On Sunday evening, news came out that the financial exchanges would not open on Monday for trading thanks to Hurricane Sandy. The possibility of a Tuesday close was also discussed and it soon became a reality.
As exchanges prepared for Wednesday’s open, questions began to arise whether they would be ready to go.?
According to the New York Times, the?New York Stock Exchange and Nasdaq said their systems were good to go on Tuesday afternoon but some firms that trade on the exchanges were undergoing problems after the storm.?
This included connectivity problems that arose after trial runs had been conducted between the exchanges and firms thanks to damaged data centers, said Larry Leibowitz, the chief operating officer of the NYSE Euronext. ?
During this challenging time, SIFMA jumped in and advised the exchanges and firms, holding one call with hundreds of?regulators, exchange executives, traders and New York City officials, reported the New York Times.
But you have to ask, What about all those business continuity plans??
After the 2001 attacks, regulators now require financial firms, exchanges, banks–to name a few–to have backup plans or as they’re fondly known, business continuity plans, prepared and ready to enact should trading disruptions such as storms, terrorist attacks and yes, even pandemics take place.
Some market professionals became critical of the two-day closing from the storm. Had business continuity failed??
Chris Nagy, president of KOR Trading, said to the New York Times, ?The whole process was designed so that the exchanges would never have to close again like this.?
On Tuesday, regulators said they would review whether more needed to be done to have exchanges and trading firms be prepared for disasters, reported the Wall Street Journal.?
Beginning on Sunday, the two groups were in conflict about opening on Monday. NYSE Euronext said it would have its trading floor closed but open in electronic trading–a first. But banks and firms said they hadn’t conducted the proper testing for this type of trading and expressed concern about bringing in workers to do so as the hurricane was approaching.?
Jamie Selway, an ITG managing director and a participant on calls with NYSE, said of the the exchange’s plan (referred to as Print as N) to the Wall Street Journal, “The comfort level wasn’t there. People either didn’t understand it or trust it.”
And we all know how the story ended: two days of closures.?
Nagy commented via the Wall Street Journal, “The whole saga has demonstrated just how little the exchanges have prepared for a natural, pandemic or terrorist threat since 9/11. This is another in a long line of examples of exchange failures and an exercise in losing consumer confidence.”
On Wednesday, the markets opened with few problems. One exception was Knight Trading.
After dodging the bankruptcy bullet in August, the firm stopped equities trading on Wednesday after its backup power did not work from its Jersey City, New Jersey headquarters.?
According to Bloomberg, the firm did not accept new stock trades along with the cessation of its client business for its institutional sales and trading unit and market-making group for all exchange-listed, over-the-counter stocks and options.
This news came from Knight spokeswoman Kara Fitzsimmons.?
No other reports have come out on firms’ problems but this incident will likely add to regulators’ reviews of alleged business continuity plans that are to be put in place for these types of events.?