The NYSE says it is prepared for full remote trading if it is forced to close
As the spread of the coronavirus causes global economies to effectively hunker down, causing the cancellation of travel, live events, public gatherings, and more, questions about whether global stock exchanges will also have to close are becoming more prevalent. Given that most stock exchanges are almost entirely electronic today with trades conducted through computers and hand-held devices via market makers, the closing of a physical exchange like the New York Stock Exchange, presents less of a challenge than it did a decade ago.
Still, the NYSE, which is owned by ICE (The Intercontinental Exchange), has a plan to continue operations even if its iconic trading floor on 11 Wall Street in downtown New York City is forced to close. «The NYSE is carefully monitoring the spread of COVID-19 and has robust contingency plans, regularly tested, to enable continuous operation of the NYSE exchanges should any facilities be impacted,» said a spokesperson.
According to Reuters1 , which obtained an internal NYSE memo, the Exchange has already taken steps to mitigate the potential spread of COVID-19 (coronavirus). Those include mandating separate entrances and eating spaces for floor traders and staff, keeping non-working visitors to a minimum, and thorough cleanings of the facility.
The continuity plan, should the Exchange close its physical doors, is outlined in a recent memo to NYSE Traders.2 Here are some of the critical components:
- Designated Market Makers will execute auctions electronically
- If they are unable, the NYSE will execute on their behalf
- No IPOs or Direct Listings during the physical closure of the Exchange
- The electronic exchanges also owned by ICE—NYSE American, NYSE Arca, NYSE Chicago, and NYSE National—will operate normally in the event 11 Wall Street facilities are unavailable
The last time3 the floor of the NYSE was forced to close was when superstorm Sandy flooded lower Manhattan in 2012. At that time, the NYSE planned to shut the exchange for two days in anticipation of the event. According to the NYSE, the Exchange most recently tested its ability to have market makers oversee stock auctions by connecting to the NYSE’s systems remotely on March 7, 2020. It has never been attempted during normal market operations.
The NYSE has closed several times over the years, notably, for four months following the outbreak of World War I in 1914, following the death of President John F. Kennedy in November 1963, and for four days immediately after the 9/11 attacks.
While the NYSE has far fewer traders and market makers on the floor than it did a decade or more ago, the Exchange says human beings are still a key component of its operations. On its website, the NYSE says,
«Though all of our markets operate electronically using cutting edge, ultrafast technology, we believe nothing can take the place of human judgment and accountability. It’s this human connection that helps ensure our strength, creating orderly opens and closes, lower volatility, deeper liquidity, and improved prices. For over 200 years, we’ve maintained a steadfast commitment to stronger, more orderly financial markets. And we intend to keep that tradition going for the next 200.»
Those «humans» perform the following functions at the Exchange, according to the NYSE:
Designated Market Makers
Formerly known as «Specialists,» DMMs have obligations for maintaining fair and orderly markets for their assigned securities. They operate both manually and electronically to facilitate price discovery during market openings, closings, and during periods of substantial trading imbalances or instability.
Floor brokers are employees of member firms who execute trades on the exchange floor on behalf of the firm’s clients. They act as agents, buying and selling stock for the public (institutions, hedge funds, broker/dealers). Floor brokers are physically present on the trading floor and are active participants during NYSE’s opening and closing auctions, as well as throughout the trading day.
The CME, which is based in Chicago, recently announced it will close its physical exchange as of today but will continue to trade products electronically until further notice.