What Event Made It Necessary for Brokers to Work on Sunday?

In the early 20th century, global financial markets were interconnected and underpinned by the gold standard. An extraordinary global event soon disrupted routine trading, forcing an unprecedented shift in market activity. This compelled brokers to engage in trading on days typically reserved for rest, highlighting the impact of international crises on domestic financial practices.

The Global Financial Crisis of 1914

The assassination of Archduke Franz Ferdinand in June 1914 quickly led to World War I, triggering widespread panic across global financial markets. Foreign investors began selling American securities to fund the war, creating immense selling pressure on the New York Stock Exchange (NYSE). This urgent need for cash led to a substantial outflow of gold from the United States, threatening the nation’s adherence to the gold standard.

On July 31, 1914, facing a potential market collapse and massive capital flight, the New York Stock Exchange suspended all trading. This decision prevented a complete financial disaster and allowed time for stabilization. Other U.S. exchanges followed suit, closing their doors. This closure, lasting over four months, was the longest in the NYSE’s history.

The unprecedented shutdown created a unique environment, as nearly all major stock exchanges worldwide also closed by August 1, 1914, to avert financial contagion. London’s Stock Exchange also shut down for five months. This global halt in formal trading demonstrated the interconnectedness of international capital flows.

The Unprecedented Need for Sunday Trading

Despite the official closure of the New York Stock Exchange, the demand for trading did not vanish, particularly as other international markets, though restricted, began to reopen sooner than the NYSE. The London Stock Exchange and Paris Bourse eventually resumed operations, albeit with limitations on price fluctuations and capital movement. This created a unique situation where price discrepancies and arbitrage opportunities emerged between the closed American market and the cautiously re-opening foreign markets.

To address this demand and facilitate transactions for clients, an unofficial “New Street” market quickly emerged behind the NYSE in New York City. Brokers, unable to execute trades on the official exchange, resorted to over-the-counter dealings, often conducting transactions on the street. These informal operations, which sometimes handled up to 40,000 shares a day, were primarily cash transactions and were not publicly reported in newspapers to prevent further panic.

The necessity for brokers to work on Sundays arose from the continuous nature of international finance and the need to manage client positions across different time zones and operating markets. Even with the NYSE shut, American investors had holdings and obligations tied to European markets, which might be open or reacting to news on days the American market was traditionally closed. Brokers facilitated these transactions through foreign branches or correspondents, especially for clients needing to protect investments, adjust portfolios, or capitalize on currency fluctuations and price differences that emerged due to varying market statuses. This unofficial Sunday activity ensured a degree of liquidity and continuity for American investors in a highly uncertain global financial landscape.

Resolution and Return to Normalcy

The extraordinary period of unofficial trading and Sunday work gradually subsided as stability began to return to financial markets. The New York Stock Exchange first reopened its bond market with restrictions on November 28, 1914, signaling a cautious return to formal operations. This partial reopening aimed to assist in raising funds for the war effort and stabilize the financial system. Stock trading, still with limitations, resumed on December 12, 1914, marking the official end of the longest closure in the exchange’s history.

The newly established Federal Reserve System, though in its infancy, played a role in stabilizing the American financial landscape during this period. Opened on November 16, 1914, just before the NYSE’s full reopening, the Federal Reserve aimed to provide an elastic money supply and prevent banking crises, offering a new layer of stability that was absent during previous panics. Its presence helped restore confidence and manage liquidity as the markets navigated the ongoing war.

With the gradual reopening of formal exchanges and the stabilizing influence of new financial institutions, the need for brokers to engage in Sunday trading diminished. The measures taken to stabilize the financial system, including the re-establishment of official trading mechanisms and a more controlled environment, eventually eliminated the unique conditions that necessitated such unusual work hours. This extraordinary episode, though brief, underscored the adaptability of financial professionals and the profound impact of global events on market operations.