Finance

The unthinkable: Is it time to shut down the stock market?

Even lawmakers have started suggesting it's time for Wall Street to press pause to help calm the waters.

NYSE

Wall Street is facing a grim question as stock prices plunge on most days with no end in sight: Is it time to shut down the market for a while?

The debate over whether to pause market trading has intensified over the past two weeks, as much of the economy has ground to a halt to prevent the spread of the coronavirus.

Uncertainty about the depth of the sudden economic slump and the government's response have caused the value of stocks and other financial instruments to gyrate wildly. Stock plunges this month have triggered four mandatory breaks amid a punishing series of trading runs.

The Dow Jones Industrial Average shed another 3 percent on Monday and has fallen more than 30 percent over the past month as the crisis unfolded, with companies losing billions of dollars in market value.

Even lawmakers have started suggesting it's time for Wall Street to press pause to help calm the waters.

"Maybe close a day or two," Sen. Joe Manchin (D-W.Va.) said on MSNBC on Thursday, raising concerns about so-called short-sellers — those who bet on stocks to fall — taking advantage of the declining market. "It's not an industry that we have to have."

The Trump administration and regulators have tried to tamp down speculation that trading should be shut down temporarily until the implications of the crisis become clearer, arguing that the markets are functioning as they should amid the regular trading halts, known as "circuit breakers," sparked by dramatic drops in stock prices.

"We don't want to be doing that," President Donald Trump said Monday at a White House news briefing, dismissing the need to shut down the New York Stock Exchange or Nasdaq.

But every passing day has made the prospect of a halt in trading seem more urgent. If keeping markets open is "a sign of confidence for people," as Treasury Secretary Steven Mnuchin said last week, the deep plunges in stock prices have to undermine that confidence.

Tech entrepreneur and former PayPal executive Max Levchin has argued that it might be time to close the markets for a week or two.

"Get everyone’s minds to focus on social distancing, expanding testing capacity, vaccine finding ... instead of worrying about the utter collapse of their 401(k)," he said on Twitter.

Mnuchin conceded that while he wanted the markets to stay open, at least the possibility loomed that trading hours might need to be shortened.

That brought a sharp rebuke from New York Stock Exchange President Stacey Cunningham, who said in a television interview that reducing or closing trading was not under consideration — a sentiment she made clear to multiple administration officials, including Mnuchin.

Yet with cases of the virus spreading, the NYSE this week is operating without its signature trading floor and moved to fully electronic trading.

"We look forward to the day when we reopen the Floor and welcome back to 11 Wall Street all of the trading floor community, who are so important to the markets we operate," Cunningham said Monday. "Until then, our bell continues to ring and our markets remain open for business."

The possibility of a market closure underscores the grave outlook for the global economy and the almost complete lack of knowledge of how bad things can get.

The markets have shut down before, including during moments of national crisis. Stock trading shut down for several days after the Sept. 11, 2001, attacks.

"We had a brief closure after 9/11, but that was because people could not physically get to the trading floors and the [NYSE] was near ground zero," former SEC Commissioner Annette Nazareth said. "Now, virtually all the markets are electronic."

But even though much of the market can function without traders on a physical trading floor or even in the office, the prospect of the job being done remotely has also raised concerns.

"It's a fair point to say, do we really want people going into all these offices and trying to trade, or alternatively, do we want people making million- and billion-dollar decisions while they're distracted with whatever news is going on, or their kid hopping on their lap?" said Tyler Gellasch, executive director of Healthy Markets and a former SEC official.

Still, in television interviews and media briefings in recent days, Mnuchin has been pressed repeatedly about whether it's time to halt trading.

Last week, he said "everybody wants to keep it open" after talking to banks and the NYSE, which has warned it could compound market anxiety.

"Americans should know that we are going to do everything to make sure that they have access to their money at their banks, to the money in their 401(k)s and to the money in stocks," he said.

Onetime SEC officials are skeptical the shutdown will happen.

Former SEC Commissioner Michael Piwowar said he couldn't foresee anything closing trading absent a problem with market infrastructure. The stock market closing would limit people's ability to sell securities and get cash, he said.

"And then it has broad implications," said Piwowar, now executive director at the Milken Institute's Center for Financial Markets. "The financial markets are very much linked. ... There are many trading strategies that involve trading in one market and hedging in another one.”

Gellasch said closing the market wouldn't stop the securities from changing in value — large financial firms can keep assessing that and trading financial instruments among themselves — but it will prevent millions of Americans from accessing their assets when they may need them most.

"The health crisis is what's collapsing restaurants, hotels, and airlines today and will be driving the likely business loans and mortgage crisis in the months and years to come," Gellasch said. "This crisis isn't about the stock market going wild. It's about the economy shutting down. And shutting down the stock market isn't going to fix it."