Hurricane Sandy Knocks Out the Markets

Hurricane Sandy has forced the United States equity markets to close. The Securities and Exchange Commission reached an agreement with exchange regulators on Sunday night to close both the trading floor and electronic trading. Parts of New York City face mandatory evacuation and public transit is down, making it prohibitively difficult for traders and technicians to reach the floor. The decision was made to close electronic trading as well because of the massive complications involved with a partial closure.

According to the Wall Street Journal, SEC spokesman John Nester sent out an email saying, “The U.S. equity markets will not be open on Monday because of the impending storm. The decision was made by the markets and market participants after careful consideration in consultation with the SEC.”

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The NYSE issued a statement confirming the SEC’s choice. “We support the consensus of the markets and the regulatory community that the dangerous conditions developing as a result of Hurricane Sandy will make it extremely difficult to ensure the safety of our people and communities, and safety must be our first priority.”

So far, closure is only confirmed for Monday. It is unlikely that a decision will be made about whether or not the markets are open on Tuesday until Monday night.

A number of concerns played into the decision to close the markets. Among them, major market participants wouldn’t have enough time to adjust trade-routing programs, and engineers wouldn’t be have time to sufficiently test any changes that were made. A partial closure would have marked the first instance of all-electronic trading, a scenario for which exchanges and traders were not totally prepared.

The Securities Industry and Financial Markets Association suggested that the U.S. bond market close at noon. According to Bloomberg Businessweek, the recommendation applies to “government securities, mortgage and asset-backed debt, over-the-counter investment grade and high-yield corporate bonds, municipal bonds and secondary money market trading in bankers’ acceptances, commercial paper, and Yankee and Euro certificates of deposit.”

Stock futures were slightly down on Monday morning, but trading will close like normal in the morning. Futures for the Dow Jones Industrial Average (NYSEARCA:DIA) dropped as much as 69 points, or 0.53 percent, to 12,985. S&P 500 (NYSEARCA:SPY) futures dropped as much as  6.3 points. or 0.45 percent to 1,401.30. Nasdaq (NASDAQ:QQEW) futures dropped as much as 18.75 points, or 0.71 percent, points to 2,640.

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