Stock Market Closures: Why Keep Investors from Trading?
Dr. Bryan Taylor, Chief Economist, Global Financial Data
Stock exchanges have been closed in the past, eliminating the ability for investors to trade stocks and bonds. We’re not talking about closures overnight or over the weekend, but times when stock exchanges were closed during regular business hours, for weeks, months or even years. The best example of this was the closure of virtually every exchange in the world in July 1914 when World War I began. Stock exchanges closed to reduce volatility in the market. Officials feared that investors would overreact to the declarations of war, driving prices down and imposing unnecessary losses on anyone who chose to sell.
Today, there is no reason for stock exchanges to close. Stock exchanges can and do operate through computers which never sleep. People may sleep, but computers don’t. The situation was different in the past when traders physically met at a stock exchange and had to interact with other people to carry out a trade. Buying and selling stocks and bonds could not be entered into and carried out 24/7.
Why were stock exchanges closed in the past? Uncertainty and the fear it generated. The three main causes were war, revolution and financial crises. The fear was that because of the uncertainty brought about by war or a financial crisis, investors would panic and sell their shares or bonds, driving prices down further than they would otherwise go. Since market makers had to carry the load of the selling, they would incur large losses which might bankrupt the firm that provided a market in the stock. Stock jobbers would hold trades on their books until Settlement Day when trades were settled. Large declines in share prices could lead to losses which might bankrupt the stock jobbers. To both reduce the volatility of stock prices and to protect market makers and stock jobbers, the exchanges closed to prevent panic selling.
Closing the stock exchange, however, made investors worse off because they could no longer benefit from the liquid markets of the exchange. If the stock exchange was closed, and an investor had to sell, they were forced to seek less liquid markets either over-the-counter or through their broker. Inevitably, the authorities would have to reopen markets and stocks would readjust at that point in time. The “hope” was that market conditions would have settled by the time markets reopened and the decline would be minimized, but there was no guarantee of that.
The two main times when stock exchanges closed in the past were World War I and World War II. Although almost every stock exchange in the world closed at the beginning of World War I, closures were less frequent during World War II. During World War I, every stock exchange in the world closed simultaneously in July 1914, and then reopened at different points in time between 1914 and 1918. There was no fixed pattern of closures during World War II. Stock exchange closures varied from one country to the other and most often occurred as a result of the invasion of the country by foreign troops. The Brussels stock exchange closed twice, first between May and August 1940 when Germany invaded Belgium and second when the Allies invaded Belgium to drive out the Nazis between September 1944 and June 1945.
We have put together a list of stock exchange closures in the past and this article analyzes the causes and impact of those closures on investors. We would hope that with all transactions today being run through computers and trades occurring 24 hours a day, stock exchanges will never close again, but wars, revolutions and financial crises are still possible, causing investors to panic, and threatening the opening of exchanges in the future.
Stock Exchange Closures in the United States
Before moving on to the rest of the world, we want to look at stock exchange closures in the United States. During the 1800s, the New York Stock Exchange (NYSE) traded six days a week with shares trading between 10am and 2pm during the week and 10am and noon on Saturdays. The NYSE would periodically close on Saturdays, for example, because of high volume in 1919, 1928, 1929 and 1933 so the staff could catch up with the paperwork. The NYSE began closing regularly during the Summer on Saturdays in 1945, though not during the rest of the year, and Saturday trading was eliminated on September 29, 1952.
The NYSE remained open during the Civil War, although full day trading did not exist then. Instead, the NYSE held “call trading” sessions during which each stock was called out and people could buy and sell that stock only when it was called. The NYSE carefully went through each stock until trades for all the shares had been concluded. In 1871, continuous trading was introduced, during which stocks could be traded at any point during the day.
