The New York Stock Exchange is no stranger to trouble.
Over its 209-year history, the Big Board has weathered a civil war, two world wars, the Depression, and even a bombing in 1920 to become the world's largest and most prestigious stock market.
But after Sept. 11, the exchange confronted a threat unlike any it had faced before. The Big Board's headquarters and computer systems survived the destruction of the World Trade Center unscathed, but the attacks shut the exchange by crippling the financial district's communications network.
The exchange reopened only six days later, thanks to the determined leadership of Richard Grasso, its chairman, and a herculean effort to repair the communications grid. But the attacks exposed the Big Board's vulnerability to terrorism. With a single physical floor where traders meet to negotiate stock prices, the exchange can be disrupted more easily than computer-based markets like Nasdaq. And the Big Board's columned facade is one of capitalism's best-known symbols.
Now Grasso must figure out how to make the Big Board less vulnerable, even as the exchange faces growing competition from NASDAQ and other new trading systems. Already, the exchange says that it may postpone building a long-planned new trading floor and 274m tower across the street from its current headquarters. In addition, the Big Board is considering building a secondary trading site outside Lower Manhattan, a plan that could cost tens or even hundreds of millions of dollars.
The health of the Big Board is crucial not just for its members, but for all of New York, said Charles Geisst, a finance professor at Manhattan College and author of Wall Street: A History (Oxford University Press, 1997). Over the last two centuries, the exchange has become "inextricably intertwined into New York's economy," Geisst said.
Grasso, who never wavered in his resolution to reopen the market as quickly as possible after the attacks, said on Wednesday that the exchange planned to remain a vital part of New York, with its primary trading floor in Lower Manhattan. The exchange could even become part of a broad redevelopment plan including the rebuilt Trade Center site.
To limit disruption in case of future attacks, the exchange will rely on a combination of contingency measures, he said. The most important of those will probably be a second trading floor. The backup site would be on a different power and communications grid than the exchange's main floor, although it might still be in New York City. Most trading would remain at the Big Board's headquarters, but some stocks would trade full-time at the backup site.
Contingency plans might also include agreements to move trading in Big Board stocks to exchanges in Toronto or Chicago. Even the trading floors of major securities firms might work as substitute sites, Grasso said.
"We are absolutely committed to New York," he said.
But some academics and competitors said Grasso should rethink his plans. Even before Sept. 11, the exchange's physical floor faced criticism within the industry as an anachronism that benefited the Big Board's members at the expense of other traders and investors.
Instead of building a second floor, said Ananth Madhavan, managing director of ITG, which operates a computerized trading system that competes with the Big Board, the stock exchange should follow the lead of foreign competitors and move trading to an electronic network that would be essentially impervious to physical attack.
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