NEW YORK, N.Y. – You can read all about it on social media and newspapers, but you won’t find a trace of it where it really matters: Your next 401(k) statement.
In a dramatic breakdown that once would have sent the market plunging, the world’s most iconic stock exchange, the NYSE, was forced to stop trading for nearly four hours Wednesday. Regulators put out statements. Twitter lit up with conspiracy theories. The president of the United States was briefed.
As for stocks, though, there was barely a ripple.
One reason is that trading in stocks didn’t stop at all. It just shifted from the New York Stock Exchange to other exchanges and trading venues.
“It’s like your neighbourhood grocery store having a power failure,” said Keith Ross, CEO of PDQ Enterprises, which runs a NYSE rival, the PDQ ATS. “You can go to all sorts of other stores that aren’t far away.”
For many ordinary Americans, there was another reason not to worry: Those who own stocks only through mutual funds are not directly affected by intraday outages.
Mutual funds, unlike individual stocks and exchange-traded funds, do not trade during the day. Their prices, which are calculated using the closing prices of stocks in the funds, are set just once every day, at the end of trading.
The NYSE reopened trading at 3:10 p.m. on Wednesday, plenty of time before the 4 p.m. closing.
For much of the 223-year history of the NYSE, a long trading halt could have walloped the market. Investors in big-name stocks used to only be able to trade through the NYSE. They would hand off their orders to a broker, who would turn to a “specialist” on the floor of the stately NYSE building at 11 Wall Street charged with matching buyers and sellers.
In the 1970s, Nasdaq, an electronic exchange, began competing against the NYSE. Later came more exchanges, like ones run by BATS Global Markets, and “dark pools,” or trading platforms that allow customers to buy and sell in large quantities without alerting the broader market.
Now, stocks can be traded at some 60 exchanges and trading venues. Where once nearly all stock trades were done on the NYSE, now it accounts for less than 25 per cent, according to BATS. The competition has forced the NYSE to slash staff, move into electronic trading itself, rent out its iconic building for parties and other events, even sell itself. It is now owned by Intercontinental Exchange, an Atlanta-based company.
The rival exchanges and trading venues that have hurt NYSE’s trading business can also be of help in an emergency, if Wednesday is any measure. In today’s web of trading platforms, when one exchange runs into trouble, trades are simply re-routed to others that are still working smoothly.
The Standard and Poor’s 500 index closed down 1.7 per cent Wednesday, but it was dropping before the NYSE shutdown. Investors were selling because of a plunging Chinese stock market and the Greek debt crisis, not because of the trading halt.
That said, investors shouldn’t be complacent about the risks associated with the computerized, and sometimes fragile, infrastructure of today’s financial markets.
The NYSE holds an auction at the end of trading each day to set the closing prices of hundreds of stocks, which are used to determine the value of mutual funds and other investments. In November 2012, the NYSE had to scramble to come up with an alternative way to calculate prices based on last trades at other trading platforms after a shutdown kept it down through the close.
The near miss on Wednesday doesn’t seem to have rattled investors that much. The stock of Intercontinental Exchange, the owner of NYSE, rose 1.2 per cent on Thursday, more than five times as much as the S&P 500 index.