At 9:30 a.m. on September 17, a bell was rung on the floor of the New York Stock Exchange, and trading resumed as it has for 209 years.
That bell meant more to us than business as usual.
It sounded out our deepest thanks for the bravery and sacrifice of so many who unhesitatingly came forward to give so much in this difficult time. It rang out our heartfelt prayers for those we have lost, their families, and loved ones. It steeled our collective determination to never let cowardice, intolerance, and evil sway this great and free society from its strong and sure course toward a better tomorrow.
We move forward, stronger in spirit and purpose, knowing that history has proved the ability of our financial system to survive the darkest challenges time and again. We vow to do our utmost to preserve the bedrock foundations of worldwide prosperity and well-being. And we will sound that bell again and again.
And let freedom ring.
-- New York Stock Exchange, Sept. 17, 2001
In the aftermath of Sept. 11, 2001, the nation grieved. Among those carrying on in the midst of the tragedy was Wall Street. Despite suffering catastrophic personal losses and bearing firsthand witness to the events, the securities industry pulled together. Regulators, exchanges, and firms united then and continue to do so, determined to maintain an orderly market under all circumstances.
Recap of response events
None of the major stock exchanges opened for business on Sept. 11, 2001. The early morning terrorist attacks on the World Trade Center had occurred before the regularly scheduled opening bells of The New York Stock Exchange (NYSE:NYX), the American Stock Exchange, and the Nasdaq (NASDAQ:NDAQ).
Of all the exchanges, the NYSE most epitomizes American capitalism to the world, and it took a leadership role in assisting the reopening of the markets. While neither it nor the Nasdaq suffered physical damage, the Amex did. Located within a few hundred feet of Ground Zero, the Amex could not resume trading in its own building, because doing so would have impeded ongoing search-and-rescue efforts. There were also safety concerns about the building itself. So the NYSE allowed Amex equities and ETFs to be traded on its floor, while Amex-registered options traders and specialists conducted business at the Philadelphia Stock Exchange. The Big Board also helped with the relocation of approximately 35 member firms that were displaced. Meanwhile, the Nasdaq loosened its own listing requirements to facilitate liquidity.
The Securities and Exchange Commission played an important role when it exercised its emergency powers for the first time. From Sept. 14 through 17, 2001, the agency adopted temporary rules aimed at easing regulatory restrictions and facilitating access to the capital markets. Some of those temporary rules were extended for several more weeks. Together with the Treasury and the Federal Reserve, the SEC also coordinated efforts to determine when the market could reopen, given the enormous damage to lower Manhattan's telecommunications infrastructure. Despite the destruction of its Northeast Regional Office, the SEC declared that "the commission has full confidence that the attacks of Sept. 11, 2001, will have little lasting market impact."
And the SEC's pronouncement proved correct. After the longest halt since the start of World War I, trading successfully resumed in record volume on Sept. 17. As the Dow dropped 7.1%, its largest one-day point decline, the market functioned efficiently, registering a decline in airline stocks and an upswing in defensive plays. By year's end, each of the major indices closed near their highs of the preceding six months.
The subsequent focus
The attacks brought home the acute need for readily available alternative facilities, and it also highlighted the price we pay for interconnectivity. The same ease that allows us to press a button to place an online trade in an account with, say CharlesSchwab (NASDAQ:SCHW) or Merrill Lynch (NYSE:MER), and see our trade settle three days later through electronic funds transfers, also underscores the degree to which our society has become so reliant on the telecommunications infrastructure.
Many exchanges and financial firms quickly secured alternative physical locations, and others enhanced their own individual backup plans almost immediately after their initial recovery from the disaster. While that was happening, a more coordinated industrywide preparedness effort was taking shape.
In 2002, the Federal Reserve, the Office of the Comptroller of the Currency, and the SEC drafted and subsequently completed in April 2003 what is known as the Sound Practices Paper. This report identifies steps to be taken by settlement and clearing companies and financial firms that play critical roles in one or more markets, with the goal of strengthening the resilience of the highly interdependent nature of the U.S. financial system. Concentrating on business continuity objectives, the paper specifies four broad sound practices for implementation: identification of clearing and settlement activities in support of critical financial markets, determination of appropriate recovery and resumption objectives, maintenance of geographically dispersed resources, and routine usage or testing of recovery and resumption arrangements.
Business continuity principles for the trading markets and electronic communication networks came later, in a policy statement the SEC issued in September 2003. The principles include planning for trading to resume no later than the next business day following a wide-scale disruption, establishing geographic diversity between primary and backup sites, assuring resilience of key shared information systems, and confirming the effectiveness of alternative arrangements.
Broker-dealers themselves became subject to rules of the NYSE and the National Association of Securities Dealers in a move approved by the SEC in April 2004 that required member firms to maintain business continuity plans -- an edict that includes assuring customers' prompt access to their assets even if a member firm does not remain in business. Trade associations representing equities, bonds, and futures market segments continue to conduct extensive connectivity testing to verify the resilience of the markets, with the next large-scale assessment planned for this October.
Conclusion
An interagency report issued in April 2006 analyzing implementation of the Sound Practices Paper reported significant progress in achieving the report's objectives. At the same time, the report recognizes that the financial industry cannot fully protect itself against all telecommunications failures and that "no business continuity plan provides complete protection against an unanticipated event." The paper further suggests that future efforts be undertaken to address the potentiality of a wide-scale disruption occurring across commercial sectors or involving other elements of the infrastructure, such as power, transportation, or water.
Concrete barriers cannot insure against evil intent, and cybercrime constantly changes form. The securities industry has even recently raised awareness of the need for plans to address the potential outbreak of a pandemic flu. Still, there is no question that the market proved itself robust in the aftermath of Sept. 11 and is more prepared and resilient now than ever to face a future threat. By coordinating preparedness efforts while taking individual and shared responsibility, the industry is correctly focused more on resolving the effects of a disaster rather than pinpointing the cause.
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This article was originally published July 5, 2006.
Charles Schwab is a Motley Fool Stock Advisor recommendation.
Fool contributor S.J. Caplan, a former vice president and assistant general counsel of Goldman Sachs and former vice president and derivative finance specialist at Lehman Brothers, owns shares of the NYSE Group and serves as an arbitrator for the New York Stock Exchange and the NASD. She recalls walking those same streets of lower Manhattan in the 1990s during the early morning hours, past the barriers already erected in front of the World Trade Center and toward the NYSE, where bomb-sniffing dogs patrolled the area. None of that could prepare her for the horror of watching the events of Sept. 11 unfold on television, from more than a thousand miles away. The Motley Fool has a disclosure policy.
