Day: July 12, 2015

Why The NYSE Debacle Mattered

On Thursday this past week there were a few attempts at crisis management that should go into textbooks (as well as history books) everywhere in years to come as: Crisis Management 101.a – Lessons in Ineptitude.

The responses as to settle the angst in an ever-growing skeptical, as well as frightened investing class was not only inane as demonstrated by the responses (or better yet; lack there of) given at the NYSE™ by way of “answering” as to why it halted its operation for nearly 4 hours. Was only outdone by what many view as the near insane when one views the steps taken in China to “calm” their markets. Those steps?

Not only did China halt trading in as many as half (reports vary from around 30% to as high as 50%+ depending on the index) of all listed companies trading on their indexes. It’s been reported not only has selling one’s shares been publicly demonized – you can now be arrested with the threat of imprisonment. Add to this, it’s also been reported: if you sold previously this year – you have to buy it all back. Now! Or: see previous sentence. However, “you” is still subjective at this moment. Exactly who at this time is not entirely clear. (i.e., personal, broker, company, etc., etc. Maybe all?) We’ll have to wait and see. Or – till they come to their door. Literally.

Wednesday the Asian markets were once again in free-fall. Japan’s fell breaking the all important psychological level of 20,000. Both China’s large and small caps fell even harder. This after the government stated unequivocally; it would take extraordinary measures to combat the selling frenzy. And – It didn’t work. Only until it launched into the measures I outlined above did the markets in Asia seem to hold from going over the precipice in its entirety. Will it hold? Who knows. Yet, the one thing we do know is: it’s only holding because in effect for all intents and purposes not only is it illegal, it’s backed with the very real threat of imprisonment – to sell.

Is that how one instills confidence? It instills something – however the term isn’t anything resembling “confidence.”

Let’s put some of this into perspective: Think just how unsettling it’s been for the retail “investing” class here in the U.S. of late as they’ve been watching their 401K balances gyrating near daily in ways reminiscent of 2008. Then Monday, they awake to headlines across the media that Greece did the exact opposite of what they were told would happen by the so-called “smart crowd.” Then just as abrupt the implications were front and center to the markets as fear began gripping them not only Monday. But Tuesday, and Wednesday. Suddenly – Greece mattered, and contagion once again swept across the minds of many. Then, adding on to this, we had China along with the other parts of Asia rocked with significant selling pressure during the same period culminating in the likes not seen since? That’s right, 2008.

Headlines ripped across both the financial as well as the main stream media. “Greece …” this. “Euro Zone breakup …” that. “Contagion inevitable …” here. “China collapse …” there, and more. This relentless assault of breaking news across the media had many that have basically tuned out the markets since (did you guess first?) 2008 are suddenly  thinking: “Wait…what?” For these headlines, as well as their implications, are as familiar a warning sign that spark not only memories, rather: the near instantaneous reaction as to get out. Kind of like what happens when you decide to go back on a date with a past romance thinking “It wasn’t that bad, maybe I over-reacted.” Only to realize less than a few hours into it, not only was it as bad – it was worse than you remembered. But I digress.

Then comes Thursday. As all the headlines from China, Asia, and Europe filter through to the morning press. Out-of-the-blue as if the previous wasn’t enough to worry about. This already tentative group is hit with a headline that brings chills to anyone who remembers September 11. “All United Airline flights in U.S. Are Grounded.”

All at once what everyone’s been told “didn’t matter” mattered. And a scramble was on for more information. Such a scramble it melted down the servers at Zero Hedge™ first, then the Wall Street Journal™. (notice not the Economist™, or the Financial Times™, or Bloomberg™, or CNBC™, or the Huffington Post™, or the New York Times™, etc., etc. Draw your own conclusions is all I’ll say. And if you think I’m trying to make a case where there isn’t one. Fox Business™ channel had its highest viewership ever Thursday. I don’t know about the others – they don’t say. Which tells its own story in my view. But to say that all off the sudden “people became anxious and wanted to know more;” would be an understatement.)

As both the media as well as the investing public are trying to come to grips for the implications of what has transpired overnight and into the morning. At around 11:30am EST, the emblematic symbol of capitalism for the U.S.,The New York Stock Exchange™ halts not some – but all trading! (I believe there were a few ancillary programs that were unaffected) And not for 5 or 10 minutes. Rather: for nearly 4 hours! And the response as to why? __________________ (insert crickets here.)

Sure there was some hand-wringing boiler plate “Well it’s probably this. But definitely not that.” canned P.R. mumbo-jumbo. However, once again, for all intents and purposes it was the equivalent of saying nothing. It’s been reported not only did the lowly few traders remaining at the exchange questions fall on deaf ears. So too were some of the actual media covering the outage going unrecognized in queries to any questions. Not just P.R. speak. Actual – would not talk speak.

This calamity of errors on the part of the NYSE™ was not only an example of an out-and-out total breakdown of both crisis management and leadership. It was also a stunning glimpse into just how forgotten the financial crisis of 2008, as well as September 11 is from Wall Street itself. Never mind the public at large. The sheer ignorance as to not inherently understand, nor contemplate the significance of the NYSE as to its symbolic nature to the nation at large by those that are in charge of it today is not only incomprehensible to me. It should be a required case study example in “DUH!” to anyone in seeking management.

