Did Wall Street pass the continuity test?
As Wall Street recovers from Hurricane Sandy, the discussion of the exchanges' decisions to shut the market during the storm has heated up.
In addition to former SEC chairman Arthur Levitt, others are starting to raise the possibility that perhaps the decision was not well thought out. Levitt has flat out said the exchanges should have operated in electronic-exchange mode throughout, given that the capability exists. Indeed, the initial plan was to shut the floor and other operations, while leaving Arca up and running. The back up plans, known internally as the "Print as N" plan, calls for members using Arca as the primary market to use the letter 'N' to designate NYSE transactions.
NYSE Euronext officials have responded to the criticism, saying that even if they left Arca up, members of firms were in no position to trade. Some indicated to the Financial Times that they would have had to rewrite some code to take advantage of the NYSE's Arca-based contingency plans.
Some firms had a hard time resuming trading. Knight Capital generated lots of headlines when it announced that it had asked clients to route orders elsewhere as its backup generator temporary failed, forcing the massive market maker to leave lots of commissions on the table. A report from IDC Financial Insights was rather blunt in assessment of Wall Street's performance.
"There is little evidence to suggest that business continuity plans across Wall Street have so far stood up to such [difficult] conditions," it wrote.
IDC believes that because the continuity plans call for the NYSE to operate on all-electronic mode and because those plans were not carried out, the plan essentially failed. But you can hardly fault officials for prioritizing human safety above the need to prove that it can operate Arca as its main trading facility. I believe that it's way too premature to say the continuity effort was a failure and I'm sure that the regulators will take a long look and come up with some interesting conclusions at an appropriate time. -Jim