The NYSE closed for a week after Lincoln was assassinated on April 14, 1865, and it also closed between September 20 and September 30, 1873. This closure was triggered by the collapse of the stock market caused by the failure of Jay Cooke & Co. The company had invested heavily in Northern Pacific Railway bonds and found themselves unable to market them leading to the firm declaring bankruptcy on September 18, 1873. The NYSE closed on September 20, reopening ten days later. The NYSE managed to stay open during the Panics of 1884, 1890,1893 and 1907. No other problems forced the NYSE to close for extended periods of time during the 40 years after 1873.
The Closure of the NYSE During World War I
Ironically, it was because of the openness of global financial markets before World War I that the global closure of stock exchanges occurred. At the beginning of 1914, capital was free to flow from one country to another without hindrance. All the major countries of the world were on the Gold Standard, and differences in exchange rates were arbitraged through the buying and selling of international bonds listed on the world’s stock exchanges. A country such as Russia would issue a bond that was listed on stock exchanges in London, New York, Paris, Berlin, Amsterdam and St. Petersburg. The Financial Times listed stock and bond prices from exchanges throughout Europe. In effect, this made European stock exchanges a single, integrated market.
Traders throughout the world could sell bonds and shares instantly, and it was the fear of massive selling, large capital movements between countries, and the impact this would have on global markets that led to the shutdown of European exchanges when World War I began. There was a concern that investors would try to repatriate their money leading to massive selling, a sharp fall in prices, and large amounts of capital flowing out of one country and into another.
The impact of selling on brokers and jobbers was exacerbated by the way shares were traded on the London Stock Exchange. Individual trades were made each day, then carried until Settlement Day when trades were matched and crossed. Brokers would make up the surplus or deficit on their accounts by settling outstanding trades with cash. As long as there were no significant swings in stock or bond prices, brokers had sufficient capital to settle their accounts. However, since traders relied on credit, large swings in prices could bankrupt some of the brokers, worsening the financial panic. To avoid this problem, stock exchanges were closed until a solution could be found.
The War Drives Stock Prices Down
Of course, for investors, not being able to buy or sell shares is even worse than selling them at a loss. Although stocks could not be traded on the main exchanges, over-the-counter markets and their brokers replaced exchanges for those who were desperate to sell. Very soon after the NYSE closed, a substitute market emerged on New Street, a small roadway behind the NYSE, to accommodate trading. Shareholders were also able to carry out trades through the NYSE Clearing House beginning on August 12.
Although the NYSE was closed between July 30 and December 12 of 1914, stocks were quoted by brokers and traded off the exchange. Global Financial Data collected stock prices during the closure of the NYSE to recreate the Dow Jones Industrial Average while the NYSE was closed. We collected the data for stocks in the DJIA 20 Industrials and calculated the average of the bid and ask prices from August 24, 1914, to December 12, 1914. This enabled us to discover that the 1914 bottom for stocks actually occurred on November 2, 1914, when the DJIA hit 49.07, over a month before the NYSE reopened. Few people realize that stocks in the US had already bottomed out and were heading into a new bull market when the NYSE reopened on December 12, 1914. The DJIA did not revisit that level until the Great Depression in 1932.
Figure 1. The Dow Jones Industrial Average in 1914
The NYSE reopened trading for bonds under restrictions on November 28th; the San Francisco Stock and Bond Exchange reopened on December 1st; and the NYSE resumed trading on December 12th, with trading in a limited number of stocks with price restrictions. Trading in all stocks with price restrictions was allowed on December 15, 1914, and all price restrictions were removed on April 1, 1915, in part because stocks had rallied in the meantime.
Bank Holidays, Deaths, Weather, Paperwork and a Terrorist Attack
The longest closure of the stock exchange after World War I was in 1933 when Roosevelt declared a National Bank Holiday. The stock market, as well as all of the banks in the United States, was closed between Saturday, March 4 and Tuesday, March 14, 1933. Once the NYSE reopened, the bear market of 1929 to 1933 ended and a new bull market began.
