Just two weeks before Hurricane Sandy barreled up the east
coast, leaving behind her a ghostly, flooded and blacked-out
Lower Manhattan, Wall Streets major trade organization,
the Securities Industry and Financial Markets Association, held
its annual industry-wide disaster-plan drill. On a Saturday in
October every year since 2003, SIFMA has convened hundreds of
market participants regulators, utilities, exchanges,
market-data vendors and others to send dummy data to one
anothers backup sites to ensure that they can effectively
The annual drill was one of many steps Wall Street took
after the terrorist attacks on September 11, 2001, in an
attempt to ensure that the financial epicenter would be able to
maintain operations during just about any type of disaster,
whether it be a once-in-a-century superstorm or the type of
attack that seemed inconceivable on September 10, 2001 but
became terrifyingly real the next day.
In the week since the arrival of Hurricane Sandy
which forced U.S. stock markets to close Monday and Tuesday
some say the storm has made it clear that Wall Street
still has a ways to go in shoring up its business continuity
Gotta say, in the era of electronic trading and
distributed computing, it's pretty silly that local storm
closes stock markets for whole USA, said Henry Blodget on
social media platform Twitter on October 29. Blodget is the
former head of the global Internet research team at Merrill
Lynch who was banned from the securities industry for lying in
his published stock reports and the current editor and CEO of
The Business Insider.
Other echoed his sentiment, arguing that the New York Stock
Exchange would have been able to stay open both days had it
reverted to its electronic-only trading system, a scenario for
which the market wasnt sufficiently prepared.
Joe Mecane, an executive vice president at NYSE Euronext and
the co-head of the U.S. listing and cash execution businesses,
says that while obviously the bias from all venues is to
open no matter what, its not his exchanges
tip-top priority to open in every circumstance, come hell or
very literally high water.
I dont think theres a mandate that no
matter what is happening in the world, or in a particular
geographic region, that the markets have to open no matter
what, he says. Frankly, anyone thats saying
that, I think, either has a differing philosophical view or is
acting out of self-interest. If every 100 years we have one of
these events and we close the markets, Im not quite sure
why thats terribly controversial.
But Damian Handzy, for one, believes NYSE and the rest of
Wall Street could have done better. Handzy is CEO of Investor
Analytics, a risk management firm headquartered at 55 Broad
Street, part of the Lower Manhattan flood zone. He says firms
should be able to maintain market operations in Sandy-type
situations by coming up with one-size-fits-most-disasters
gameplans. He believes his firm has managed this.
Our reports have come out every day this week,
Handzy says. Ive got to tell you, some clients
expressed real surprise. But we do risk management, and if we
werent up, itd be kind of embarrassing.
Granted, Investor Analytics employs only 36 people, a far
cry from the hundreds of employees and dozens of departments
and functions that comprise Wall Streets major banks. But
from where he stands, Handzy says the disaster preparedness
solutions that seemed most obvious after 9/11 arent
necessarily the most flexible ones.
After the attack on the Twin Towers over a decade ago, major
firms scrambled to organize backup sites outside the New York
City metro area where critical staff could evacuate and
continue firm operations as necessary.
Larger firms have backup facilities probably fifty to
eighty miles away from their primary bases of operation,
explains Karl Schimmeck, vice president of financial services
operations at SIFMA, the trade organization. The sites
are pre-setup, ready to go; they have desks, computers,
everything they can just walk in, turn them on and get
connected. They have people identified who will go to those
facilities and conduct their normal functions, whether
its trading operations, clearance, et cetera. Other
groups, who might not be in critical function, will work from
Handzy believes this approach is flawed, and expects that
Sandy will force in it some major tweaks.
Institutional Investor reporter Katie Gilbert
caught Handzy by phone while he worked in a Dunkin Donuts near
his home in New Jersey the one spot in the area where he
could access cell phone coverage and Internet to talk to
him about the thinking that went into Investor Analytics
contingency planning, how the NYSE should try to be more like
London and what the Street can learn from Sandy.
How has your firms disaster contingency plan
worked out for you?
This actually fell kind of according to plan. When we
designed our disaster recovery procedures and locations, we
took a look around and asked ourselves what best-in-breed
disaster recovery solutions were out there. The first thing we
latched onto was the Internet. The Internet was designed by the
U.S. government as a military communication tool so that they
would never lose touch with each other. The whole point is
its not a spoke and hub system. Its distributed.
Any spoke can be taken out and the network still runs.
We said, "Okay, how can we take advantage of this?" We said,
"Well, we have to have an office, which puts a hub in one
place, but our data center doesnt have to be in the
office, so we now have two data hubs one is in New
Jersey and other is in Pennsylvania." We did that so wed
have them on different electrical grids, and one stands as a
backup for the other.
Now, how do employees interact with the data center? We
decided to set everybody up [in their homes] with a secure
tunnel connection to both the alpha site [the data center in
New Jersey] and beta site [in Pennsylvania]. So everybody can
work from home and connect to their computers and hard drives
in the office, and they can connect to computers in New Jersey
The whole point is that if there is a disaster not
knowing what type some of us will have electricity, some
will have phones, some will have nothing at all. It
doesnt matter who does or doesnt; as long as a core
number of people have access to the site, its far better
to have people working from home than to pick a disaster
recovery site, like some firms did. Because then people have to
get to that site. And what if the roads are closed, and what if
the trains arent running and what if things are
As long as a skeletal staff of people can access the office
remotely, were up and running.
From what youve seen, how are other
firms disaster plans panning out?
All those firms that decided to, after 9/11, rent disaster
recovery sites somewhere 100 miles from NYC that are now
sitting on mothballs waiting to be used in case of a disaster
well, this is the week when they have to use those. The
challenge now is getting there. And once they get there, what
do they do with their employees? Those employees have houses in
the NYC area that need looking after, and theyre going to
put them in a bus or carpool to get them upstate or to
Connecticut or Pennsylvania? In hotels? Those people want to go
home and make sure the basement isnt flooded, the food
isnt rotting in the fridge. One of the lessons that will
come out of this disaster is that just having a disaster
recovery site far away from your primary office isnt
necessarily good enough when the rubber meets the road. When
youre in the real world, people have to take care of
their families first.
I wish I could say we were clever enough to take that into
account when we developed our disaster recovery process. We
happened to be fortunate enough that were taking
advantage of it, because people are able to do both at the same
time by working from home.
Is the fact that the NYSE had to close for two days
a sign of a bigger systemic weakness?
The NYSE is the last big exchange that still has floor
trading and where people physically have to be there. Since
that seems to be a priority for them, they are at the mercy of
getting enough people there. When exchanges can be mobile and
electronic, by definition you take out that big requirement of
getting lots of people to the spot.
[Mayor] Bloomberg made a big deal of going down and ringing
the bell this morning, and [the message was] "Look, it only
took a few days." After 9/11, the exchange was closed four
days. Here, people can say, "Ah, this time we did it in two
days, so a big improvement." Yeah, but they always have to move
heaven and earth to get that done. It takes generators and
getting the people there.