U.S. Stock Trading Shut for Second Day, Joining Bonds
For the first time in more than a century, weather has stopped U.S. equity trading for two straight days as Hurricane Sandy swept across New York City. NYSE Euronext will this morning test a back-up plan in case its headquarters or trading floor are unable to open tomorrow.
Stock trading was canceled for a second day, joining bond markets, as 90-mile-per-hour winds and surging seas paralyzed America’s financial capital. The first shutdown for consecutive days due to weather since 1888 was announced by NYSE Euronext after consultations with other exchanges. The Securities Industry and Financial Markets Association earlier recommended a full market close in dollar-denominated fixed-income securities after they shut at noon New York time yesterday.
Hurricane Sandy, the Atlantic’s Ocean’s biggest-ever tropical storm, slammed into southern New Jersey and churned north over land. The storm, 900 miles wide, produced life-threatening surges in a region with 60 million residents and caused what may add up to billions of dollars of damage. At least 316,500 customers were without power, and thousands of securities industry employees stayed home as Sandy threatened to flood lower Manhattan, home to much of the borough’s electrical infrastructure.
“It’s an unprecedented event coordinated with an unprecedented storm,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in a telephone interview yesterday. His firm oversees $250 billion in assets. “The response from the exchanges and regulators in terms of the closing of the market was certainly appropriate and remains appropriate for the exchanges to be closed tomorrow as well.”
Exchanges are planning to reopen Oct. 31, weather permitting, according to statements from NYSE Euronext and Nasdaq OMX Group Inc. The last comparable closure of the New York Stock Exchange 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.
CME Group Inc. opened trading of equity-index futures and options last night until 9:15 a.m. today. The NYSE and Nasdaq said all of their U.S. exchanges will close across every asset class. CME said trading of interest-rate futures and options including Treasuries, Eurodollar and Federal funds products will resume normal trading hours, including remaining open today on both the floor and the Globex platform. The CME’s Nymex floor will be closed with its products available electronically.
Trading on the Chicago Board of Options Exchange and CBOE Futures Exchange will be shut today, said CBOE Holdings Inc. (CBOE) in an e-mailed statement. The exchange operator will issue an update if the shutdown lasts longer.
NYSE Arca, the New York Stock Exchange’s electronic market, will be the primary market for New York-listed stocks in the event NYSE Euronext is unable to open its trading floor or headquarters on Oct. 31, the bourse operator said yesterday. Firms will be able to test their systems on NYSE Arca between 8 a.m. and noon today.
Stock markets haven’t 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 the previous week.
Exchanges from the NYSE and Nasdaq Stock Market to those run by Direct Edge Holdings LLC in Jersey City, New Jersey, and Bats Global Markets Inc. in Lenexa, Kansas, suspended operations. U.S. equity trading is spread across 13 exchanges and dozens of private venues run by brokerages.
“I’m a little surprised that the exchanges couldn’t secure the technology needed to keep the market operating,” Dominic Salvino, a specialist on the CBOE floor for Group One Trading, 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. A snow storm in Chicago wouldn’t shut down trading on the East Coast.”
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 its trading floor at the stock exchange’s headquarters in lower Manhattan and use its Arca exchange, a fully 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 trading of 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 when it couldn’t get its shares to trade on its own exchange.
Investors said it would be important for exchanges to open on Oct. 31 in order for fund managers to buy or sell stocks to adjust holdings by month’s end.
‘Wednesday in Focus’
“Everybody is keeping Wednesday in focus as we come into month-end,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in a telephone interview. His firm oversees $250 billion in assets. “That will have implications for a variety of factors, which is why the exchanges are working behind the scenes to make sure trading regardless of the conditions is open in some form of fashion on Wednesday.”
Sifma recommended trading in dollar-denominated fixed-income securities end at noon. Futures on the Standard & Poor’s 500 Index (SPX) closed down 0.4 percent at 1,402.4 after sliding as much as 0.8 percent during the session.
“Everybody wants to get the markets open,” NYSE Chief Operating Officer Larry Leibowitz said Oct. 28. “We all know how important this is and we take the decision seriously. People expect the markets will be resilient and able to operate. The tenet is that the markets should be open if at all possible.”
The storm, 900 miles across, shut the federal government and state administrations from Virginia to Massachusetts. It halted travel and upended the presidential campaign. It may cause as much as $20 billion in damage, according to Eqecat Inc., a risk-management company. As many as 10 million people may lose power, according to Seth Guikema, a Johns Hopkins University engineer.
Hurricanes haven’t hindered stock gains in the past, according to a study from Standard & Poor’s on the market performance following the 13 costliest storms. The S&P 500 gained an average 3.9 percent three months after the hurricanes and climbed 5.8 percent over the next six months, the study showed.
“History says that hurricanes typically don’t trigger market declines,”Sam Stovall, S&P’s New York-based chief equity strategist, wrote in a note. “Equities are more likely driven by wider-reaching global events than localized natural disasters.”
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