9/11: A Decade After: Wall Street Has Changed Drastically - WSJ.com
By SUZANNE KAPNER
It is an image that is hard to forget: The New York Stock Exchange not trading for the four business days starting with the Sept. 11 terrorist attacks, as fires raged in what was left of the nearby World Trade Center.
The NYSE was a not-for-profit company that in one way had changed little since 1792: Thousands of traders shouted orders to buy or sell. With Lower Manhattan caked in dust and officials barring nonessential workers from the area, opening the exchange wasn't an option until the next Monday.
A Decade After 9/11
Today, the exchange is part of publicly traded, for-profit NYSE Euronext, most transactions take place electronically and buildings outside New York can seamlessly handle trading in an emergency. The transformation wasn't wholly driven by Sept. 11, but it is part of the many changes that have reshaped Wall Street over the decade.
Like the rest of Wall Street, the NYSE has been transformed since Sept. 11. It has become much less dependent on its trading floor, yet has taken on a bigger profile globally with its 2006 acquisition of electronic trader Archipelago and a pending deal to combine with Deutsche Börse AG.
"Wall Street today is much more a state of mind than a physical location," said Roy Smith, a professor at New York University's Stern School of Business.
In the immediate aftermath of Sept. 11, observers predicted New York's financial elite would flee from the perceived security risks of the southern tip of Manhattan and perhaps shrink as well. A decade later, Wall Street is indeed smaller and more far-flung. New York City securities industry employment has dropped to 168,000 jobs from more than 190,000, according to New York state data. The collapse of the twin towers accelerated the big firms' exodus from Lower Manhattan. Morgan Stanley, the biggest World Trade Center tenant, had already moved its headquarters to midtown and moved some other operations outside the city in a bid to make itself less vulnerable to disruption.
But despite the loss of life on the day of the attacks and the departure of big firms since, Wall Street is far from deserted. The NYSE, Deutsche Bank AG and Bank of New York Mellon Corp. are among the major players that retain major presences on the Street itself. A half dozen blocks across Lower Manhattan, Goldman Sachs Group Inc. has opened a new headquarters building, just a stroll north of a financial industry giant that never left—American Express Co.
The rise in competition among exchanges means "there is no one place to target," said Lou Pastina, an executive vice president of operations for the NYSE. "There is enough capacity among all of our competitors to continue trading if anything happened again."
After the terrorist attacks, the NYSE relocated two data centers—one in Manhattan and one in Brooklyn—to Mahwah, N.J.
Meanwhile, the financial world has been dealing with an even bigger shift, the rise of computerized trading.
In 2001, the NYSE dominated the market for trading in securities listed on the exchange with an 83% share, according to Jim Angel of Georgetown University. That market share has fallen to 25%, as the NYSE has faced competition from upstart electronic exchanges—one reason behind its 2007 merger with Euronext and the decision earlier this year for those combined exchanges to join forces with Deutsche Börse of Germany.
While the rise of electronic trading has spurred an entire new industry, it also sapped profits at Wall Street firms by cutting down on lucrative commissions. Major firms turned to other areas, such as fixed income—including, during the economic boom of the middle of the decade, the sale of securities backed by home loans.
While that business boosted Wall Street profits between 2005 and 2007 and made countless traders rich, it also helped pave the way for the financial crisis of 2008.
With investors fleeing from risk, venerable firms such as Bear Stearns and Lehman Brothers—which had been a tenant at the trade center and adjacent World Financial Center before it relocated to midtown after the attacks—succumbed when they weren't able to secure funding. The bankruptcy of Lehman three years ago this month forced governments around the world to offer guarantees worth trillions of dollars to support banking systems and financial markets, setting the stage for the nervous markets and fragile economic recovery of today.
The aftershocks of Wall Street's embrace of subprime mortgages as a profit center continue to be felt. Stocks tumbled in Europe on Monday after the top U.S. housing regulator sued 17 big global banks.
Some investors say concern about the sector is overdone. Yet it isn't known when banks' outlook will clear.
"As bad as 9/11 was, it was not as bad for the financial world as the boom and bust that followed," Mr. Smith said.