The NYSE periodically closed to honor the death of a former President or statesman. The NYSE closed for a week after Lincoln was assassinated in 1865 and was closed to mourn the deaths of Presidents from Ulysses S. Grant in 1885 to George H. W. Bush in 2018. This included closures for the deaths of Queen Victoria in 1901 and Martin Luther King, Jr in 1968. The stock exchqnge was closed for three days in 1889 for the Centennial celebration of Washington’s inaugural. President Kennedy was assassinated on November 22, 1963. The NYSE closed at 2:07 pm and remained closed on Monday, November 25 when President Kennedy’s funeral took place, though this was as much to deal with a salad oil scandal as pay respect to the fallen President.
The NYSE had short closures due to the weather. The NYSE closed because of the Great Blizzard of 1888, too much heat in August 1917, heatless days in February 1918, snow in 1969, Hurricane Gloria in 1985 and Hurricane Sandy in 2012. The NYSE was also closed because of the Armistice in 1918, V-J Day in 1945, parades for Lindbergh in 1927 and Eisenhower in 1945, because of the Lunar Landing in 1969 and the New York City Blackout in 1977. All of these were one or two-day closures which had a minor impact on trading.
The NYSE also had to close because of too much volume and paperwork. This happened after World War I when the NYSE closed on some Saturdays in 1919, 1928, 1929 and 1933. In 1968, the stock exchange was no longer open on Saturdays, so it had to close on Wednesdays to catch up with the paperwork. As volume increased on the NYSE in 1968, it was overwhelmed with keeping track of all the trades that were occurring. By 1968, the NYSE had over $4 billion in unprocessed trades. To catch up with the backlog, the NYSE closed every Wednesday from June 12, 1968, to December 31, 1968. During 1969 and 1970, the NYSE was open on Wednesdays, but it shortened its trading hours to limit the number of trades. By 1970, computers were able to handle the extra volume, but you wonder whether the closures and shorter hours reduced the volume or just shifted trades.
If you look at the data, you will see that the number of shares traded increased by about 20 percent in both 1967 and 1968. The stock exchange closure only shifted trading; it did not slow it down. Trading declined in 1969 and 1970, though probably due to stocks entering a bear market, not because of a change in hours. Trading picked up again between 1970 and 1973 before plunging during the 1974-1975 bear market. Closures don’t reduce trading, they shift it.
The longest closure since the National Bank Holiday in 1933 occurred in 2001 when terrorists flew hijacked planes into the World Trade Center on September 11. The NYSE remained closed for the rest of the week. The NYSE reopened six days later on September 17, 2011. A full list of closures of the NYSE between 1885 and 2007 is available from LT Advisors.[
The Closure of European Exchanges During World War I.
Stock exchange closings before World War I were rare. The Paris Stock Exchange closed during the French Revolution between June 27, 1793, and May 10, 1795. The Paris Stock Exchange also closed during the 1848 Revolution between February 24 and March 6, 1848. Large-scale protests against the government on February 22 led to the abdication of King Louis Philippe on February 24, 1848, leading to a governmental and financial crisis.
South African stock exchanges closed during the Boer War between October 1899 and December 1901. Greece closed its stock exchange for two months in 1912 during the Balkan Wars. Other countries were soon to learn from Greece’s experience.
When World War I erupted, there were mass closures of stock exchanges. The problem of preventing catastrophic declines in stock prices was solved by putting a floor on share prices when stock exchanges reopened. Initially, stocks and bonds were not allowed to trade below the price they had been trading at on July 31, 1914. The government also placed restrictions on capital, limiting or preventing large flows of capital out of each country for the remainder of World War I.
It was important that stock markets reopen, primarily so governments could issue bonds to help fund the war. With these restrictions in place, markets reopened in Europe. The London Times began printing stock prices for London and Bordeaux on September 19th and for Paris on December 8, 1914. In January 1915, all shares were allowed to trade on the London Stock Exchange, though with price restrictions.
