During a recent financial war-game exercise at the Pentagon, I recommended that the SEC and New York Stock Exchange buy a warehouse in New York and equip it with copper-wire hardline phones, handheld battery-powered calculators, and other pre-Internet equipment. This facility would serve as a nondigital stock exchange with trading posts.
The SEC would assign 30 major stocks each to the 20 largest broker-dealers, who would be designated specialists in those stocks. This would provide market making on the 600 largest stocks, covering more than 90% of all trading on a typical day.
Orders would be phoned in on the hardwire analog phone system and put up for bids and offers by the specialists to a crowd of live brokers. This is exactly how stocks were traded until recently. Computerized and algorithmic trading would be banned as nonessential. Only real investor interest would be represented in this nondigital venue.
In the event of a shutdown of the New York Stock Exchange by digital attack, the nondigital exchange would be activated. The U.S. would let China and Russia know this facility existed as a deterrent to a digital attack in the first place.
If our rivals knew we had a robust nondigital Plan B, they might not bother to conduct a digital attack in the first place.
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