Financial mavens understand ever since computers took over the trading floors, what were once the bastions of physical traders – is no more. However, the public at large has no clue. Talk “Wall Street” and the most iconic of images that comes up first and foremost in one’s mind is: The NYSE. And how did the management of the NYSE treat this symbolic edifice in the face of what could only be described as turbulence not seen since the Great financial crash of 2008? No, not like the face of capitalism it’s represented for over 200 years. No, the face that was put forward was – the interface that it’s become. Because now: it’s nothing more than a nice TV set to report from, or maybe rent out for parties. At least that’s the impression one was left with going into the weekend. That’s how bad of an image crisis it now finds itself in.

The traders that still do business there? (as few as there are) Even they complained about not being able to get answers to their questions.  I found that highly credible because what they seem to have forgotten is – they are no longer relevant. Today only High Frequency Trading matters (i.e., the machines) And the NYSE acted in a way that solidified that premise. All the while turning an outlandishly tone-deaf ear to their place in symbolism for the nation at large.

What a complete and total disaster was portrayed by the NYSE in my opinion. So much so I found myself with my head-in-hand more times than I can count. If the president of the exchange had put just half as much time into his choice of words as he apparently does into the fit and finish of his suit – he could have avoided all of this and calmed an already nervous public. It was apparent appearance mattered to him. It just seems not as much to the institutional symbolism of the entity he presides over was what I came away with.

When it comes to crisis management I know what I’m talking about. It’s one of the disciplines I made my reputation in. And anyone with half a brain knows the way this was handled and the choice of words was not only lacking, but the response in general was vacuous. I mean, really: Say nothing? (i.e., P.R. double speak) Avoid speaking all together to select media outlets? Leave people to speculate and wonder on their own? All while following a collapse in Asia, turmoil in Europe, and the grounding of airplanes? Absolutely unacceptable in my book for anyone leading a company of any size. Let alone – The NYSE!

All that was needed to be said was something along these lines:

“We’ve found we have an issue resulting from a software upgrade we just performed. We’re not entirely sure exactly what is causing it. However, at this time what we are  confident of, that it is; in fact; a glitch contained to our systems. With what has transpired overnight in both Europe, as well as Asia, we decided it was prudent and incumbent upon us here at the NYSE to halt our systems and address it as to fix these issues in their entirety. Rather, than the possibility of limping along as we correct them throughout the day. The systems inherent within the financial markets of the U.S. are robust and trading is designed to work around us as we address our issues. Let me remind everyone: this is why we spend so much in technological advances throughout all the exchanges. If any one, and even more of the exchanges has an issue in this ever complex environment – trading in the markets can continue as you can see. As soon as we know more, we’ll let you know. Until then, as anyone can see, the markets are working as designed.”

I wrote the above line directly as I typed taking me no longer to think of it, as it did to type it. It’s not rocket science. That line could have been set on auto-response, and it would have put to rest a lot of the anxiety transpiring within the public at large. Yet, what was the response? Total lack of comprehension for the importance of not only the symbolic importance demanded for a response, but also in the timing, as well as delivery with what else was happening simultaneously. The incomprehensibility still stuns me as I write this.

Not only did the NYSE leadership fail in this regard, it allowed itself to be kicked to the side of irrelevancy by its own hand as well as foot. So much so it will be a wonder if it ever regains any of its former prestige other than its historic facade for the cameras and tour buses.

As a panicked public tuned in trying to find relevant information – there were all the news outlets displaying just how irrelevant the NYSE was. All one heard as you flipped channels, or stations was “Look, there’s really no one even there!” “Hey, is that a bowling alley now?” “Look, they came back on-line and it still looks like a bowling alley!” And on, and on. The media had a field day with its version of “calming the public” by showing just how many ways (or segments they could fill) the markets functioned without the NYSE. All because that’s what the leadership at the NYSE gave them to work with. In other words, they gave them nothing but some P.R. mumbo-jumbo that even a three-year-old would question. So, left to their own devices (and air time to fill) the media did just that – filled it. With how irrelevant they were.

What a total debacle as well as pathetic self-inflicted P.R. disaster the leadership at the NYSE displayed in my view.

Who would have thought, less than 7 years after what is now cemented in the minds of any remaining investment public, that the Great Financial Crisis that nearly took down not only the markets, but almost the entire system as a whole. Along with all of the angst and still unanswered questions that remain to this day. The one place that forgot how important its symbolic place was in the minds of the general public at large was none other than the NYSE itself. Again – just stunning in my opinion.

I mean, honestly. By all appearances from what we all witnessed. It seems someone (or group of someone’s) had so much faith in the system – they felt it wasn’t necessary to have a simple one paragraph coherent message at the ready?  I mean – just in case of another emergency? After what we went through just a few years ago?

The only thing that could be worse for all of us is if they have just as much faith in central banks. For we all know how that’s beginning to shape out now. The Fed. may indeed still have one’s back. But so too did China. Only thing is there…

Not only do they have one’s back – but one’s number. And that number could possibly be one’s new inmate ID. Then again, Greece is solved, right?

© 2015 Mark St.Cyr