Unlike the United States, after adjusting for inflation, stocks on the London Stock Exchange declined in price during World War I. This was due not only to the decline in earnings that occurred and general selling of shares to raise capital, but just as importantly, because of the lack of new buying and the shift of capital to government war debt. British companies were allowed to issue new shares only if the issue was in the national interest, and foreign governments and companies were not allowed to issue any new shares. The British government wanted to ensure that all available capital was used to fund the growing war debt. Most of the new bonds that listed on the London Stock Exchange were British government bonds and their share of the London Stock Exchange’s capitalization rose from 9% in 1914 to 33% after the war.
Table 1 shows the closure of stock exchanges resulting from World War I. Although virtually every country closed their exchanges by August 1914, most of the Allies reopened their stock exchanges within a year of the declaration of war. This helped those countries to issue bonds to fund the war. On the other hand, most of the Central Powers kept their markets closed until 1917. Russia reopened the St. Petersburg exchange in January 1917 but closed its markets once again in March 1917 when the Russian revolution began. Austria, Belgium, Croatia, Czechoslovakia, and Poland all waited until 1918 or later to reopen their stock exchanges.
|
Country |
Closed |
Reopened |
|
Australia |
8/3/1914 |
9/28/1914 |
|
Austria |
7/29/1914 |
12/1/1919 |
|
Belgium |
7/29/1914 |
1/7/1919 |
|
Canada |
7/28/1914 |
2/1/1915 |
|
China |
7/31/1914 |
11/1/1914 |
|
Croatia |
7/29/1914 |
6/14/1919 |
|
Czechoslovakia |
7/29/1914 |
12/1/1919 |
|
Denmark |
7/31/1914 |
10/31/1914 |
|
Finland |
7/31/1914 |
3/1/1915 |
|
France |
7/28/1914 |
12/1/1914 |
|
Germany |
7/29/1914 |
11/2/1917 |
|
Greece |
7/28/1914 |
11/1/1914 |
|
Hungary |
7/29/1914 |
12/1/1919 |
|
Ireland |
7/31/1914 |
1/11/1915 |
|
Italy |
7/29/1914 |
12/1/1918 |
|
Netherlands |
7/29/1914 |
2/9/1915 |
|
Norway |
8/5/1914 |
10/21/1914 |
|
Poland |
8/4/1914 |
1/2/1921 |
|
Portugal |
7/31/1914 |
10/5/1914 |
|
Romania |
7/31/1914 |
11/1/1918 |
|
Russia |
7/30/1914 |
1/1/1917 |
|
South Africa |
8/1/1914 |
1/1/1915 |
|
Spain |
7/28/1914 |
8/24/1915 |
|
Sweden |
8/3/1914 |
11/3/1914 |
|
Switzerland |
7/31/1914 |
11/1/1918 |
|
United Kingdom |
7/31/1914 |
1/4/1915 |
|
United States |
7/31/1914 |
12/14/1914 |
Table 1. Stock Exchange Closures During World War I
The Long-Term Impact of World War I
Of course, this is not to say that no shares were traded while the stock exchanges were closed during World War I. Over-the-counter trades occurred out of necessity, but shares lacked liquid markets meaning that investors did not necessarily get the best price available when trading occurred. Governments placed price restrictions on shares and restricted trading in equities as well as the issuance of new shares, but governments issued billions of dollars in new debt.
World War I destroyed the global integration of capital markets. The Gold Standard never fully returned despite attempts after the war to revive it. The system of issuing bonds and shares internationally failed to recover after the war, and stock exchanges listed fewer international stocks and bonds. The ownership of stocks and bonds from other countries shrank dramatically.
Exchanges were subjected to extensive regulation that did not exist prior to the war. Germans were not even allowed to trade on the London Stock Exchange for decades after the war was over. London saw its role as the center of global finance reduced, and New York began to play an important role in global financial markets. Nevertheless, New York did not take on the pivotal role in capital markets that London held prior to World War I.
