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Extended hours are coming
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May 25, 1999: 9:37 p.m. ET
And 24-hour trading is next. But what does it mean for the markets?
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NEW YORK (CNNfn) - With both Nasdaq and the New York Stock Exchange considering becoming big stock-selling 7-11s, or 9:30-10s at least, the world of 24-hour trading is in sight.
"You'll be able to trade Intel at midnight," promised Matt Andresen, president of the electronic communications network Island. Thanks to computers, he said, 24-hour trading is "a definite eventually in this marketplace."
But what does it mean, extended, even round-the-clock trading? Assuming you're not the type who wakes up in the dead of night with an investment itch you've just got to scratch, some market insiders say making use of extended trading hours might be a rash move.
Liquidity, volatility, the prospect of market manipulation and uninformed investors rising from their sheets only to lose their shirts. "There are a lot of unanswered questions," said Dale Carlson, spokesman for the Pacific Exchange in San Francisco.
Longer hours are coming
Of course, round-the-clock is some way off. But extended hours of some sort are inevitable, most experts say.
Nasdaq's board of directors meets Wednesday to discuss extending its trading day with an evening session from 5:30 to 9:00 p.m. More than likely, at first it would only offer longer hours in only its largest 100 or 500 stocks.
The New York Stock Exchange is moving up its timetable for extending hours. It could have a shift running as late as 10 p.m. as early as July, its chairman, Richard Grasso, said Monday. Its members meet this week.
Any extension would need approval from the Securities and Exchange Commission. But the major exchanges will likely push hard to stay open longer, faced with pressure from ECNs such as Island and Instinet, which already offer after-hours trading.
And that causes a dramatic shift in the way markets, and those who toil in them, will work.
Round the clock trading not far off
Within the next five years there will be a seamless handoff between the major exchanges around the world, according to Don Hays, chief investment strategist for Wheat First Union.
"I'm not saying the U.S. market is going to be open 24 hours -- it'll just flow into the next market when it opens," Hays said. Tokyo hands off to London hands off to New York. "And electronic trading will go on all night long."
That means businesses around the world will have to comply to U.S. and U.K. rules for disclosure and accounting. Right now, companies in many nations "are not really willing to step up to the plate," Hays said. "But they will when they need capital, and this is where the capital is, New York and London."
Having access to late-night trading doesn't mean it's a good idea to start right away, though. Hays said that, at least short-term, volatility will be high during what are now off hours. "It'll get people to want to manipulate the market or play games."
"These day traders are fairly unsophisticated but they think they're sophisticated. I think they'll be taken advantage of by the people who are big enough to make the swings," the big investment houses, he said. Over the next 10 years, the market will get used to operating full time and act more typically in terms of volatility and liquidity in longer hours.
But they're not that happy either
Finance professionals, particularly brokers, don't necessarily welcome longer trading hours. The move worries some that the industry would just cannibalize next-day trading while adding more staff.
But for most financiers, excluding traders and the back office, the world would go on as usual. "Wall Street has come pretty close to being an around-the-clock enterprise anyway," said Christine Callies, chief U.S. investment strategist for CS First Boston. She doubts any mutual fund is going to hire two portfolio managers to split shifts managing a fund.
Mainly Callies worries about the quality of after-hours trading, whether it's electronic or in extended hours. Lack of liquidity might make the large Wall Street companies wait until the opening of regular trading the next day anyway, she said.
Extended hours and 24-hour trading would eliminate some opportunities for arbitrage, in which hedge funds and the like can profit by taking huge stakes on one market, knowing the price has already moved in a certain direction on another.
"If the markets become more and more interlinked, price discrepancies will get smaller and correct much faster," she said. "That's good news for the average investor, but obviously not good for the arbitrage community."
Kitchen-table investors catching on
In fact the push for extended hours mainly comes from individual investors, not Wall Street. It's retail investors driving the push, a Nasdaq spokesman said, "individuals trading from their kitchen."
That image is new but has rapidly swept the investment community. "Who would have thought five years ago that people would have been sitting around the kitchen table talking stocks and wanting to do it right then?" asked Marta von Loewenfeldt, a spokeswoman for brokerage Charles Schwab Co.
Schwab has encouraged Nasdaq and the NYSE to extend their hours because the San Francisco brokerage has a large West Coast clientele. They're tech savvy, and by the time of a late lunch the East Coast markets are closed. Both facets makes them interested in after-hours trading and electronic executions.
"But in after-hours trading, there's probably going to be significantly lower volumes [of stock] traded," von Loewenfeldt said. Liquidity will be crucial, she continued, and "with the established markets participating, there's a better chance in getting liquidity."
Online trading leading the way
Though Schwab has the largest share of online trading, one force driving the push for extended hours, it has less than one-half of one percent "hyperactive" traders, von Loewenfeldt said. They're the most likely to use after-hours trading at the moment, she said, and some think in the future, too.
While it has not seen huge demand for after-hours trading, Datek Online Brokerage has had "a noticeable amount of queries" about it, according to chief marketing officer Rob Bethge. He also worries about the lack of liquidity during a time when there are fewer buyers and sellers.
"Markets act differently at 3 a.m. than they do at 3 p.m.," he said. Datek is trying to provide full information for investors who choose to trade off-hours, he said.
ECNs say they welcome longer hours
He knows that because limited round the clock trading already happens. But at the moment it's via the ECNs. Island dominates the retail market, mainly appealing to brokerages rather than to end users. Instinet corners the institutional trading market and says it gets 90 percent of the after-hours market at the moment.
Andresen, the Island president, said it would welcome extended hours. It already competes with Nasdaq during the regular trading day. Around 4 million of the 100 million shares that change hands via Island trade after hours.
Longer hours are "a good thing," Andresen said. "The more choice that is out there the better." He thinks it'll be a retail driven market, dominated by online traders.
"If you get home at 9 p.m. and you try to call your broker, is he going to be there? I don't think so," Andresen said. "But your computer will be. It doesn't have a mortgage and it doesn't need to sleep."
Instinet would also happily give up its virtual after-hours monopoly, according to Instinet's Chief Executive Officer Doug Atkin. It trades 20 million to 25 million shares after hours a day, he said. But it trades 150 million during the main market's trading hours.
"Like in most industries, if you keep the stores open longer, keep the markets open longer, you create whole new areas of consumer interest," Atkin said. Instinet will operate through or compete with the major exchanges as its customers want, he said.
But he sees extended trading as a convenience that individual traders would like to take advantage of. "Most Americans work during the day, go home, have dinner, put their kids to bed," he said. "Then 10 p.m. rolls around and they go online. They probably want to trade then."
-- by staff writer Alex Frew McMillan
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