Market Extra: The NYSE, a symbol of America, is fighting to keeping its trading floor open amid coronavirus pandemic
Joe Gawronski said concerns about the coronavirus outbreak really hit home on March 13.
“Our attitude has changed markedly since Friday,” he said of his family’s reaction to the viral outbreak of COVID-19.
The president of New York brokerage firm Rosenblatt Securities lives in Summit, N.J., a suburb a little more than 20 miles west of the New York Stock Exchange in Manhattan, and his children’s school district announced on March 12 that it would be closing until at least April 6 as more than two dozen confirmed cases of the viral pandemic cropped up in the Garden State.
Gawronski said things didn’t change much immediately after the school closure; he allowed his kids to have a sleepover on Friday, but over the past few days things changed starkly.
“There were no play dates, no parks…by yesterday my kids aren’t going out all,” he said
That may be why, Gawronski, one of the head honchos at the NYSE’s largest floor traders, harbors some ambivalence about the exchange keeping its trading floors open during the pandemic that has spread rapidly across the globe, causing New York City to consider drastic measures to contain the deadly pathogen.
“It’s a tough call,” Gawronski said of keeping the exchange staffed with scores of traders amid the epidemic.
The NYSE officials have been adamant about the need for the exchange to remain open and to maintain a staff of flesh-and-blood traders on the floor even as the New York City Mayor Bill de Blasio hinted on Tuesday at the possibility of tighter restrictions on the movement of the city’s residents to mitigate the contagion, which has infected about 200,000 people worldwide and claimed nearly 8,000 lives, according to data compiled by Johns Hopkins University.
The spread of the disease is in its nascence in the U.S. and in New York, where 13 people have died, and measures are being undertaken to prevent overrunning public health facilities by those who been sickened.
New York Gov. Andrew Cuomo on Tuesday warned that the outbreak could peak over the next 45 days and the roughly 53,000 hospital beds in New York state won’t be sufficient for the tens of thousands who will likely fall ill and possibly die.
A number of other exchanges have indefinitely closed their trading floors and reverted to electronic dealings as a precaution amid the outbreak, including the CME Group Inc.
, owner of the Chicago Mercantile Exchange and the Chicago Board of Trade. Cboe Global Markets
also has temporarily closed its trading floor, as has the London Metal Exchange, according to Financial News.
On top of that, a number of major rivals have called out the NYSE for keeping its trading floor open, according to the Wall Street Journal. “I find it kind of amazing that the NYSE trading floor is still open,” Terrence Duffy, chief executive of Chicago futures-exchange giant CME told the publication. “I thought we were not supposed to have 50 people or more in one location.”
Most trading at those firms occur electronically, so having traders on hand isn’t critical to their operations.
Stacey Cunningham, NYSE Group president, has seemingly been locked in a battle on twin fronts, with some advocating for trading-floor closures, while others have floated the notion of a marketwide closure, which she has adamantly resisted. The Journal reported that several executives raised the possibility of a shutdown for financial markets during a conference call with Bank of England Gov. Andrew Bailey. However, they concluded such a closure wouldn’t be helpful, the paper reported.
“There’s a very big difference between closing the floor and closing the markets overall,” Cunningham told CNBC during a Monday interview after the Dow Jones Industrial Average
and the S&P 500 index
put in their worst daily drops since the 1987 crash.
“We could close the floor and continue with the market open and continue trading,” Cunningham said.
She said, however, that physical traders have a vital role to play in smoothing out volatility that has reared up on Wall Street.
“Our model leads to trading with less volatility,” Cunningham told the business network. “So right now the people on the floor are proud to come in and provide that service of dampening volatility around the edges.”
The NYSE has taken a number of measures intended to prevent the spread of the virus, including restrictions on outside visitors, temperature checks of people coming onto the floor and on-site testing of personnel for COVID-19, if screening necessitates.
It’s not clear that those measures are enough to help limit the spread of the illness.
“It may be time for the NYSE to revisit the decision,” James Angel, professor at Georgetown University and an expert in market structure, told MarketWatch about the trading floor remaining open, in an interview on Sunday.
“I’m not a public health expert, I’m a market structure expert. But maybe we need to see the exchange take this [illness] more seriously because the NYSE has the capability to run without the floor,” he said.
Cunningham declined to be interviewed for this article, but through a spokeswoman said “members of the NYSE trading-floor community choose to come into the exchange because they believe in our mission to serve issuers and investors during all market conditions.”
“To keep the market open and safe, the NYSE has worked closely with local, state and federal authorities to develop and implement an extraordinary set of protocols, which include social distancing, deep cleaning, travel screening, mandatory temperature checks and symptom scans, for everyone entering our building.”
Jonathan Corpina, senior managing partner at Meridian Equity Partners and a NYSE member firm, said he’s content with the measures the exchange has taken to protect traders, including a deep cleaning of the trading floors and work areas, which took place over the weekend.
“The measures and precautions are the right steps,” he said. “If I didn’t feel comfortable with that I wouldn’t be there,” said Corpina who commutes to work from Armonk, N.Y., about 40 miles northeast of the NYSE.
Gawronski said he doesn’t work on the floor directly any more, but that floor traders are a patriotic, duty-bound bunch who feel as if they have a responsibility to stay on the front lines as markets reel.
The legacy of endurance and patriotism for traders can be traced back to 1792, when what would come to be the NYSE was founded, and 1817, when the New York Stock Exchange Board was formed.
In 1918, America and the world was under siege by another pandemic, the Spanish influenza, which infected roughly a third of the world’s population, killing 50 million to 100 million people, according to reports.
Gawronski points out that the NYSE didn’t close 100 years ago amid the worst outbreak in the modern era.
“They have to balance the health and safety of not only the people who work there, but broader social responsibility,” he said of the NYSE now.
Gawronski said, however, that the human component of NYSE floor traders has been viewed as important. That is particularly the case near the close of marketwide trading. Only NYSE floor traders can use so-called D-orders, or D-qotes, a special order type outside of buy, sell or limit orders, that can help traders resolve imbalances during the final minutes of the trading day, which can represent as much as 6% of NYSE-listed volume.
“Market quality benefits in a time of extreme volatility…but that doesn’t mean that I’m right that exchanges should stay open,” he said.
A recent research note from J.P. Morgan & Chase Co. published on March 16 makes the case that reverting to all-electronic trade by the Cboe has hurt its options trading volume in S&P 500 and those for the volatility gauge known as the VIX
in the near term. However, the researchers, including Kenneth Worthington, Jenny Ni, and William Cuddy, forecast that there will be benefits over the longer term.
“Despite near-term challenges and more tepid volumes versus recent weeks, we see the migration longer term to electronic trading of SPX and VIX as positive for CBOE trading and earnings growth,” the analysts wrote.
For its part, the NYSE has been testing its all-electronic contingency plan for weeks, according to Wall Street Journal. The last time the floor brokers weren’t present at the exchange was during superstorm Sandy in 2012, when flooding knocked the entire exchange offline for a period.
Gawronski speculates that it is possible that time could come sooner because events are evolving so rapidly.
“I wouldn’t be surprised at some point to see this exchange shut,” he said.
“It’s a balance and it’s changing constantly.”