After World War I was over, financial markets had to deal with the dislocations created by the war: inflation, increased government debt, reparation payments, the Russian Revolution, the creation of new countries, England’s failed attempt to return to the Gold Standard, the stock market crash of 1929, the Great Depression, debt defaults, competitive devaluations, the concentration of gold in France and the United States, and a hundred other financial repercussions that resulted from World War I. The Russian stock exchange closed in March 1917 when the Revolution threw Russia into turmoil. Russia would not see its stock exchange reopen until 1992.
The Creditanstalt, the Gold Standard and the Great Depression
There were no stock exchange closures during the 1920s except for the Tokyo Stock Exchange which was destroyed as a result of an earthquake on September 1, 1923. Markets enjoyed a huge bull market in the 1920s, but markets fell into a rapid decline after 1929. U.S. stock exchanges remained open during the 1930s except for March 1933 when banks and stock exchanges were closed during the National Bank Holiday.
In Europe, several countries chose to close their stock exchanges during the financial crisis in 1931 that followed the collapse of the Creditanstalt bank in Vienna and Great Britain’s decision to leave the gold standard.
On May 11, 1931, the Creditanstalt bank in Vienna announced that it had lost more than half of its capital. The Creditanstalt bank was larger than all the other Austrian banks combined. This led to a run on the Creditanstalt. Individuals converted their Schilling into foreign currency to avoid the impact of a devaluation. This triggered runs on banks in Hungary, Czechoslovakia, Romania, Poland and Germany. When the Danatbank failed on July 13, a bank holiday was declared in Germany on July 14 and 15.
In August, the League of Nations arranged a 250 million Schilling loan to Austria from seven nations, but the situation continued to deteriorate. Great Britain went off the Gold Standard on September 21, 1931, and twenty-five countries followed in Britain’s footsteps, leaving the Gold Standard and depreciating their currencies against the U.S. Dollar. Now, the Great Depression had spread to Europe. This led to the closure of many of the exchanges in Europe until financial matters could be sorted out. As Table 2 shows, nine countries closed their stock exchanges between July and September of 1931. For some countries, such as the United Kingdom, the closure was brief, but for other countries, such as Germany and Hungary, stock exchanges remained closed until 1932. The lack of liquidity that these closures produced contributed to the depth of the Great Depression.
|
Country |
Closed |
Reopened |
|
Germany |
7/13/1931 |
9/3/1931 |
|
Hungary |
7/14/1931 |
9/1/1932 |
|
Greece |
9/20/1931 |
4/15/1932 |
|
Austria |
9/21/1931 |
9/24/1931 |
|
Belgium |
9/21/1931 |
9/24/1931 |
|
Finland |
9/21/1931 |
10/9/1931 |
|
Germany |
9/21/1931 |
4/12/1932 |
|
United Kingdom |
9/21/1931 |
9/24/1931 |
|
Japan |
9/22/1931 |
9/30/1931 |
|
|
|
|
Table 2. Stock Exchange Closures During 1931
Once stock markets recovered from the collapse in financial markets in 1931, most markets remained open for the rest of the decade. New closures occurred when World War II swept over Europe in the 1940s.
Stock Exchange Closures During World War II
The response of governments to the onset of World War II differed from their response to World War I. As shown above, World War I led to the closure of stock exchanges in almost every country in the world. Exchanges gradually reopened between 1914 and 1918. Stock exchanges were better prepared for World War II. There was no mass closure of exchanges. Generally, stock exchanges only closed when the war directly affected that country because of invasion by foreign troops. Otherwise, stock exchanges remained open.
The stock exchanges in the United States did not close either when Nazi Germany invaded Poland on September 1, 1939 or when Pearl Harbor was bombed on December 7, 1941; however, US Stock exchanges did close on August 15 and 16 of 1945 to celebrate the victory over Japan and the end of World War II, just as the NYSE had closed on Armistice Day, November 11, 1918 when World War I ended.
Spanish stock exchanges closed when civil war broke out in July 1936 and remained closed until March 5, 1940, when the civil war was over. Spain remained open during the rest of the war. Countries that did not close their stock exchanges during World War II included Canada, Ireland, Portugal, Romania, Spain, Sweden and the United States, all countries that remained outside of the fighting during World War II.
