Hurricane Sandy and Business Continuity Plan Best Practice

The damage from Hurricane Sandy was front page news for some time, even if it will probably finish by fading from popular memory, as new tropical storms come and go. Yet because it hit the Northeast of the United States with its financial nerve centres, there was a particular impact on the operations of the stock market. The US financial regulators of the SEC (Securities and Exchange Commission) and FINRA (Financial Industry Regulatory Authority) accepted closure of the New York Stock Exchange during the hurricane. In the light of business continuity plan best practice, were they right or wrong?

The argument to say they were right is based on a stated concern about fairness to traders, and also about customer safety. In line with business continuity plan best practice, the NYSE had a contingency plan in place to let the stock exchange operate as a purely electronic entity using a communications network called Arca (the “Archipelago Exchange”). However, uncertain as to whether all traders would be able to access Arca, the exchange decided to close for two days. To paraphrase a spokesman, the exchange could have remained open, but for reasons of common sense, opted to shut down.

On the other hand, the argument to say they were wrong is given in a report from the analytical research firm, IDC Financial Insights. The firm claims that the problem lay in the inability of the regulators to monitor a market run purely electronically, compounded by a lack of testing of that electronic market. A risk would have been that a small malfunction could have done widespread damage before corrective measures were taken. The question remains as to whether business continuity plan best practice in this emergency situation was to try to fix the problem or to admit to an inability, albeit temporary, to reasonably offer stock exchange activities.