The Tokyo stock exchange just had an outage that stopped trading all day. What plans do you have for trading if major stock markets like the NYSE shut?
Why would stock markets shut?
The Tokyo Stock Exchange just been shut for entire day for the first time in its history. The TSE said it was due to a hardware failure and the backup hardware didn't activate. This is an example of an unintended shutdown of a stock markets. The computer systems behind stock markets are generally thought to be some of the most reliable in the world- with extensive testing done daily. However nothing is infallible.
Back in March, during the market meltdown the Philippines stock market was closed indefinitely because it was unable to properly operate under the height of the COVID-19 pandemic and worry about coronavirus infections. Currency and bond trading were also suspended at the same time in the Philippines. Authorities cited the health of traders, although most trading is done electronically- at least in some limited capacity, humans are still needed to run the machines.
Another reason to shut down the stock market is to avoid big falls in market value is probably. This was done by the New York Stock Exchange a few times in March - it is called a circuit breaker. Remember that in March, Wall Street twice saw its biggest daily fall since Black Monday in 1987.
Could the US stock market shut?
The US stock market never opened on September 11th, 2001 because of the proximity of the Twin Towers to Wall Street and reopened on September 17th. That was an extreme scenario and it was the longest stock market shutdown since 1933.
In March, US Treasury Secretary Steve Mnuchin has admitted that trading hours might be reduced.
“Americans should know we are going to do everything to make sure that they have access to the money in their banks, to the money in their 401(k)s and to money in stocks.” - Steve Mnuchin, US Treasury Secretary
Which markets could close?
The truth of the matter is nobody can know for sure which markets will stay open and which might shut, so it is helpful to be abreast of all your available options.
(Source: Budapest Business Journal)
Stocks are part of the equities asset class, alongside stock options, warrants etc but there are other asset classes available too. An asset class is a way of grouping different financial assets. FlowBank offers several asset classes including - Forex, Spot Metals, Indices, Commodities, Shares, Bonds & Interest rates, Vanilla Options and Exchange Traded Funds (ETFs).
Shares, Indices, Commodities, Options & ETFs all trade on stock or futures exchanges. If the exchanges are ordered to close then there will be no regulated pricing and these markets should be unavailable to trade.
Forex and spot metals are traded over-the-counter (OTC) in interbank markets. If international banks are ordered to stop trading, then these markets will be off-limits for trading too.
Closing OTC markets might be a little harder to orchestrate - there are literally trillions of open derivative trades - so that makes forex and gold more likely to stay open.
The only markets governments can’t touch are cryptocurrencies.
Would Bitcoin go up or down?
If major stock markets like on Wall Street were to close for a long period, it would hugely damage investor confidence. While the stock market is closed, there is no way for investors to take back their money. The situation can be compared to if your bank locks its doors and switches off its online banking - your money is inaccessible.
In the bigger picture, decentralised markets like cryptocurrencies could become a much more serious consideration because investors would know their assets cannot be blocked. In the short term, I suspect it would be bad news for Bitcoin. Closing regular markets would have a massive ‘liquidity draining’ effect on cryptocurrencies. If crypto was the only accessible market in a panic, investors would yank out their money in a hurry.
Let’s hope it doesn’t come to that!!
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