SEC, Nasdaq Chiefs Say Markets Can Handle Volatility, Should Stay Open

'Much Stronger Position'

At the opening bell Monday, U.S. equity markets fell more than 7%, triggering circuit breakers to halt trading. Stocks remained lower in afternoon trading, with the S&P 500 index down 9% to 2,466.

"Over the past two weeks of a very volatile time," the markets have functioned well, Clayton said. 

In contrast to conditions during the financial crisis of '07-'09, "I think our banks are in a much stronger position today …," he said. "This is a demand and supply shock."

But, according to Bianco, "Should stock prices fall to new lows and corporate bond prices decline accordingly, it risks chaos in financial markets."

As margin calls lead to involuntary liquidation, it becomes harder to "properly price illiquid securities like high-yield bonds and emerging market securities," which then could prompt funds to stop redemptions. 

"Regulators and government officials would be left with no choice but to close markets until the full extent of the economic damage could be determined and properly priced," he said. "This might be a prolonged shuttering of many weeks, akin to what is unfolding in the broader economy."

Over the past 110 years, Bianco says, the New York Stock Exchange has only closed four times for reasons not related to poor weather or infrastructural failure: from July 31 to Dec. 12, 1914, during World War I; from March 3 to 15, 1933, for a banking holiday; from Nov. 22 to 26, 1963, after President John F. Kennedy was assassinated; and from Sept. 10 to Sept. 17, 2001, following the terrorist attacks.

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