Before World War II began on September 1, 1939, Hitler incorporated Austria into Germany during the Anschluss on March 13, 1938. The Vienna stock exchange closed and when it reopened in May 1938, the Vienna Stock Exchange became a regional German exchange that traded both German and Austrian stocks. The exchange reopened as an Austrian exchange on November 15, 1945. Later in 1938, Hitler annexed the Sudetenland and took over the country of Czechoslovakia. This led to the closure of the Prague Stock Exchange between October 1938 and December 1939.
World War II began on September 1, 1939, when Germany invaded Poland. The London Stock Exchange closed for one week and Australian exchanges closed between September 1 and September 4, 1939. The Warsaw stock exchange closed on September 1, 1939, and didn’t reopen until 1991. The Helsinki stock exchange went through several brief closures in 1939, between September 1 and September 4, between October 10 and November 22 because the Soviet Union invaded Finland on September 17, 1939, and finally between November 30, 1939, and March 31, 1940. The Helsinki Stock Exchange was open during the rest of the war. The Berlin Stock Exchange remained open during World War II, though price floors and capital restrictions kept the prices of shares from falling and basically froze trading because the true value of shares was lower than the price shares were allowed to trade at.
A second wave of closures occurred when Germany invaded western Europe. Denmark and Norway were invaded in April 1940, and the Copenhagen and Denmark exchanges closed on April 9, 1940, reopening on May 21, 1940. The Netherlands and Belgium were invaded on May 10, 1940, and the Amsterdam and Brussels stock exchanges closed as a result. The Swiss stock exchanges also closed on May 10, 1940. The Swiss exchanges reopened on July 9, the Amsterdam exchange on July 15, and the Brussels exchange on August 26, 1940. Indian stock exchanges closed on May 20, 1940, when Japan invaded French Indochina and reopened on July 3, 1940.
France was invaded by Germany after the Nazis conquered the Netherlands and Belgium. The Paris Stock Exchange closed on June 10, 1940, when the French government left Paris. The Nazis occupied Paris on June 14, and the stock exchanges remained closed until October 14, 1940. After the Paris stock exchange reopened, Germany used forced registration, imposition of a maximum threshold for stock prices and taxation to discourage investing in stocks. Germany preferred the French to buy bonds to help pay for the Nazi occupation of France. Greece was invaded by Italy in October 1940, leading to the closure of the Athens Stock Exchange for two months. When the Italian invasion faltered, Germany invaded Greece on April 6, 1941, leading to a second closure of the stock exchange in Athens for the rest of the month.
Although the bombing of Pearl Harbor never led to the closing of stock exchanges in the United States, Japan also invaded other parts of Asia on December 7. Japan continued its invasion of China, and invaded Hong Kong, the Philippines, the Dutch West Indies (Indonesia), Malaya, Singapore, Burma and Thailand. The Shanghai stock exchange closed on December 8, 1941, and the Hong Kong Exchange on December 25, 1941. Neither exchange reopened during the rest of World War II.
There were no further closures of stock exchanges for the next three years. A final wave of closures occurred in 1944 and 1945 when the Allies took back the countries the Nazis had invaded between 1939 and 1940. There was no battle for Paris in 1944, so the Paris Stock Exchange did not close when the Allies freed Paris in August 1944. The Allies did have to fight for both Belgium and the Netherlands. The Amsterdam and Brussels stock exchanges closed in September 1944 with the Brussels exchange reopening on June 4, 1945, and the Amsterdam exchange in April 1946. The Budapest Stock exchange closed between December 1944 and August 1946. A list of stock exchange closures during World War II is provided in Table 3.
