Two of Chicago`s financial exchanges vowed to reopen Tuesday, but in the wake of flood-related problems that forced a halt in trading Monday, the Chicago Board of Trade said it would remain closed.
A CBOT spokesman said the exchange hoped to resume normal trading hours Wednesday.
Leaders of the Chicago Mercantile Exchange and the Chicago Board Options Exchange ordered high-level staff meetings hours before trading actually begins to assess progress in stemming the Chicago River flooding that caused the trading halt Monday. The CBOT board also scheduled a meeting for 8 a.m. Monday.
But one CBOT leader predicted it could be days before its markets reopen. ”Not only are we not going to open tomorrow, we could be closed for two or three days,” said a CBOT director who asked not to be identified.
”Fortunately, we have a holiday weekend coming up and we will be closed on Friday, giving us extra time to repair any damage.”
CBOT, Merc and CBOE leaders noted that the unexpected shutdown of their exchanges, the world`s most important so-called derivative markets, and the length of the time they were closed Monday were unprecedented in the annals of the three exchanges.
Some leaders expressed nervousness over the interruption, suggesting that the crisis could challenge the credibility of the markets in the eyes of some investors. Some market participants said that billions of dollars in trading opportunities were lost, and that some smaller traders risked potential losses because of their inability to protect exposed positions.
”You sell your customers on reliability, on the fact that you are going to be there every day ready and willing to take risk off their hands,” said one official of the Midwest Stock Exchange who asked not to be identified.
”But events like this could raise questions about contingency planning, about who foots the bill for recovering from this setback and others like it,” he said.
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Robert L. Cruikshank, a former Chicago Board Options Exchange official who is executive vice president of Kenmar Inc. in New York, disputed such a notion.
”Where are you going to find markets as liquid as Chicago`s, with trading pits populated by traders with their skill and financial resources?” he asked.
Trading was uninterrupted at the Midwest Stock Exchange, located a block South of the CBOT in a newer building outside the reach of the tunnel system and the flooding. A stock exchange spokesman said it planned to be open for trading Tuesday.
A further shutdown of Chicago`s markets could make prices more volatile in the underlying cash market for such products as U.S. Treasury bonds and certain foreign currencies, such as the German mark. That volatility could increase as the markets remain closed because professional investors will lack important vehicles for hedging prices.
Moreover, a delay in reopening the Chicago markets could cause much activity to shift to overseas futures markets or to the cash market, where futures and options positions also can be hedged.
The CBOT was hardest hit by surging waters that were first detected in a basement in the exchange building at the foot of LaSalle Street at around 6 a.m. Monday. Water cascading through the turn-of-the-century tunnel system beneath the city`s business district was still pouring into the CBOT`s deepest subbasement late Monday.
Trading in all financial futures at the CBOT, the world`s oldest and busiest futures market, was halted at 9:45 a.m. Monday because of the rising waters in subbasement D, where much of the wiring that provides the skyscraper with its electricity is located. The exchange`s agricultural futures and options contracts never opened.
By noon the building had been evacuated and all electricity turned off by Commonwealth Edison.
Trading in all futures and options products at the Merc ceased at 9:45 a.m. But unlike the CBOT, the Merc closed its markets because about two dozen of its member firms are located in Loop office buildings that were evacuated and had their electricity turned off.
Merc Chairman John F. Sandner and President William J. Brodsky said markets also were closed because much of the electrical needs of the Merc come from a substation located in the basement of Sears Tower.
Sandner, who said the Sears building suffered only minor water buildup in the substation, was confident the Merc would reopen without a hitch Tuesday.
”We were basically untouched because our building is outside of the Loop,” said Sandner.
”One philosphy you must have in this business is that trading must go on unless a monumental occurrence stops you, similar to this,” he said.
At the CBOE, the world`s premier securities and index options market, trading was halted voluntarily at 12:30 p.m. Exchange Chairman Alger Chapman noted that the building housing the exchange also was outside the immediate reach of the tunneling system, but trading was halted because many CBOE member firms were forced to evacuate from other Loop buildings.