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The coronavirus strikes Wall Street again.
On Monday, March 23, New York Stock Exchange (NYSE) will close its trading floor indefinitely, with traders and market makers working remotely as concerns of contagion continue to disrupt every facet of the financial markets.
It will mark the first time the NYSE has closed the floor on the same day markets are open since it first had a formalized place to buy and sell shares in 1871. The current NYSE floor opened on Apr. 22, 1903.
Physical meetings of traders go back even further—since the Buttonwood Agreement of May 17, 1792, which established what would become the current exchange. The floor has closed dozens of times for extraordinary situations like extreme weather or war—as did the markets themselves on those days.
“The trading floor is an important part of not only our business but the overall financial marketplace,” said John Tuttle, NYSE vice chairman and chief commercial officer.
Typically, about 500 people work the trading floor on a normal day. They include traders as well as designated market makers, or DMMs, who must continuously be willing to buy and sell shares, which helps provide liquidity in stocks and facilitates overall trading. All trading happens eventually on electronic systems, but particularly large or complicated orders—20% of total NYSE volume—involves traders or DMMs.
All DMMs will work remotely while the floor is closed during the coronavirus disruption. Many, if not most other traders, working for various banks and brokerages, who usually appear on the floor, will likely do the same.
The NYSE will still conduct be able to conduct IPOs while the floor is closed. Currently the exchange shows no expected deals.
The broadcast of the opening and closing bells will continue, although the floor will be closed to media. Should the floor closure be a prolonged one, any companies with a schedule IPO on the exchange could still have the opportunity to have the event-listing highlighted, whether physically at NYSE’s headquarters or in some other way.
“We firmly believe, and the data supports, that human beings interacting with increasingly sophisticated technology leads to optimum outcomes,” Tuttle added.
But any reopening will depend on progress in combating the COVID-19 pandemic. With more than 4,400 confirmed cases of coronavirus in New York City as of Friday morning, mayor Bill De Blasio and governor Andrew Cuomo have been calling for more extreme measures to limit the movement of people. For many people working closely with the markets, that means working from home. The NYSE owner, Intercontinental Exchange (ICE), announced the temporary closure this week after two people who work at the exchange tested positive for coronavirus.
“We’ll continue to monitor it, and make a decision to reopen the floor when we believe it makes sense for the overall marketplace and the health and the well-being of market stakeholders,” he said.
Investors will hardly notice
For many investors, especially typical individual ones, the change will be invisible. “Their orders are getting executed electronically,” said Reena Aggarwal, professor of finance and director of the Georgetown Center for Financial Markets and Policy at Georgetown University. “When I’ve gone to the exchange floor, it looks pretty empty,” she added. “More of the [physical activity] is all of the media presence there.”
And the tech is all in working order.
“We’ve [collectively] spent millions and millions of dollars on building out business continuity plans, business redundancy, remote communications,” said Joe Wald, CEO and co-founder of Clearpool Group, a provider of electronic trading solutions and independent agency broker-dealer.
Having a trading floor is unusual in modern global finance. Nasdaq never had one, being fully electronic from its beginning. ICE, the parent of the NYSE, operates a dozen exchanges around the world. Only the NYSE has a trading floor.
But with all the investment over the years in technology and business continuity plans, there are some regulatory complications when traders work from home.
On its end, NYSE Regulation, the exchange’s compliance arm, already monitors activities in equities, options, and bonds markets and that function will continue when electronic trading is initiated under this temporary arrangement. And trading companies routinely monitor the activity of its employees to document trading, as required by regulations.
However, the work-from-home arrangement could throw up new operational challenges.
“One of the things is monitoring the communications, looking at the phone calls and chats and emails,” said Chris Wooten, executive vice president of NICE Actimize, which develops trading regulatory compliance systems. While the technology exists to do so for anyone at a remote location, some corporations are not yet set to do so as thoroughly for traders working at home with their own computers and phones.
And so, even if remote-trading proves to be business as usual in the days (and possibly weeks) to come, it will also likely serve as a learning experience for a Wall Street institution with 19th century roots.
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