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Lasting Lessons Learned From Storm Sandy


Hurricane Sandy disrupted financial markets in a way not seen since 1888, when a blizzard dumped 40 to 50 inches of snow across the tri-state area, forcing the New York Stock Exchange to close for two days that March.

This time around, three exchanges operated by NYSE Euronext, three by Nasdaq OMX Group, two from BATS Global Markets, two from Direct Edge and more all closed, for the safety of their employees. The Trade Reporting Facility operated by Nasdaq and the Financial Industry Regulatory Authority also closed on October 29 and 30.

FINRA worked alongside the NYSE and NASDAQ in making the decision to close because of its role in tracking over-the-counter trades and quotes in equities and fixed income securities, said FINRA's chief legal officer, Robert Colby. And, subsequently, decided to also allow industry members whose operations were harmed by the storm to delay filing a variety of required reports.

"There're a number of regulatory requirements with deadlines and we have formally provided relief for people to comply with those because of the difficulties arising from the storm," said Colby, in an online discussion of Sandy's impact sponsored by the Investment Company Institute.

In fact, FINRA is extending deadlines for completion of continuing-education requirements and qualifications examinations for registered representatives who reside in the areas that have been declared disaster areas by the federal or state governments. Reps who have an examination or a continuing-education window that expired between Oct. 29 and Nov. 9 now have had their windows extended to Dec. 10.

Kathleen Joaquin, chief industry operations officer at the ICI, noted that every market disruption event is different, contrasting the storm to the terrorist events of 9/11. As storm-related events began to unfold, establishing regular communication with industry participants to ensure a smooth transition upon the markets reopening was critical, she said.

"For our fund complexes, a high priority at the ICI was to contact members whose facilities were affected by Sandy, to confirm whether their disaster plan had been activated and to confirm their abilities to service investors with their intermediaries upon the markets reopening,'' she said.

"We also reached out to the major pricing vendors and to the custodians that are key to fund pricing processes to establish their impact, and were able to confirm their ability to support mutual fund pricing processes upon the opening of the markets."

But just how did funds fare in light of the national stock exchanges closing?

Matt Lyons, Global Trading Manager, Capital Research and Management Company, said the entire episode was "very seamless" for his firm. "Our communication was great and we were able to access all of the markets," he said. "The question for me is what would've happened if this were to happen at month end? There seems to be some hedging by some of the exchanges in terms of thank God it wasn't. And the other problem is what would've happened if this was in conjunction with a major macro event such as a bankruptcy overseas and the volatility associated with that?"

Brett Redfearn, Global Head of Liquidity, J.P. Morgan Securities, said that while the industry worked very well together to close the markets, there are some things he thinks that could be improved on.

"I would say that, to a certain extent, we put the cart before the horse a little bit because we started asking questions about the disaster relief plan, before we asked the basic question about whether we should open at all. That may have been what led to some of the confusion in the press about what this decision was really about," he said.

Redfearn also noted that the process to close the markets could have been truncated. "Instead of having a dozen calls over five hours, maybe [have] two calls over one hour." However, he agreed wholeheartedly with the decision to close the markets because "thinking about moving that many people into New York on Monday afternoon when Superstorm Sandy was raging at the city and the region,'' was extremely foreboding.

Joseph Cavatoni, Managing Director Capital Markets, Americas, for BlackRock iShares funds, added that because his firm's listings in the U.S. are its lion share in terms of assets under management, iShares was constant dialogue with market participants and didn't have any issues.

"Obviously, each venue has a unique style in terms of engaging in market making. We have our own contingency plans that we are constantly keeping up to date and monitoring," he said.


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