February 7, 2023

DealBook: Bracing for Storm, U.S. Stock Markets to Close

The normally busy trading floor will be empty on Monday.Richard Drew/Associated PressThe normally busy trading floor will be empty on Monday.

12:50 a.m. | Updated

All United States stock and options markets will close on Monday as Hurricane Sandy approaches, reversing course as Wall Street braces for the storm to barrel through the heart of the country’s financial center.

The decision, made late Sunday night, leaves the American stock markets closed for weather conditions for the first time in nearly three decades. The New York Stock Exchange had previously planned on closing only its physical trading floor, while allowing for trading on its Arca electronic exchange. It has now decided to halt all trading.

The Nasdaq and BATS stock markets, which are built on electronic trading, also decided to close. The CME Group, which operates the Nymex commodities exchange, said that it would halt trading on its physical commodities floor and on its electronic stock futures and options exchanges.

The Securities Industry and Financial Markets Association, or Sifma, said in an e-mailed statement that it was calling for bond trading, which is all done electronically, to close at noon Monday, though it left the final decision to member firms.

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The N.Y.S.E. last closed trading for weather reasons in 1985, when Hurricane Gloria lashed the metropolitan area. The opening of trading has been delayed a number of times, including during a blizzard in January 1996. The exchange was closed for three days after the terrorist attacks on Sept. 11, 2001.

Since then, the business has largely moved onto electronic systems that are meant to work without the traditional army of floor specialists barking out orders. Exchanges had hoped that computerized platforms would allow the markets to open without endangering even a smaller number of staffers.

Hurricane Sandy Multimedia

But after day-long discussions with city and state officials, brokerages, the Securities and Exchange Commission, the Federal Reserve Bank of New York and Sifma, the market operators decided to be even more cautious and halt trading for the day, according to a person briefed on the matter.

“We support the consensus of the markets and the regulatory community that the dangerous conditions developing as a result of Hurricane Sandy will make it extremely difficult to ensure the safety of our people and communities, and safety must be our first priority,” the N.Y.S.E. said in a statement late on Sunday.

The decision came late: Nasdaq made its final determination around 10:30 p.m. Sunday night, according to a person briefed on the exchange’s decision.

Under the N.Y.S.E.’s contingency plan, traders would have routed their orders onto the company’s electronic exchange, known as Arca, while electronic options trading will operate normally. Volume was expected to be muted, and the decision over whether to open on Tuesday was to be determined later.

“The building is closed, but the market is open,” Duncan L. Niederauer, the chief executive of NYSE Euronext, said in an interview by phone before the decision to shut all trading was made.

A spokesman for the N.Y.S.E., Robert J. Rendine, said the company’s data center in Mahwah, N.J., which handles all trade orders, is intended to withstand a storm of Hurricane Sandy’s strength. It also has generators and enough fuel to run for almost a week at current levels, with emergency plans in place to procure more fuel if needed, he added.

Since 2007, the N.Y.S.E. has offered a “hybrid” model that allows trades to be completed either by humans or by computers through the Arca system. That gave the exchange a contingency plan that was previously unavailable, Mr. Niederauer said. The company has tested the backup plan regularly, most recently in March.

Many big banks are letting their employees work remotely as well, mindful of the suspensions of major transit systems and school closures.

Goldman Sachs and Citigroup said their major offices in Lower Manhattan — which house the firms’ enormous trading floors — would be closed to all but essential personnel. Some Goldman staff members will be asked to work from special centers in Greenwich, Conn., and Princeton, N.J., though the majority of employees at both firms will be allowed to work from home, according to internal memorandums.

“Citi has contingency plans in place including locations that can be utilized to ensure continuity of operations,” Shannon Bell, a spokeswoman for the firm, said in an e-mail statement. “Citi is committed to providing uninterrupted service to our clients during the storm and seeks to minimize any possible impact.”

JPMorgan Chase plans to close an office in Lower Manhattan that is in a potential flood zone, though its other offices will remain open and ready to run off backup generators if necessary.

Decisions on which Chase retail bank branches would be closed were still being decided on Sunday night, according to a person briefed on the matter. Chase also said it would waive overdraft and late fees for customers in seven states affected by the hurricane, including New York, New Jersey and Connecticut. Ms. Bell of Citi said that the firm’s branches in affected areas would be closed.

Several of these firms plan to run some of their technology and trading operations through offices in Europe and Asia.

