The New York Stock Exchange floor is reopening — sort of.
The decision to partially reopen the floor on May 26, which has been closed since March 23, involved a complicated stew of business, legal and medical issues that many larger businesses throughout the United States will be facing —particularly those where people are required to collaborate in in person.
In the partial reopening, only about 80 floor brokers will be present, about 25% of the number prior to the coronavirus pandemic. Designated market makers that make the markets in the stocks will not be present, initially.
Everyone entering will be required to take a temperature test and sign a legal document stating they understand the risks, will follow the rules, and indemnify the NYSE against lawsuits. It also does not allow anyone entering the building to have arrived using public transportation, an issue since the vast majority of those who work at the NYSE take public transportation.
For the NYSE, the business issue is driving the decision. The floor brokers have been mostly unable to participate in the trading because the devices they use to trade are only available if they are inside the building. Because they can't participate, dozens of small businesses in the form of brokerage firms may not survive months of closure.
"The independent community can't wait to get back on the floor," David Shields at Wellington Shields told me. Shields owns a broker-dealer business that has a trading desk on the floor. "If they don't get back, they don't work, and they're gone," he said.
This is not a trivial issue. The NYSE floor is an integral part of the NYSE business model. The NYSE believes the floor offers price improvement and a competitive advantage against other exchanges and wants to preserve that advantage.
"When you add the trading floor in, you see much larger bids and offers, and so it makes those [closing] auctions even more efficient," NYSE President Stacey Cunningham said on our air this morning, explaining why she wants the floor brokers back.
The legal issues are also a major driver. The issue is a lack of a "safe harbor" provision from the state of New York or the Federal government that would indemnify the NYSE against lawsuits from people who may contract coronavirus on the floor.
David Franasiak, a lawyer at Williams & Jensen who advises clients in the financial services industry, said there is an attempt in Congress to provide legal protection against lawsuits for companies that re-open their firms, but this has not yet happened. "But that doesn't help employees who may contract coronavirus," he told me.
Without such a safe harbor the NYSE and other businesses have little choice but to require anyone entering their buildings to sign a document stating they understand the risks, and will indemnify them against lawsuits.
As for the medical issue, the NYSE is only requiring a temperature test — not a coronavirus test — as a condition of entering the building, despite the fact that the temperature testing will not pick up the significant number of people who contract coronavirus but are asymptomatic.
Why? The NYSE has not explained its thinking, but Franasiak said it was likely that the lack of clear federal and state guidelines has left firms like the NYSE to devise some of their own standards.
"Since there are no CDC guidelines on how to reopen, they at least have some kind of defense saying they did something," by requiring temperature tests, he said. He also noted that there may be issues with obtaining fast on-site coronavirus tests, as well as issues of accuracy that would still leave them open to legal risk.
"The legal teams are still likely going to require some kind of indemnification as a condition of entering, regardless of what kind of tests are being done," he said.
What does the Securities and Exchange Commission, which regulates the NYSE, have to say about the reopening? Brett Redfearn, director of the division of trading and markets at the SEC, said the NYSE will decide how to balance health and safety issues but that the SEC's job is to make sure any rule changes do not disadvantage any one party over another. "Our focus is on ensuring fair and orderly markets," he said.
The NYSE is not the only firm grappling with this issue. The Cboe has floated the idea of reopening its Chicago options trading floor on June 1st. Illinois's stay at home order expires May 31. CME, which also runs options as well as futures trading pits in Chicago, said it may also reopen soon after.
UBS' Art Cashin, who is celebrating his 55th year on the floor and who is also eager to return (despite recuperating from an auto accident in March), told me that the issues the NYSE is facing are issues all firms that require face-to-face contact must confront.
"Everyone wants a sign that we are going back to normal, that we are starting to heal," Cashin told me, adding that it doesn't negate the fact that there are substantial risks coming back on the floor.
"I honestly believe in my heart that it's being reopened to some degree at the request of the government and others to make an important part of the American economy function well," Cashin said on our air.