|
Country |
Closed |
Reopened |
|
Austria |
4/1/1938 |
11/15/1945 |
|
Czechoslovakia |
3/15/1939 |
1/1/1940 |
|
Australia |
9/1/1939 |
9/5/1939 |
|
Finland |
9/1/1939 |
9/5/1939 |
|
Poland |
9/1/1939 |
4/16/1991 |
|
United Kingdom |
9/1/1939 |
9/7/1939 |
|
Finland |
10/10/1939 |
11/23/1939 |
|
Finland |
11/30/1939 |
3/31/1940 |
|
Denmark |
4/9/1940 |
5/21/1940 |
|
Norway |
4/9/1940 |
5/21/1940 |
|
Belgium |
5/10/1940 |
8/26/1940 |
|
Netherlands |
5/10/1940 |
7/15/1940 |
|
Switzerland |
5/10/1940 |
7/9/1940 |
|
India |
5/20/1940 |
7/3/1940 |
|
France |
6/10/1940 |
10/14/1940 |
|
Greece |
10/1/1940 |
12/1/1940 |
|
Serbia |
4/1/1941 |
12/1/1989 |
|
Greece |
4/6/1941 |
4/30/1941 |
|
China |
12/8/1941 |
1/1/1946 |
|
Hong Kong |
12/25/1941 |
2/28/1947 |
|
Belgium |
9/4/1944 |
6/4/1945 |
|
Netherlands |
9/4/1944 |
4/1/1946 |
|
Hungary |
12/1/1944 |
8/1/1946 |
Table 3. Stock Exchange Closures During World War II
The three main countries that fought against the Allies during World War II, Nazi Germany, Fascist Italy and Imperial Japan saw their stock exchanges close as they suffered defeat. The Milan Stock Exchange remained open during World War II but closed in May 1945 when street fighting in Milan forced the stock exchange to close. In Germany, a floor was placed on stock prices in May 1942, price limits were placed on shares in January 1943, and these limits became legally enforceable in September 1943. These actions essentially prevented trading from taking place since the true value of shares was less than the price floors that had been placed on German shares. All the German stock exchanges closed in April 1945 as the Allies swept through Germany. The Hamburg exchange reopened on July 9, 1945, the Munich exchange in August 1945 and the Frankfurt exchange in September 1945. Trading was very limited and with German factories bombed and not operating, the shares had very little value. It wasn’t until June 1948 when shares were devalued by 90 percent and the Deutschemark was introduced that the free trading of shares returned to Germany.
The same was true for Tokyo. The Japanese government consolidated the 11 Japanese exchanges on June 30, 1943, to form the Japan Securities Exchange. Trading in Japanese stocks was halted on August 1, 1945. The Allied Forces General Headquarters authorized the resumption of securities trading on January 31, 1949, and trading began in Tokyo on May 16, 1949. However, shares traded over the counter between 1945 and 1949 and information on the prices of shares is available from The Oriental Economist and other sources. When trading resumed in both Germany and in Japan after the war, both stock markets made dramatic recoveries, though admittedly from very low levels, for the rest of the decade.
The Communist Revolutions
The final set of stock exchange closures occurred after World War II when Communist governments took control in Eastern Europe, nationalized the economy and closed stock exchanges in each country. Investors generally lost everything they had. The St. Petersburg Stock Exchange closed in March 1917 and remained closed until December 1992.
The Warsaw Stock Exchange closed on September 1, 1939, when Germany invaded Poland, and the stock exchange remained closed until April 16, 1991. The Zagreb Stock Exchange closed in April 1945 and reopened on March 30, 1992. When the stock exchange closed, Zagreb was part of Yugoslavia, but by 1992, it was the capital of Croatia. The Belgrade Stock Exchange closed in April 1941 and didn’t reopen until December 1989. The Sofia Stock Exchange in Bulgaria closed in 1947 and didn’t resume trading until October 21, 1997.
The Prague Stock Exchange closed in February 1948 and reopened on April 6, 1993, by which time Czechoslovakia had split into the Czech Republic and Slovakia. Slovakia opened a stock exchange in Bratislava on March 15, 1991. The Budapest Stock Exchange closed in March 1948 and reopened on June 21, 1990. The Bucharest Stock Exchange closed in May 1948 and reopened on November 20, 1995. Egypt nationalized the Suez Canal in 1956 and paid off shareholders in 1962 which left few shares to trade in Cairo and led to the closure of the exchange in October 1962. The Cairo Stock Exchange didn’t reopen until January 2, 1992.
