On Sept. 11, 2001, when the World Trade Center was destroyed in a terrorist attack, the New York Stock Exchange closed. The enormous trading platform stayed dark for four straight trading days, longer than at any time since the Great Depression.
The attack exposed a hidden risk -- not from terrorists, but from beneath the exchange itself: telecommunications. Service had been lost, and fixing it would take collaboration.
The day after the attacks, most equities traders were ready for the financial markets to get back up and running. By Sept. 13, the Federal Reserve, too, was eager to get trading restarted, to pump liquidity into the markets and keep the global economy humming.
In New York and London, employees of the Depository Trust & Clearing Corporation, which processed more than 12 million trades a day for all the major exchanges, were hard at work clearing and settling the backlog, and by the 13th they, too, were good to go.
There was only one problem: Ninety percent of the lines running from traders to the major exchange floors ran over the Verizon network. And most of them were still down. The giant concrete slabs that had tumbled from the Twin Towers had slammed into the Verizon Central Office exchange at 140 West Street, crushing cables running into and out of Wall Street. Falling steel girders had sliced five stories deep into Verizon’s basement vaults, shattering water mains and flooding the central office basement.
Ten cellular towers, 200,000 personal phone lines, 100,000 business lines and 4.5 million data circuits were destroyed. And in the ruins, no one could even find the manholes, let alone start repairs.
Traders from Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley, Salomon Smith Barney and the like couldn’t connect to the NYSE to buy and sell securities. Wall Street was disconnected, and the global economy was on hold.
Long before 9/11, the Securities Industry Automation Corporation, the NYSE’s engineering arm, had called for improving the exchange’s telecommunications by constructing a secure fiber-optic network. This was a costly proposal, however, and it ran straight into the headwinds of status-quo bias. NYSE members considered it a kind of expensive insurance that they neither needed nor wanted to buy. Against what risk? they asked.
By Monday, Sept. 17, Verizon had restored enough service that trading could resume. But now, for the first time, Wall Street grasped the extent of its reliance on telecom providers. Part of the problem lay with the trading firms themselves. Over the years, they had continually upgraded to the latest communications services -- all of which hooked onto carriers like Verizon and AT&T -- and every upgrade required customization where it touched the NYSE data center. So each company was separately wired to the exchange, and that made getting back to business after 9/11 harder.
Then there were the problems with Verizon. The company’s concentration of switches and services at the 140 West Street central office and other downtown Manhattan locations created enormous unseen risk for the trading platforms. And Verizon had had the securities industry’s circuits running underground through plastic PVC piping, which was not strong enough to withstand the destruction of 9/11.
When Verizon balked at upgrading the NYSE’s telecom network sufficiently, the exchange resolved to create its own. After Labor Day 2002, the Securities Industry Automation Corporation announced it would provide a new telecom network for NYSE members called the Secure Financial Transaction Infrastructure - - a fiber-optic cable ringing Manhattan that NYSE members would hook into directly, eliminating their dependence on Verizon.
A Safer Network
The SFTI would run alongside Consolidated Edison’s high-voltage lines, which are wrapped in long concrete boxes. ConEd promised to place Wall Street’s fiber-optic cable at the lowest rung in the box -- so that if a missile or a girder or even just a backhoe broke through several layers of concrete, it would cut through ConEd’s high-voltage lines before it touched the stock exchange line.
There were huge upfront costs to making this change. Only by pooling resources could the industry construct the SFTI. But thanks to 9/11, Wall Street now understood the need for it.
Any company that wanted to trade on the NYSE was required to be on the new network. With everyone in the industry sharing, costs would be kept to a minimum. The first exchange members came on in 2003. And 85 percent of the securities industry was part of the network by 2004.
The greatest potential benefit from this collaboration is something no one ever hopes to realize: a global trading platform that rights itself quickly after a devastating attack by nature or man.
(William J. Bratton, who led the Los Angeles, New York and Boston police departments, is the chairman of Kroll, a risk consulting company. Zachary Tumin is a senior researcher at Harvard Kennedy School’s Belfer Center for Science and International Affairs. This is the second in a three-part series of excerpts from their book, “Collaborate or Perish!: Reaching Across Boundaries in a Networked World,” to be published Jan. 17 by Crown Business. The opinions expressed are their own. Read Part 1 and Part 3.)
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