhattan that were deluged when the storm propelled a 13-foot sea surge. Arthur Levitt, the former chairman of the Securities and Exchange Commission, said the NYSE needed a better backup plan.
“We've got people there at the floor, which was not compromised by the flooding,” Duncan Niederauer, chief executive officer of NYSE Euronext, said today in an interview on Bloomberg Television with Matt Miller. “We're spending the day testing connectivity with clients, many of whom are operating from their own contingency sites. So first and foremost, we're going to deal with them.”
The SEC has been in consultation with the markets throughout the storm and supports the decision to reopen, John Nester, a spokesman, said in an e-mail. The Depository Trust & Clearing Corp., located at the southern tip of Manhattan, is open today and expects to be fully operational tomorrow, according to a statement.
Streets outside the exchange at 11 Wall Street were strewn with leaves and branches before noon New York time, with sandbags still stacked two high around the building. Mailboxes and trashcans were overturned at Broad Street and Beaver Street.
Florescent lights were visible on upper floors of the NYSE building. Water had receded from the financial district. Tourists wearing sneakers took pictures amid groups of police and residents walked their dogs around the neoclassic structure, opened in 1903.
“We fully plan to be up and running tomorrow,” Leibowitz said. “There's no damage to the physical plant. We're running off our generators.”
Brokers and trading firms may experience “spotty connectivity problems” when they access markets tomorrow, Leibowitz said. He predicted some firms may have trouble finding fuel if they are running from backup systems or using generators.
NYSE plans to operate the floor with at least 100 people including designated market makers and other personnel tomorrow, Leibowitz said. All NYSE-listed companies will be represented by their market makers, though the firms may not be “fully staffed,” he said.
The company's main data center for its U.S. markets in Mahwah, New Jersey, “cut over to backup power as a precaution yesterday” and may be back on full power later today, Leibowitz said. He expects all NYSE Euronext exchanges run out of the Mahwah facility to operate normally tomorrow. “It's better to cut over to backup power when you can control it,” he said.
The NYSE began testing for a backup plan that would be necessary had storm damage prevented it from reopening the floor tomorrow. In that case, NYSE Arca, its electronic market, would be deemed the primary market for NYSE-listed stocks and the Big Board wouldn't have operated. Firms started to test their systems at 9:30 a.m.
American equity markets were closed yesterday and today, the first consecutive shutdowns because of weather in more than a century. The last comparable closure of the NYSE was on March 12 and 13, 1888, when a blizzard dumped 21 inches of snow on New York, according to the company's website. The exchange was closed for about 1 1/2 days after a snowstorm in February 1978.
The NYSE's reputation will suffer because of the shutdown, said former SEC Chairman Levitt.
“People look to the New York Stock Exchange (NYX) as being the symbol of American capitalism, and to see the exchange go down for two days without an adequate backup plan is very, very unfortunate,” Levitt said on a Bloomberg Radio interview today. “To see the New York Stock Exchange crippled is a body blow that will really shake the image of that institution for a long time to come.”
His view is “disappointing,” the NYSE's Niederauer said.
“Obviously Arthur has been involved in the industry for a long time but is maybe a little out of date with the facts,” he said. “We had a contingency plan. It was approved by the SEC in '09. It was communicated to everyone in '10 and tested earlier this year, and the industry simply preferred that we not implement that plan on Monday and Tuesday.”
New York officials began assessing damage after Sandy killed 10 people, sparked a fire that razed 80 homes in Queens, flooded tunnels of the biggest U.S. transit system and left 750,000 customers without power. Sandy is among the worst storms in New York history, rivaling the blizzards of 1888 and 1947.
Stock markets hadn't been closed for four days in a row since the start of 2007 when, following a weekend and the New Year's Day holiday on a Monday, they shut on Jan. 2 to observe a day of mourning for President Gerald Ford's death.
Trading was canceled for four days after the Sept. 11, 2001, terrorist attacks, the longest shutdown since President Franklin Delano Roosevelt declared a bank holiday in March 1933. When markets reopened Sept. 17, the Standard & Poor's 500 Index plunged 4.9 percent.
Trading on the Chicago Board Options Exchange (CBOE) and CBOE Futures Exchange is shut today, said CBOE Holdings Inc. in an e- mailed statement. The exchange operator will issue an update if the shutdown lasts longer.
“I'm a little surprised that the exchanges couldn't secure the technology needed,” Dominic Salvino, a specialist on the CBOE floor for Group One Trading LP, the primary market maker for VIX options, said in a phone interview. “It seems unreasonable that the nation's financial markets have to shut down just because everyone has located themselves within five miles of each other in New Jersey.”
Exchanges had planned as recently as Oct. 26 to open for normal business this week before forecasts for the storm got worse. At about 4 p.m. on Oct. 28, the NYSE announced it would shut the trading floor at its headquarters and use its Arca exchange, an electronic platform, for all transactions. After a series of discussions between exchange officials, market makers, the SEC and other participants, the industry said at about 11 p.m. that night that all markets would be shut on Oct. 29.
“Do you really want to open up the market and have these potential issues right before the election, right before month end?” Matt McCormick, who helps oversee $7.3 billion at Cincinnati-based Bahl & Gaynor Inc., said in a telephone interview. “I'd rather be slow and correct than fast and wrong and really wrong. It's better to be conservative.”
The NYSE's plan to switch floor trading to Arca spurred investor concern about potential malfunctions in a market still shaken by recent trading mishaps, including a software error at Knight Capital Group Inc. that almost sent the Jersey City-based market maker into bankruptcy in August.
Nasdaq experienced delays in opening Facebook Inc. in its initial public offering in May, causing losses for some traders who bought more shares than intended. Bats Global Markets Inc. canceled its IPO in March when it couldn't get its shares to trade on its own exchange.