At 6:30 p.m. on Sunday night, with Hurricane Sandy bearing down on the U.S. East Coast, New York Stock Exchange operator NYSE Euronext had more immediate problems: a revolt from the trading firms that are its lifeblood.
NYSE officials, including global head of sales Christine Sandler, told the firms that while the exchange would shut down its physical trading floor it was planning to open for business on Monday as an electronic-only trading venue for the first time.
But dealers trading shares were skeptical, according to interviews with about a dozen people privy to discussions including senior exchange officials, Wall Street executives, traders and other sources.
The final choice after more than two days of discussions, these sources said, came down to this: whether to use an unproven system to keep the markets open while risking employees' safety, or close for the day and play it safe.
If the NYSE had opened for business its electronic systems may have had to handle more than double the volume it had averaged in recent weeks, a prospect that worried market participants already reeling from a series of embarrassing market snafus this year.
The firms also did not want their employees to have to report to work in the midst of the worst storm to hit New York City since at least 1938, a storm that was forecast to bring flooding, punishing winds and widespread power outages.
"It was, 'Please don't do this. The market is not ready'," one of the sources said.
Late on Sunday night, the NYSE and other exchanges finally decided to close the market on Monday, the first time the Big Board had done so for bad weather since Hurricane Gloria in 1985. While the NYSE took the lead in closing trading in stocks and options, the final decision was collectively taken by all the exchanges, including Nasdaq OMX and CME Group Inc.
In the end, most market participants agreed that NYSE, other exchanges and regulators made the right call, but many on Wall Street still griped about how long it took to reach that decision.
The fact that such a choice took a series of long, complicated discussions signals the enormity of what was at stake. In the event, the storm made landfall on the U.S. East Coast on Monday evening, bringing widespread flooding and extensive power outages to many areas, including Lower Manhattan, home to Wall Street and the exchange.
As the trading closure extends into Tuesday and possibly beyond, analysts estimate that exchanges and banks are losing tens of millions of dollars in revenues every day. Numerous companies have postponed their earnings announcements, and plans of at least six firms to go public have been disrupted.
Late on Monday night, NYSE and Nasdaq said that on Tuesday they would run tests as part of a new contingency plan to see if an electronic-only market could resume equity trading in major names as soon as Wednesday, if the NYSE floor is not reopened.
Overall the storm is likely to cause tens of billions of dollars in economic losses, according to estimates from disaster modeling firms and economists.
NYSE's contingency plan was put in place several months ago in coordination with its member firms, a spokesman said. The concerns that were voiced on Sunday by brokers were largely due to the fact that the hurricane was approaching and New York's subways, buses and other transport were being halted that night.
The firms had already reduced the number of staff who were expected to come into their offices, and that was going to make it difficult to properly monitor the changes required for the new routine, the spokesman said. The concerns were amplified by the risks posed to employees themselves by the storm.
STILL THE BIG BOARD
The weekend discussions are also a symptom of how much stock trading in the United States has changed. When Gloria hit in the 1980s, the New York Stock Exchange was by far the biggest game in town, and could essentially make decisions about the market unilaterally.
Over the past 10 years, however, dozens of alternative exchanges and other trading venues have popped up, taking market share away from the NYSE. That meant the NYSE had to consider if it could afford to be left out if the alternative trading venues that are all electronic were to open for business as usual.
The NYSE remains the largest stock exchange in the United States, however, responsible for more than 25 percent of U.S. equity trading volume, and had the biggest voice in the talks.
All this was playing out against a backdrop of technical problems this year, including Nasdaq's inability to process Facebook Inc orders fast enough when the social media company was going public and Knight Capital Group's near collapse due to a trading glitch that cost it $461 million.
Exchange officials insisted that their decision to shut down the market was ultimately led by concerns about the safety of the financial community.
"This is not the time to be thinking about your own pocketbook, first you think about what is best for the markets," an exchange official said.
The discussions around what to do as the storm approached started as early as Friday, the sources said. But they intensified as the weekend progressed and the storm stayed on course.
Often these discussions were contentious, as participants sought to further their own agendas.
Even within the major Wall Street banks, for example, different business units were sometimes at loggerheads over the best course. Fixed income desks were insisting the markets open, as there was a major U.S. Treasury auction on Monday. But the equities desks were uncomfortable, several participants on the calls said.
By Sunday afternoon, NYSE had held a series of discussions with floor brokers, NYSE employees and city officials, deciding that it should close its floor trading operations and move all NYSE-listed stocks to the electronic venue.
Even that decision was not unanimous. The number of people in favor of keeping the floor open and the number opposed were about even, with some saying the trading floor should never be closed, while others argued that people should not be expected to put themselves in harm's way.
"People worried about the system and making sure there is enough liquidity, but this had more to do with human life and putting people in harm's way," said a trading firm executive who was involved in the discussions. Others noted that both safety and technical questions were big issues for people on the calls.
NYSE's decision to open, which was announced around 4 p.m. on Sunday, was short-lived, as trading firms grappled with their own contingency plans. Moreover, the exchange's back-up plan had not been tested since March 31, a worry after the market snafus of this year.
As the weather reports grew more dire on Sunday night, the Securities Industry and Financial Markets Association, which represents securities firms, banks and asset managers, added to the disagreement, voicing significant concerns about proceeding with trading.
Throughout the weekend, officials from the U.S. Securities and Exchange Commission were also on calls with the exchange operators and other market participants. SEC Chairman Mary Schapiro participated in at least one call with Nasdaq Chief Executive Robert Greifeld. She was also in email contact with NYSE CEO Duncan Niederauer.
The substance of their conversation could not be learned. But sources familiar with the situation said the SEC did not make the decision to shutter the markets and the view presented on the various calls was uniform about the need to close.
By the time Sandler and other NYSE officials got on the 6:30 p.m. call, not only was the New York's transport system about to grind to a halt but a large area of lower Manhattan, edging right up to the boundary of the New York Stock Exchange at 11 Wall Street, faced a mandatory evacuation ordered by Mayor Michael Bloomberg. For the trading firms it was time to speak up.
Some of them, including Goldman Sachs Group Inc, CME's NYMEX, and Citigroup Inc, were squarely in the flood-prone evacuation zone.
At 7:30 p.m., senior NYSE officials, including Niederauer, arranged for yet another call, this time with other industry participants - from rival exchanges to regulators - on the line.
"There was a healthy discussion about what-ifs, and scenarios and any way we could open the market," said an official from a rival exchange.
A consensus quickly formed that the markets may have to close, said executives from three exchanges.
"This is not about, 'hey, you have a floor, you couldn't do it, we're electronic and we could', we are not going to make a competitive issue about it," said one person on the call.
By 10 p.m., Niederauer and SEC Division of Trading & Markets Director Robert Cook, among other market participants, had hammered out the plan to shut down fully.
"Sometimes you have to ask, 'Guys, why are we trying to be heroes here? The risk-reward just doesn't look too good'," said one NYSE official.
At 11 p.m. on Sunday, the exchanges announced the stock and options markets would be closed on Monday. Employees of some firms did not get alerted about the decision until after midnight.
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