NYSE Considering Changes to Disaster Recovery Model
NYSE Euronext (NYX), owner of the largest U.S. equities exchange, is considering ways to improve its plan for dealing with disasters and said exchanges should consider mandatory testing after Hurricane Sandy caused the longest weather shutdown since 1888.
The exchange industry should weigh whether regular testing of connectivity and backup facilities should be mandatory, according to comments NYSE Euronext e-mailed today in response to questions from a U.S. Senate committee concerning computerized trading venues.
Trading was halted for two days at the end of October when concerns about human safety and how well the New York Stock Exchange’s backup plan would work convinced executives that moving ahead was too risky. The Securities and Exchange Commission may consider whether exchanges’ emergency regimens need to be bolstered, a person familiar with the regulator’s thinking said in November. The person asked not to be named because the matter is private.
“There are several lessons to be learned from this event,” NYSE Euronext said. “At a minimum, businesses learned the importance of a well-prepared and tested business continuity plan. At NYSE Euronext, we are actively considering changes to our current disaster recovery model.”
NYSE also responded to December testimony to a Senate subcommittee from Dan Mathisson, head of U.S. equity trading for Credit Suisse Group AG, saying some of his statements were false or misleading. Credit Suisse operates the world’s largest dark pool, called Crossfinder.
NYSE said trading volume has shifted to off-exchange venues, disputing Credit Suisse’s claim that it hasn’t. The exchange also said Credit Suisse’s statement that self- regulatory organizations are afforded “absolute immunity” from liability for damages is “flatly inaccurate.”
Trading away from exchanges and the biggest electronic communication networks, or ECNs, was about 33 percent in October, compared with 16 percent in early 2008, according to data compiled by Rosenblatt Securities Inc. While dark pools, which don’t display orders publicly, accounted for less than half the off-exchange volume, their share has increased about threefold since the first quarter of 2008, the data show.
NYSE, Nasdaq Stock Market and other public venues compete with dark pools and brokers for trading volume. The CEOs of NYSE Euronext and Nasdaq OMX (NDAQ) Group Inc., both based in New York, have argued for several years that different regulatory regimes for dark pools and exchanges create an unlevel playing field.
Credit Suisse’s Mathisson told members of the subcommittee that the market-data revenue of about $400 million a year the exchanges and the Financial Industry Regulatory Authority get is a “government-granted windfall” that far exceeds the regulatory expenses it’s supposed to offset.
NYSE Euronext said in its response to the committee that brokers receive about $50 million to $60 million in tape revenue from the Consolidated Tape Association and Credit Suisse is inappropriately using an SEC concept release from 1999 for the basis of determining the proportion of benefits to exchanges.
Katherine Herring, a spokeswoman for Credit Suisse, declined to comment on NYSE’s statement.
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