The Shanghai Stock Exchange closed on December 8, 1941, when the Japanese invaded Shanghai. The exchange remained closed until 1946 when it resumed operations and closed again when the Communists seized Shanghai on May 27, 1949. After the Communists took over China, they opened stock exchanges in Tianjin between June 1, 1949, and July 21, 1952, and in Beijing between 1950 and July 21, 1952, but there were no stock exchange transactions in China between 1952 and November 26, 1990, when a new stock exchange opened in Shanghai. The stock exchange in Shanghai began operating on December 19, 1990. A list of the closure of stock exchanges in Communist countries is provided in Table 4.
|
Country |
Closed |
Reopened |
|
Russia |
3/1/1917 |
12/1/1992 |
|
Croatia |
4/1/1945 |
3/30/1992 |
|
Czechoslovakia |
4/1/1945 |
4/6/1993 |
|
Germany |
4/1/1945 |
9/1/1945 |
|
Italy |
5/1/1945 |
5/31/1945 |
|
Japan |
8/1/1945 |
1/31/1949 |
|
United States |
8/15/1945 |
8/17/1945 |
|
Bulgaria |
12/1/1947 |
10/21/1997 |
|
Hungary |
3/1/1948 |
6/21/1990 |
|
Romania |
5/1/1948 |
11/20/1995 |
|
China |
5/1/1949 |
12/19/1990 |
Table 4. Stock Exchange Closures Under Communism
Closures since 1950
Since 1950, stock exchange closures have been few and far between. The London Stock Exchange closed between February 11 and February 15, 1971, when England decimalized its economy. Chile closed its stock exchange between September 7 and September 17, 1973, when a military coup overthrew the government of Salvador Allende. The Paris stock exchange closed twice between April 3 and May 9, 1974, and between February 27 and April 2, 1979, because workers went on strike.
The Carnation Revolution in Portugal closed the Lisbon and Oporto Stock Exchanges between April 25, 1974, and March 7, 1977. The government nationalized most corporations in Portugal and the market capitalization of the stock market declined by over 80 percent as a result. Financial crises closed the Athens stock exchange between June 27 and August 3 in 2015, the Iceland stock exchange between October 6 and October 14, 2008, and Russia between February 25 and March 24, 2022, when Russia invaded Ukraine. Of course, American stock exchanges were closed after the September 11 attacks on the World Trade Center between September 11 and September 17, 2001.
Conclusion
There is a long history of governments closing stock exchanges to avoid panic and declines in share prices when some event causes a high degree of uncertainty in financial markets. The closures also helped protect market makers on the exchanges. The primary causes of stock exchange closures are wars, revolutions and financial crises. Most often, stock exchange closures only occurred for a few days or weeks, and during these short periods of time, investors could wait until stock exchanges reopened; however, closing stock exchanges was more difficult when stock exchanges were closed for months or even years, as they were during World War I. In that case, investors had to go to over-the-counter markets, sell shares through their brokers, or find other means to buy or sell shares. Even if investors were able to find a way to sell shares when stock exchanges were closed, the markets they used were less liquid than they would have been if the stock exchanges had been open, leading to second-best pricing.
Today, market transactions are by computer, and it is easier to circumvent market closures than when all transactions were on an exchange and in person. During the twenty-first century, market closures have been rare, mainly the result of financial crises, and mainly in smaller markets, such as Greece or Iceland. The only closure of a major market occurred after the 9/11 attack in the United States.
Although it is unlikely that long-term stock exchange closures will happen in the future, they may occur if the right conditions of war, revolution or financial crises occur. The last closure occurred in Russia only two years ago. When and where will the next market closure occur? No one knows, but the impact is likely to be minor.
