The reputation of the New York Stock Exchange will suffer after it failed to have a backup facility to deal with Hurricane Sandy, said Arthur Levitt, former chairman of the U.S. Securities & Exchange Commission.
“People look to the New York Stock Exchange 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 Tuesday. “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.”
NYSE Euronext closed markets across every asset class Tuesday and Monday, the first consecutive days because of weather since 1888, as the storm barreled into New York City. Nasdaq OMX Group Inc. also shut down. NYSE Euronext said it will test a contingency plan in case its headquarters or trading floor are unable to open Wednesday.
“Mr. Levitt is appallingly and irresponsibly wrong,” said Robert Rendine, a spokesman for NYSE Euronext. “Our back-up plan to trade on a fully electronic basis was ready to be implemented.”
“However, given the impending storm, it was increasingly clear that it would be extremely difficult to ensure the safety of our respective employees, and the entire industry decided it was best to close the markets,” he said in an e-mailed statement.
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. New York time that night that all markets would be shut on Oct. 29.
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.
“If you’re going to have a stock exchange, it should have a backup facility of some sort so that regional events don’t cause its closure,” said Levitt, who is a Bloomberg LP board member and an adviser to Goldman Sachs Group Inc. “This should not happen to the world’s most prominent exchange.”
Exchanges are planning to reopen Oct. 31, weather permitting, according to statements from NYSE Euronext and Nasdaq OMX. 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.
The storm came ashore at about 8 p.m. Monday in southern New Jersey and drove floodwaters to life-threatening levels in regions with 60 million residents. Power was lost in Manhattan “river to river,” south of 35th Street, though some of the blackout was deliberate, as Consolidated Edison Co. shut off electricity to protect its underground equipment from potential damage. NYSE’s building is located at 11 Wall Street in lower Manhattan.
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