Major U.S. stock exchanges expect to open on Wednesday after Hurricane Sandy, the worst storm to hit New York in nearly 75 years, shut down trading for two days.
NYSE Euronext said the New York Stock Exchange would open, although it would switch to fully electronic trading if necessary. Nasdaq OMX's Nasdaq Stock Market will be operating on Wednesday as well, and BATS Exchanges will be open as well.
"We are shooting hard to open tomorrow and fully expect to do so, but lots of firms are going to have either connectivity problems, or other things, so we are urging all firms to get out there and test their back-up," NYSE Euronext chief operating officer Larry Leibowitz said in an interview.
U.S. exchanges, banks, brokers and others conferred for hours on Tuesday about the feasibility of resuming trade after exchanges closed because of bad weather for the first time in 27 years.
Lower Manhattan, where Wall Street and the NYSE are located, lost power on Monday after being buffeted by Sandy, the worst storm to hit New York since at least 1938.
The NYSE has opened in adverse circumstances in the past, including the Monday after Hurricane Irene in August of last year, and on Sept. 17, 2001, six days after the 9/11 attacks.
The NYSE, which accounts for about a quarter of U.S. stock market trading volume, is testing the possibility of routing trades through its electronic platform, Mr. Leibowitz said. Under normal conditions it handles about half its volume through its trading floor at 11 Wall St., where traders and specialists buy and sell stocks in person.
"Tomorrow will not be without hiccups, but will be good enough that the market will be fine," he said.
The NYSE had said on Sunday afternoon it planned to close its trading floor and to move all trading to its electronic market. It backtracked on that idea after traders and regulators expressed concern – given the difficulties and low staffing levels due to the storm – about moving everything to the all-electronic venue, a plan tested on March 31 but never used live.
An industry-wide testing session was held in the morning, and rival exchange Nasdaq also conducted its own tests.
Bond markets were also closed on Tuesday, with traders aiming to reopen on Wednesday.
September 2001 was the last extended period of time that saw the exchanges close, as the exchange closed on Sept. 11 following the World Trade Center attacks, and opened on Sept. 17, the Monday following the event.
"It would be unprecedented to have three days of closure from a weather-related emergency, and the greater point is that American markets do not want to be perceived as anything other than reliable," said Mike Shea, managing partner and trader at Direct Access Partners LLC in New York.
"That's really the issue. An emergency like Sept. 11 was different."
Kenneth Polcari, long-time floor trader at the NYSE, said he was still waiting to hear how the exchange would get the direct market-makers, that is, the specialists who facilitate buy and sell orders, to the floor.
"If they aren't there and they still trade, then there is no reason for them to have those guys at all," he said.
Plans to resume trading will be complicated by the lingering effect of the storm on New York. Sandy brought a record storm surge that flooded subway tunnels. The city's subway service is not likely to resume for four to five days, Mayor Michael Bloomberg said on Tuesday.
JPMorgan Chase & Co, the largest U.S. bank, expects many employees will be able to return to buildings starting on Wednesday, according to an internal memo obtained by Reuters.
One of Citigroup's main investment banking buildings at 388 Greenwich St. in Manhattan had minor flooding, and is without power, an internal memo said. The building sits by the Hudson River. A smaller Citigroup building by the Hudson River is running on a generator. The bank expects both to be accessible within two days.
Goldman Sachs Group Inc.'s offices in Lower Manhattan and Jersey City, New Jersey, on opposite sides of the Hudson River, were not open on Tuesday and by early afternoon the bank was still not sure whether they would open on Wednesday. Neither sustained flooding or significant damage to the exterior. Photographs taken of the Lower Manhattan skyline on Monday evening showed Goldman's building as the only one lit up in the area, evidently with power from a generator.
Morgan Stanley, whose headquarters is in the less-affected Times Square area, said it expects to be open for business and functioning when U.S. markets open, though it stressed that employees should keep safety their No. 1 priority.
Both banks had other offices open for employees to work from outside New York City through the hurricane, as well as remote access for many of their staff.
When markets do open Wednesday, it could come with a burst of volatility after a two-day shutdown. Undoubtedly some investors will try to game out what sectors and stocks will be helped or hindered by the storm, but the broader economic effect should be limited.
Brian Gendreau, market strategist with Cetera Financial Group, said that markets tend to rebound to their previous levels within five days after natural disasters. The exception to that rule was the Japan tsunami, which devastated the global supply chain. Hurricane Sandy will not have anything near the same impact, he said.
"The U.S. is a very big economy, and while the magnitude of this storm could be in the billions it's actually very small in relation to GDP," he said.
Because Wednesday is also Oct. 31, the end of the fiscal year for some mutual funds, there could be some volatility in markets as a result of mutual funds selling underperformers by the end of trading on that day in order to avoid taxes on some of their portfolio gains.
Eric Marshall, who co-manages five mutual funds at Hodges Capital in Dallas, said that his firm is moving all of the selling it planned to do Monday and Tuesday to Wednesday instead.
"This is going to drive volatility on top of what we're already expecting from the aftermath of the storm," he said.
Compounding the issue, Sandy arrived in the middle of the corporate earnings season. While some companies, including Pfizer Inc., delayed their results until the storm passed, others released theirs on schedule.
Still, most investors said the effect would be minimal, even though there was little precedent for this kind of event. Jeff Tjornehoj, head of Lipper Americas Research, a Thomson Reuters company, said most managers probably would have handled a lot of their year-end portfolio rejiggering earlier in October.
However, that's not to say the market would not be somewhat challenging, even the fixed income market, he said. Specifically, bond fund investors who may be expecting monthly distributions might not get them if bond fund managers can't trade on Wednesday. Some funds could end up skipping distributions, Mr. Tjornehoj said.