Wary Wall Street braces for turmoil--war or no war


January 13, 1991|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- It's called a preparedness manual, a 23-page document distributed by the New York Mercantile Exchange to all members of the country's largest petroleum market.

Dated Dec. 5, the report is filled with technical jargon about margins, strike prices, provisional regulatory authorizations and intraday trading limits -- all of little interest to outsiders except for a simple poignancy: Its purpose is to preserve the exchange's vitality in case of war.

Since the Iraqi invasion of Kuwait in August, the exchange's hectic trading pits in lower Manhattan have become barometers of the world's military climate, with oil prices soaring at the prospect of discord and plunging at the thought of peace. The yells of its hoarse traders have been heard at local gas stations and in far-away executive boardrooms.

Not surprisingly, given the likelihood of even more tempestuous times, it has taken definitive steps to prepare for the future, and its Washington-based regulator, the Commodity Futures Trading Commission, has done likewise.

Tie-ins have been established with the White House, the Energy Department and other federal agencies in case of an emergency. New price limits have been imposed, and others can be quickly instituted. "Dire consequences" are possible if the market is interrupted, the report says.

To bolster security, the Merc, along with the three other commodity exchanges in the same World Trade Center tower, instituted stringent new policies Friday. A visitors gallery has been closed until further notice, said Richard Henken, a Merc vice president. Access to the trading floor will be sharply curtailed; visitors, once able to wander fairly close to the action, now need escorts.

New York police are similarly concerned. On Friday, Commissioner Lee Brown told 200 executives with local airlines, hotels, retailers and utilities that a special department has been opened to gather intelligence on potential Iraqi activities. "We have no reason to be alarmed; we do have reason to be vigilant," Mr. Brown said.

The other financial markets have taken a lower-key, but presumably still active, approach.

"It's fair to say the exchanges, other market participants and the SEC have long be aware of events that could have an impact and have drawn up a plan that may deal with events that could occur," said Mary McCue, spokeswoman for the Securities and Exchange Commission, which regulates the major stock markets.

Already, many companies in New York say daily life, with its exploding steam pipe, severed phone connections and violent encounters, have prompted installation of several layers of contingency systems and extensive security as a matter of course.

"We already have in place everything we need to keep the network secure," said Janine Mudge, a spokeswoman for NYNEX, the Northeastern Baby Bell.

At the larger brokerage firms, which at any time may be besieged by salesmen, petty thieves or irate clients, special passes are required to gain entry. Once, tourists could walk through an open gallery above the massive trading floor of the New York Stock Exchange, but that privilege was buried years ago by thousands of fake dollar bills pitched onto the floor by Abby Hoffman.

Bulletproof glass now stands between viewers and traders, and visitors must pass through metal detectors before receiving temporary passes that fade with exposure to light.

"That's just the way of the world, not in response to any particular situation," said exchange spokeswoman Sharon Gamsin. "Go into any building in New York and you will see the same is true; security has been tightened in the past five or 10 years."

The deluge of trades that came with the 1987 stock market crash prompted the major exchanges and large brokerage firms to spend millions of dollars installing flexible new processing systems that haven't been fully tested since.

New rules such as "circuit breakers" and trading halts are intended to dampen short-term volatility and control chaos. "The bottom line," Ms. Gamsin said, "is we carefully plan for unusual situations at all times."

A number of banks and brokerages contacted said no memos about the implications of war have been floated and no overt procedures have been mentioned, but many important institutions have long had emergency plans they don't discuss. Years ago, recalled a former New York Stock Exchange employee, facilities had been readied in Connecticut where the exchange could be moved in case of a nuclear attack on New York. Now, out-of-state facilities are common for many financial

firms, merely to ensure that operations would continue during more prosaic disasters such as power outages.

Several years ago, Bear Stearns & Co., a major brokerage house that provides clearing operations for its own business and 1,000 other firms, purchased a bombproof building in New Jersey once used by ITT for communications with Moscow. The building now houses backup computer operations.

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