Stock exchanges face huge hurdles

Tribune markets columnist

While investors wait to see how stocks and mutual funds respond to the terrorist attack last week that shuttered the markets, enormous problems must be overcome to reopen the nation's key exchanges as planned on Monday morning.

No one's sure whether the stock market will rise or fall, though most market watchers expect sellers to dominate initially. And while some anticipate relatively light trading volume at the outset, that caution could give way to rapid-fire action, depending on how stocks perform.

From the standpoint of America's new war footing, a smooth resumption of trading on the New York Stock Exchange, the dominant symbol of America's economic might, may be more important than the immediate impact of the attack on stock prices.

U.S. investors have come to expect virtually instant trading of stocks, bonds, options and futures. The complex system that permits such rapid transactions includes human beings as well as wires, and much of it centers around the devastated World Trade Center.

Officials of U.S. stock exchanges and brokerage firms say the intricate connections among financial markets and between markets and brokers must be re-established and tested to assure a smooth opening of stock trading Monday.

Personnel will be the key

But "the reality of making the system work is you have to have the people to make it work," said David Coolidge, chief executive of Chicago-based brokerage William Blair & Co.

The logistics of bringing traders and back-office personnel to the New York Stock Exchange, at the corner of Broad and Wall Streets in Lower Manhattan, is more complicated than reconnecting phone lines and other communications links, said Coolidge, a board member of the Securities Industry Association.

The primary concern is "getting people down there and making people feel safe so they can do their jobs."

Richard Grasso, chief executive of the New York Stock Exchange, said the exchange has no plans to house staff members in nearby hotels over the weekend so they could be close-by for the planned opening of trading. Public transportation to the area will be adequate, he insisted.

Not everyone's so sure. "It's still a war zone," said Paul Stevens, president of the Chicago-based Options Clearing Corp. "Television doesn't do it justice."

Dust, debris, and poor air quality compound the problems of reactivating the technological spider web that enables investors to place their bets.

Attempts to reopen New York trading of oil and metals futures through Internet systems failed Friday, because of technical breakdowns. Stock market officials and regulators want to avoid a false start.

Still, in the aftermath of the disaster, many accommodations were being made. Damage near the American Stock Exchange forced the exchange to transfer trading to its fierce rivals at the New York Stock Exchange, as well as to the smaller Philadelphia Stock Exchange.

Similarly, major brokerage firms have opened their doors to competitors needing space and trading facilities in the wake of last week's destruction.

"Firms are accommodating other firms," said Stevens, whose small office in New York's financial district will be open to traders seeking screens. "No organization is an island."

A critical issue will be the reliability of communications systems run by the Securities Industry Automation Corp. that link exchanges, noted Paul O'Kelly, chief operating officer of the Chicago Stock Exchange.

"It's where all exchanges send their quotes and trades in listed stocks," he said. "That's what provides transparency to what's going on in the market."

The Nasdaq market's similar system for trading stocks electronically was not damaged by the terrorist attack. But exchange officials agreed immediately after the incident to act in concert concerning closing and opening of markets.

"The industry took a very strong view that we're in this together," said Coolidge.

Telephones also a worry

Another concern is a critical communications switching system operated by Verizon Communications in the affected area.

"The biggest question is going to be telephone capacity," said Alex Jacobson, vice president for business development at the International Securities Exchange, an electronic options market based in New York's financial district.

"The Chicago-to-New York phone lines aren't a problem, it's the New York-to-New York phone lines that are a problem," Jacobson said.

Verizon officials expressed optimism Friday that they will be able to handle voice and data communications from its financial district customers on Monday.

Y2K spending may pay off

Coolidge said the backup systems built by the brokerage industry in connection with the Year 2000 computer scare may finally prove their worth.

"All the expenditures people made in connection with Y2K look like a good thing," he said. "We sure need it now."

The $3 trillion market in Treasury bonds, which depends almost entirely on electronic communications, reopened Thursday without major disruptions. But trading was light in the absence of stock market activity.

In recent years, the New York Stock Exchange has expanded its trading system to accommodate growing daily share volume, which peaked at 1.7 billion shares on June 29.

Grasso said the exchange is ready for whatever flood of orders might hit.

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