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Isabel Zhong/ MEDILL

The CME Group Inc. continued to suspend trading of equity-index contracts Tuesday as Hurricane Sandy shut down stock exchanges in New York City. Trading actually occurs at the Chicago Board of Trade building on LaSalle Street.

Sandy shutdown may not take severe toll on CME

by Isabel Zhong
Oct 30, 2012

One corner of the financial derivatives trading floor at the Chicago Mercantile Exchange was dark and quiet Tuesday as CME Group Inc. continued the suspension of equity index trading as Hurricane Sandy, the largest-ever Atlantic tropical storm, wrecked havoc in New York City and shuttered the nation’s key stock exchanges. However, the devastating storm is unlikely to take a heavy toll on the Chicago-based exchange operator.

“ It’s always tough to have to lose some trading time but I think what we don’t know is what trading will look like when markets fully reopen because you could have some pent-up demand that could spill over,” said Morningstar Inc. analyst Gaston Ceron, who covers CME Group.

Trading floors at the New York Stock Exchange and the NASDAQ have been closed since Friday. This is the first time since 1888 that weather-related causes have shut down U.S. stock markets for more than a day.

The CME closed trading in all U.S. equity products at 8:15 a.m. Monday. The New York Mercantile Exchange, which is owned by CME Group, also remained closed Tuesday.

Trading in equity options and futures at the Chicago Board Options Exchange, a separate publicly traded company, also was closed Monday and Tuesday.

Equity-index futures and options, which accounted for more than 23 percent of total trading volume in September, were the CME Group’s second most-heavily-traded class of contracts.

Last week, CME Group announced a 23 percent plunge in third-quarter revenue. Company executives cited the loss of one trading day in the quarter as a factor that contributed to the decline.

But Ceron thinks the potential effect of this week’s closures on the company’s top-line for the fourth quarter cannot be determined by just counting the number of lost trading days.

“I don’t think it’s as simple as looking at two normal days and thinking this is what they’re going to lose,” Ceron said. “The ultimate impact depends on how much pent-up demand there is.”

CME Group will resume normal trading of equity index contracts Wednesday as stock markets in New York City prepare to reopen and the nation’s largest city begins to clean up Sandy’s trail of destruction.

The “hybrid superstorm”, which spanned a massive 900 miles in diameter, slammed into the East Coast around 8 p.m. Monday, battering New York City with torrential rain and heavy winds. Wall Street came to a standstill as a widespread power outage and severe flooding crippled most of lower Manhattan.

Gregory Daco, an economist with research firm IHS Global Insight in Lexington, Mass., said, the storm could cut U.S. economic output in the fourth quarter by $25 billion, which would reduce the nation’s economic growth by up to 0.6 percentage points.