The fact that the New York Stock Exchange (NYSE) closed for two consecutive days on Monday and Tuesday due to Hurricane Sandy marks the first two-day, weather-related trading suspension in 124 years.
As of this writing, the storm surge from Hurricane Sandy has forced the shutdown of the power plant that serves Lower Manhattan. News reports of two explosions at the power plant may mean that the restoration of power may be further delayed.
This week's two-day NYSE closure for Hurricane Sandy is unprecedented, delivering something we haven't seen since 1888.
Between March 11 and March 14 that year, The Great Blizzard of 1888 raged along the U.S. east coast from Maine to Maryland. Twenty-two inches of snow fell on New York City propelled by 40 mile-per-hour winds.
There were no subways at that time. Roads and rail transportation, even within Manhattan, were paralyzed for days. Pole-mounted telegraph wires were felled by the heavy snow. 200 people froze to death in New York City for lack of coal, which could not be moved through the snowbound streets.
Traders could not get to the floor of the Exchange and downed telegraph wires meant that stock tickers were useless. Prices could not be disseminated beyond the floor of the Exchange except by runners making their way through the clogged streets. Under these conditions, the NYSE closed on Monday and Tuesday March 12-13, 1888.
Snow is the most common cause of weather-related closures on the NYSE but the Exchange has been closed for hurricanes before.
On Monday, August 9, 1976, the NYSE floor closed one hour early due to an approaching hurricane. On Friday, Sept. 27, 1985, the NYSE closed because of Hurricane Gloria.
But there have been other instances in which the NYSE closed.
1914: War Panic Means NYSE Closed
The board of the New York Stock Exchange watched nervously as Europe hurtled toward war in the summer of 1914 following the assassination of Austrian archduke Franz Ferdinand on June 28.
On July 30, Germany mobilized its army in preparation for the invasion of Belgium and France. Even though France did not immediately respond, the NYSE board decided to close the market indefinitely beginning on Friday, July 31, 1914.
It was only on Nov. 28, 1914 that trading in bonds resumed on the NYSE and, even then, there were price restrictions in place. Trading in a limited number of shares was allowed beginning on Dec. 12 and trading in all shares was reopened on Dec. 15 but with price restrictions. Price restrictions on equity trading were finally lifted on April 1, 1915-a full eight months after the NYSE closed its doors in panic the previous summer.
It was quickly recognized that closing the markets during one of the most cataclysmic events in modern history was a huge mistake that should not be repeated. It was resolved that the NYSE should never again close for two consecutive trading days.
This principle has been violated only a handful of times over the past 97 years and it is the main reason why the NYSE is always open for a half day of trading on the Friday after Thanksgiving.
While two-day closures are extremely rare, there has been only one NYSE closure longer than two days since the debacle of 1914.
That was the four-day closure from Tuesday, Sept. 11 through Friday, Sept. 14, 2001, following the terrorist attacks on the World Trade Center.
The NYSE-a five-minute walk from the World Trade Center-was choked with debris from the collapse of the twin towers. In addition, communications were disrupted by damage to a major telephone switching center in the neighborhood and had to be rerouted.
Given the devastation in Lower Manhattan in the wake of the terrorist attacks, it is nothing short of amazing that trading was able to resume as quickly as it did, on the Monday following the attack.
Should the NYSE Be Closed?
Some traders have argued that it is unreasonable to shut down all securities trading just because the NYSE is closed.
This is something new. Electronic marketplaces that did not exist in 1914 and were less developed even in 2001. Electronic exchanges are a viable alternative to the traditional floor. But they raise many deep questions of fairness or even something as basic as the definition of a marketplace.
For now, the authorities are uncomfortable with the idea of having the electronic exchanges go it alone. The next time Mother Nature threatens NYSE trading, the Exchange may have to fight to prove that its trading floor is still relevant.
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