Courtesy of Alexandra Andhov
As COVID-19 continues to spread across continents, all economies begin to tremble and prepare for the worst. Companies, investors, and trading clients are turning to stock exchanges amid one of the most tumultuous periods in market history to borrow money, buy or sell assets, and limit losses in their holdings. Yet all this is done without a clear understanding or prediction as to when COVID-19 will be over.
Many countries have introduced significant restrictions on public events, people’s movement, and the operation hours of public institutions. Some have closed their borders for all non-essential travels. The situation is severe, and naturally, the majority of companies expect the worst. As of today, we lack any clear understanding or vision of when we will be able to get back to business as usual. Thus, many predictions emerge and they are frequently rather dark. These predictions cause companies to shut down production, lay off their employees, and even initiate bankruptcy proceedings. Besides, all stock markets have been extremely frantic, causing more harm than good and operating with limited information on the matter.
In the European Union, German economic growth has suffered its biggest plunge since West and East Germany reunited almost thirty years ago, and the country is facing a major recession. According to the Ifo Institute in Munich, “companies’ expectations, in particular, have darkened as never before.” On Wall Street, the stock market’s daily plunges have been the most serious in 33 years, and Treasury bond yields have hit new price floors. Central banks are offering various stimuli with the hope of changing the market’s trajectory, but these efforts are not making any substantial difference.
We need to start thinking outside of the box and consider steps to protect the economy. My suggestion is the simultaneous closure of all stock exchanges (with the possibility of expanding this to other exchanges). Even though the president of the New York Stock Exchange, Stacy Cunningham, stated that closing the stock exchange is not likely, as “closing the markets would not change the underlying causes of the market decline, would remove transparency into investor sentiment and reduce investors’ access to their money.” However, reflecting on this statement, the markets at this point do not bring any additional information to its investors – just panic.
Ultimately, we need to ask ourselves one question: Are the stock exchanges harming our economy and causing panic and distress instead of providing valuable information to the market participants? If answered affirmatively, then just as we have halted the production line, we should halt the ‘stock exchange’ line and close stock exchanges until we have new information on COVID-19. Despite sounding simplistic, we should consider the COVID-19 period as a production-free one. The majority of companies have a production-free period in place when the production remains stop for two to three weeks. The obvious difference between COVID-19 and a production break is that unlike a production break, COVID-19 is an unforeseeable event, and companies most likely did not consider it and reflect it in their business plans. However, as we see, governments are stepping up and offering significant financial injections to help overcome this unforeseeable ‘bug’ and thus possibly reduce the economic impact.
The closure of stock exchanges is not unprecedented. In 1914, the New York Stock Exchange closed for three months when World War I began. It took another three months until operations resumed. This historical episode merits special attention as it was the longest circuit-breaker in American history. Since 1914, stock exchanges have closed for shorter periods due to terrorist attacks, protests, hurricanes, and other important events of national or global relevance. These days, exchanges operate electronically, and even if COVID-19 attacks the trading floor, contingency plans will keep exchanges going. However, we should try not only to protect the traders but the companies that are being traded.
On March 17, the Philippines halted all stock, bond, and currency trading until further notice due to the COVID-19 pandemic. The stock exchange in Manila was closed after it suffered substantial market volatility, falling 10 percent for the first time since 2008. Similar hits have occurred across various exchanges. The Philippines’ decision has substantially affected other Asian markets, and therefore if the decision to halt trading is considered, it should be carried out simultaneously across the globe.
We need to recognize that the market is falling due to a lack of information, and market participants or politicians will not provide the information themselves. Scientists will provide the information in the case of COVID-19 and, given the lack of a precedent, all the projections provided by economists or governments are at this point only speculative. Markets and regulators have been fighting market speculation for a long-time, yet by remaining open for trading, they are supporting it. COVID-19 is similar to a war scenario, and therefore we should consider protecting our markets as we would during wartime. Many countries have introduced a state of emergency to protect their people. When will we protect our companies and markets?
 H.G.S. Noble, The New York Stock Exchange in the Crisis of 1914 (The Country Life Press, 1915).