The facts are in. NYSE Euronext’s backup plan was not ready when it was needed. So what will happen next time?
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Hurricane Sandy will certainly not be the last emergency situation the NYSE/NYSE Euronext ever faces. This time, the backup plan it thought it had in place was too cumbersome and uncertain to employ.
Under Rule 49, approved by the SEC in December of 2009, the NYSE can declare an emergency condition and designate its Arca electronic trading platform as the alternative to its physical floor. Arca can function for 10 days as an alternative to the exchange.
The Rule mandates that, in the case of an emergency, the NYSE switch to Arca as soon as possible but not sooner than the next trading day.
Arca is what used to be known as Archipelago and was purchased by the exchange in 2006. A second data center that runs out of Chicago was purchased at the same time and is designed to be a backup to the NYSE’s main data center in Mahwah, NJ.
Former SEC chair Arthur Levitt and Chris Nagy, founder of KOR Trading LLC had criticized the lack of backup provisions. They acknowledged the need to consider the needs of NYSE employees but also found it inexcusable that contingency plans had not included plans to
operate without staff in New York.
The issues is that so much is involved in a formal switchover in a contingency plan for a large corporation that it’s hard to test effectiveness beforehand. The person needed to make the switch may not be there and it’s difficult to figure out what to do in the middle of a storm.
Levitt criticized the exchange for not having a remote facility as a backup operation and Nagy actively criticized on his Twitter feed what he felt was a lack of ample backup provisions and planning.