Author: Byron Gilliam
Compiled by Deep潮 TechFlow
Shenchao Insight: As global exchanges rush toward 24/7 trading, we may have forgotten one fact: Morgan Stanley survived in 2008 precisely because markets closed on weekends. Nights and weekends acted as an "emergency brake" for the financial system, giving panicked markets a breathing window—but tokenized stocks and blockchain are dismantling this safeguard.
Before the 2008 Columbus Day long weekend, Morgan Stanley appeared to be the next domino to fall in the financial crisis.
At the start of that week, the bank had $130 billion in cash on its books, and management believed it was sufficient to weather the storm.
But hedge funds that once brought down Bear Stearns, Lehman Brothers, and Merrill Lynch are now also withdrawing from Morgan Stanley—$65 billion in a single day.
This is a bank run, and it appears the only way to stop it is for large investors to inject equity capital.
"If we didn't close this deal, it was over," CEO John Mack later said. "We couldn't continue operating."
Fortunately, Mike has already secured a deal.
Two weeks ago, Japan’s Mitsubishi UFJ Financial Group (MUFG), the world’s second-largest bank with $1 trillion in customer deposits, agreed to acquire a 21% stake in Morgan Stanley for $9 billion.
Unfortunately, the transaction has not been completed yet.
The market is increasingly skeptical that it will ever be completed. Although the transaction valued Morgan Stanley at $25.25 per share, investors don’t seem convinced: the closing price on the announcement day was only $14.22.
Nine days later, it dropped below $10.
This is a big issue.
The lower the stock price falls, the less likely the trade is to be completed. The less likely it is to be completed, the more the stock price falls.
Worse still: the more the stock price falls, the more customers withdraw their funds. The more… you get the picture— a vicious cycle.
Morgan Stanley lets its stock price fluctuate, as the stock declines day after day.
"We just need to hold on until the weekend," said Charles Smith, Head of Business Development at Morgan Stanley, later.
Weekends are circuit breakers.
The weekend is a circuit breaker—a two-day window that allows Morgan Stanley to complete the transaction with MUFG without worrying about stock prices.
On Saturday, MUFG stated it remained committed to the investment but required renegotiation. By Sunday, a new deal was reached, with MUFG primarily receiving preferred shares instead of common shares.
Only the payment issue remains.
The announced renegotiation of the deal cannot prevent the death spiral from restarting as soon as trading resumes on Monday. To restore confidence in Morgan Stanley, the deal must be completed.
"We knew that if this money couldn't be delivered," recalled MUFG Chairman Nobuyuki Hirano, "the market would sell off Morgan Stanley shares, possibly driving them to zero."
MUFG is ready to pay, but there's an issue: the Federal Reserve is observing Columbus Day holiday, while the stock market is not.
Morgan Stanley needed to receive the funds before trading resumed on Monday morning, but the Fedwire payment system, which processes such large transfers, would not reopen until Tuesday.
In a market panic mode, Tuesday may have been too late for $9 billion to make a difference. By then, Morgan Stanley may have already experienced withdrawals many times that amount.
So there is only one solution: MUFG must issue a check.
Morgan Stanley Vice Chairman Rob Kindler proposed this idea on Sunday, and MUFG agreed. At 7:30 a.m. Monday, Kindler waited in a meeting room at Wachtell Lipton to receive a physical check.
"He looked terrible," Aaron Sorkin wrote in Too Big to Fail, "he hadn't slept in at least a day."
Kindle thought the check would be delivered by a messenger, so he didn’t bother shaving or changing out of the khakis and flip-flops he’d been wearing since canceling his Cape Cod vacation.
As a result, the check was delivered by a team of MUFG executives in suits, along with a film crew.
Kindler hastily borrowed a suit jacket from a lawyer, but the lawyer’s shoulders were narrower than Kindler’s—the back of the jacket tore.
“I assure you, I am the Vice Chairman of Morgan Stanley,” said the weary Kindler to his Japanese saviors.
Despite his appearance, MUFG still issued the check—giving Morgan Stanley ample time to announce it to the world before the stock resumed trading.
The stock price rose by as much as 70% that day.
The bank run has ended, thanks to this weekend’s circuit breaker—and it may soon cease to exist.
Life-saving pause button
If the S&P 500 falls 7%, trading will be halted for at least 15 minutes. If it falls 20%, trading will be halted until the next day.
These market-wide circuit breakers were established after the Black Monday crash in 1987 to interrupt panic selling before it becomes self-reinforcing.
The exchange also reserves the right to suspend trading of individual stocks pending the release of major announcements or due to order imbalances—any situation that may require investors additional time to consider.
Companies release earnings before the market opens or after it closes for the same reason. Berkshire Hathaway even releases its earnings on Friday evenings so investors have the entire weekend to process the information.
This is also the time when regulators most frequently attempt to prevent bank runs. Continental Illinois Bank, Barings Bank, and Bear Stearns were all rescued over the weekend.
The Federal Deposit Insurance Corporation almost always closes failed banks after Friday's market close, providing sufficient time to restructure under new ownership without affecting depositors' ability to withdraw funds.
Nights and weekends serve as the financial system's natural circuit breakers.
But it may not last much longer.
Yesterday, the London Stock Exchange became the latest major exchange to announce plans to transition to five-day-a-week, 24-hour trading. The NYSE, Nasdaq, and CBOE are also planning to do the same.
How far away is 24/7 trading?
The exchange is extending its trading hours to counter the competitive threat from tokenized stocks, which trade on blockchains that never close.
Nasdaq said this will also "expand investor access, broaden wealth-building opportunities, and redefine how markets operate."
I’m certain this is true. But what’s the cost?
Morgan Stanley is now a $340 billion bank—employing 83,000 people—because the market paused long enough for someone to rescue it.
MUFG still holds a 24% stake.