NYSE Closed: First Two-Day Weather Shutdown Since 1888 Tests Trading Floor

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.

Related Articles and News:

• Money Morning:
  Hurricane Sandy Closed Markets, Postponed Earnings
• Money Morning:
  Investors Who Own Japanese Stocks are About to Get a Nasty Surprise