Article source: http://dealbook.nytimes.com/2012/10/28/nyse-plans-to-close-its-trading-floor/?partner=rss&emc=rss

Companies Hedge Bets at a Cost to Consumers

The price swings have been eye-popping. In March, cocoa futures plummeted 12 percent in less than a minute and then quickly recovered in a “flash crash” that left traders mystified. Cotton futures have fluctuated so wildly that they flipped market circuit-breakers on about two-thirds of the trading days this year. Last November, sugar futures fell more than 20 percent over two days, their biggest two-day sell-off in at least 17 years, and they often swing more in one day than they used to move in a month.

Arcane to the layman, commodities futures are essential to many businesses, like food manufacturers and fuel suppliers, which use them to help set prices and predict costs for items as varied as corn flakes, blue jeans and mocha lattes. Farmers use them to decide which crops to plant. And they keep the wheels of industry turning smoothly by acting like insurance policies to hedge the risks inherent in buying and selling raw ingredients.

But when prices move erratically, it increases the cost of buying the futures and options that protect companies against such changes. Those added costs find their way to the grocery store and the shopping mall.

Consider home heating oil, for example. Sean Cota, a propane gas and heating oil supplier in Bellows Falls, Vt., signs contracts with customers to supply oil to them during the winter heating season.

Since Mr. Cota typically buys oil only as he needs to supply it, he uses heating oil futures and options as a form of insurance to protect himself against unexpected jumps in prices. Seven or eight years ago, he said, such protection added 2 to 6 cents to each gallon of heating oil he bought. These days, volatile oil prices mean it costs him 37 cents a gallon for such hedging — an extra cost that he expects to add to customers’ heating oil bills, which are already higher because the price of oil has risen sharply in the last year.

“It is affecting my company drastically,” said Mr. Cota, who has been lobbying in Washington for restrictions on financial flows into the commodities markets. “I pass the extra cost on to customers, but sometimes I just have to swallow it.”

Volatility can drive prices down as quickly as it pushes them up. On Thursday, prices for a wide range of commodities plunged, with the broad CRB commodities index closing down 4.9 percent.

Making the situation more confounding for businesses is that commodities have become more volatile for reasons that no one fully understands.

Much of the fluctuation is caused by economic supply and demand. Stockpiles of goods like cotton, corn and coffee are at historically low levels, setting markets on a hair trigger. Demand for many commodities is rising as developing countries like China and India become wealthier and buy ever more food and oil.

But other factors, like investor concerns about a weak dollar, oil disruptions in the Middle East and changing perceptions of the global economy, have also fed rapidly changing prices.

Hedge funds and other speculators have become an increasing force in the commodities futures market, attracted in part by a switch to computerized trading. Critics say the technological switch is altering the dynamics of the commodities markets, just as it has in the stock market, which suffered its own 600-point “flash crash” last May.

The traditional players like grain elevators or cotton merchants are being overshadowed by the new breed of financial speculators, including high-frequency traders, who use automated programs to buy and sell repeatedly at machine-gun speeds.

The exchanges, which profit from the increased trading levels, say high-frequency trading now makes up 10 to 20 percent of the futures trading in many agricultural commodities, nearly a quarter of the trading in metals and 30 percent in energy futures markets.

The roller-coaster ride is also reviving claims that commodity prices are being pushed around by the flood of billions of dollars into futures markets from so-called index funds. These funds have grown in popularity over the last decade, favored by ordinary investors as well as institutions like pension funds and university endowments, all of whom now regard commodities as financial investment assets and important protections against inflation.

A growing body of research into the last commodity price run-up, in 2008, has turned up little evidence that investment futures funds were a primary cause.

Nevertheless, many companies and traders believe that these index investment flows have significantly contributed to commodity price increases.

Whatever the cause, the result has been higher prices for consumers. “It is inevitable the consumer is going to pay more in a riskier, more volatile environment around commodities,” said Troy Alstead, the chief financial officer of Starbucks. The coffee company raised the price of some drinks in its stores last fall and announced an average 12 percent rise in the price of its bagged coffees this spring.

A spokesman for the Commodity Futures Trading Commission said that it was monitoring the markets but that volatility was an expected part of market dynamics.

However, it also has a real cost for many businesses.

In the meat industry, JBS, one of the country’s biggest meat processors, traditionally insured against price swings by buying and selling futures on the Chicago Board of Trade.

Article source: http://www.nytimes.com/2011/05/06/business/economy/06commodities.html?partner=rss&emc=rss