Nasdaq’s Cohen Touts Resiliency in Equities, Options Markets04.13.2020
Nasdaq’s Tal Cohen Touts Resiliency in Equities and Options Markets Amid the Pandemic
Despite record volume and volatility in the markets amid the coronavirus pandemic, the systems supporting the options and equities markets have performed well, according to Tal Cohen, executive vice president and head of North American Markets at Nasdaq.
“General speaking, the markets have been handling activity and heightened volatility pretty well,” Cohen said in an interview with Shane Swanson, senior analyst at Greenwich Associates.
Cohen detailed the staggering shift in volume and message traffic beginning in February, noting that coming into this year, the highest message traffic was on the options side, at around 20 billion messages a day. Two months into the year, traffic tripled.
“In mid-February, we saw heightened volatility and activity in options where we hit 60 billion messages in one day. Then, we saw our top 10 days ever in options between the middle of February to the beginning of March,” Cohen said.
The volatility then rolled into the equities market, approaching 5 billion messages at the beginning of March. During the first fiscal quarter, activity also soared with equities markets topping 11 billion contracts a day and options reaching 25 million contracts a day, Cohen said.
“That type of message traffic and activity – we’ve never seen before on our markets,” Cohen remarked.
“Our systems performed well, and it was 2x+ for all of our systems,” Cohen continued. “Our customers were able to manage that, and we were able to manage that.” Nasdaq provides market technology to 120 markets around the world, as well as market surveillance technology to 160 broker-dealers and 50 global markets.
Cohen noted Nasdaq tested its system at year-end and the beginning of January, right before the volatility hit. Furthermore, the guardrails put in place after the financial crisis to help stabilize the markets, such as market wide circuit breakers, have now been tested multiple times. The market wide circuit breaker went into effect four times so far this year, and “worked exactly as they should,” said Cohen.
“From a Nasdaq perspective, the focus for us was making sure that our stocks were quoting and trading as quickly as possible so we can support price discovery. The reason that was so important is because of the amount of uncertainty in the marketplace and all of the derivatives products and ETPs that are basing their price off of the underlying [assets],” Cohen said.
Still, Cohen said he would like the industry and regulators to look more closely at whether triggering the circuit breaker at the open makes sense, because while Nasdaq opens all stocks for trading right at 9:30 a.m. ET, the New York Stock Exchange has some delayed openings, which makes it “messy” for the entire market because it’s difficult to assess what exposure they have. He also thinks that there needs to be “better harmony” with the futures markets so exchanges and investors can get a better line of sight into how the markets will truly open. Currently, futures trigger the limit down rule when they decline by 5%, whereas when the market is open, stocks have to drop by 7% to hit the first market wide circuit breaker.
As the markets continue to deal with the economic impact of the pandemic, Nasdaq is prepared to continue operating remotely. Cohen reaffirmed his belief that markets should remain open so companies and investors can have access to capital during this unprecedented time. He also noted that since 9/11, the company has invested in the capital and infrastructure needed for a work-from-home environment.
“In our DNA –and it’s been part of the DNA for a long time now – has been this concept of a virtual environment and working from home,” Cohen said. “The reason we were successful is because we were early in implementing our business continuity plans.” In early March, Nasdaq moved to a split-teams framework that incorporated social and physical distancing. Now, most employees are working from home, with only essential employees coming into the office. The company is also stepping up its philanthropic work, committing $5 million in cash and another $1 million as in-kind donations to COVID-19 response and relief efforts to provide immediate assistance to those who are most at risk.
“The starting point for us, as an exchange operator, is that we want to be part of the solution,” Cohen said.
“We have to do our part as corporate America,” Cohen continued. “Nasdaq and everybody else need to step up and be there for society and the economy to help it get back on its feet.”
“If we manage the health crisis, we’ll manage the economy,” Cohen said.
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