Although NYSE Euronext took heat for shutting down for two days last week in the face of Hurricane Sandy, many industry observers contend that it was the right move.
“I appreciated the fact they didn't open it up. From a liquidity standpoint, I would have expected problems if a lot of people wanted to buy or sell ... and if half of [industry employees] couldn't get to work,” said Don Bizub, chief executive of Western International Securities Inc.
“Given the extraordinary damage to New Jersey and New York City, and the potential safety issues, [closing the markets] appears to me to have been a very wise decision,” Steven Wallman, chief executive of Folio Investing and a former member of the Securities and Exchange Commission, wrote in an e-mail.
“I've not heard anybody at this point say it's the wrong move” to have shut the markets, said Greg Vigrass, president of Folio's custody unit, which serves more than 400 advisory firms.
Still, some critics wondered why, in an age when every financial firm has to have a business continuity plan, the Big Board and other trading centers walked away from a backup plan that calls for switching to all-electronic trading when lower Manhattan is inaccessible.
The shutdown “does beg the question of business continuity planning and how viable it really is,” said Adam Antoniades, chief executive of First Allied Securities Inc.
“But you need to have some respect for people and their pain and suffering, so it doesn't upset me that we closed the markets for a couple days,” he said.
The NYSE said that its electronic backup was ready to go as Hurricane Sandy approached the East Coast late Sunday.
But other trading platforms that use the NYSE to lay off trades and set prices reportedly didn't trust the plan and balked at going live.
The size of the impending storm would have made it difficult to ensure the safety of NYSE employees and others who work on Wall Street, NYSE spokesman Robert Rendine said.
“At the end of the day, we all agreed that safety trumped everything,” he wrote in an e-mail.
That is “a crazy story about New York not being open because they're worried about their people,” said Chris Nagy, founder of KOR Trading LLC, a consulting firm, and the former head of order routing at TD Ameritrade Holding Corp.
“Of course they should worry about their people, but at the same time, there should have been ample planning and backup,” including plans to operate without staff in New York, he said.
Mr. Rendine called Mr. Nagy's criticism “incoherent.” Although the NYSE has a backup data facility in Chicago, that “doesn't obviate the need for people to come to work at the firms that trade,” Mr. Rendine said.
“If you have to shut down because industry employees can't get [into New York], then the whole backup plan is worthless,” said Peter Chepucavage, general counsel at Plexus Consulting Group LLC and a former staff member at the SEC.
Mr. Chepucavage, who worked on the SEC's post-9/11 policy document concerning business continuity planning for exchanges, faults the market for not attempting to remain open last week.
After 9/11, “there was a big discussion about whether the exchange should have an alternative site — and alternative people — as far out as the [Pocono Mountains in Pennsylvania] or Westchester County [New York],” he said.
The idea was called Wall Street West, Mr. Chepucavage said.
The SEC's 2003 policy statement recommended that market centers resume trading no later than the next business day following a extensive disruption.
Backup sites shouldn't rely on the same infrastructure, such as power and transportation, and “the operation of such sites should not be impaired by an evacuation ... of staff” at the primary site, the report said.
That analysis was done “in the context of a biological attack in New York City, where the facilities would be fine but no one would venture into the city,” Mr. Chepucavage said.
“The issue with it, as I recall, was that no one wanted to pay for additional staff” at redundant facilities, he said.
But in its policy statement, the SEC also noted that in some cases, resumption of trading might have to be delayed to avoid an “inferior” trading environment or the risk of further problems.
“There's always the issue of whether you bring it up too soon,” Mr. Chepucavage said.
Mike Zarren, director of relationship management at Ceros Financial Services Inc., noted that the Financial Industry Regulatory Authority Inc. and the SEC require brokerage and advisory firms to have a business continuity plan, including plans for alternate sites.
He called on regulators to “revisit” exchanges' backup plans, including the need for remote facilities.
Still, Mr. Zarren thinks that it was the right decision to shut down due to safety concerns.
The SEC is still monitoring developments arising from Sandy and has drawn no conclusions about future contingency plans, spokes-man John Nester said.
But a complicated backup system such as the NYSE's, which involves multiple markets, is difficult to test, said Christopher Winn, a managing principal at AdvisorAssist LLC, a consulting firm, and a former compliance official at the Evergreen Funds.
That is “the flaw in big corporate business continuity planning,” he said. “So much goes into a formal switchover; it's really hard to test.”
In the end, when trading re-sumed last Wednesday, the markets seemed to yawn at all the carping about failed plans. The S&P 500 barely moved, creeping up just 0.02%.
“Personally, I appreciated the time off” with the markets closed, Mr. Bizub said. “I still came into work, but it gave me the opportunity to catch up.”
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