Off-Hours Trading Is on the Horizon: Taking Stock (Update1)
Bloomberg News
February 2, 1999, 4:09 p.m. PT
Off-Hours Trading Is on the Horizon: Taking Stock (Update1)
(Adds detail about Eclipse Trading plan throughout.)
New York, Feb. 2 (Bloomberg) -- Now that huge numbers of
individual investors have become accustomed to trading from their
desktop computers, their next step may be to trade on line around
the clock.
At least two firms plan online stock markets that let little
investors trade shares among themselves after the regular market
closes -- just like professional money managers.
Andrew Klein, whose Wit Capital Corp. brought initial public
offerings to the Internet, says his online market will be in
business in the next few months. Two former enforcement lawyers
for the Securities and Exchange Commission who formed Eclipse
Trading say their project will be a reality in the second or
third quarter.
Both firms say their after-hours stock markets will operate
in partnership with discount brokerages, taking a cut of every
trade the brokerages send their way. The plans depend on getting
enough online brokers and their clients to join in, though, and
it isn't clear yet that enough will participate.
''The challenge for these guys is to get sufficient order
flow,'' said Bill Burnham, who follows online commerce companies
for Credit Suisse First Boston Corp. ''It's going to take
commitments from three of the top five online brokers to make
this thing work.''
Klein said some discount brokers have signed up for the
market, which he has been planning for two and a half years, but
declined to name them. Bruce Zucker, president of
Mydiscountbroker.com, which is owned by Southwest Securities
Corp., said his firm plans to participate.
Eclipse Trading President Michael Satow said his firm
expects to have five of the top 10 online brokerages
participating when it launches its market, though he wouldn't
name them.
Many of the biggest discount online brokerages either
declined to comment or said it's too early to say whether they
will participate.
Customers
Potential customers certainly exist. A study by Burnham
found that online stock trading rose 122 percent in the fourth
quarter of 1998 from the same period a year earlier. One in seven
trades took place over the Web in the 1998 quarter, he said.
An after-hours market would help individual investors trade
on news that breaks after the stock market closes. Many companies
such as Intel Corp. release earnings after the market closes at 4
p.m. New York time.
Big investors can react by buying or selling shares among
themselves on electronic trading systems. The small online trader
can place his order when he hears the news, but it won't be
executed until the market opens at 9:30 a.m. New York time the
next day.
''Logic suggests that as more and more traders are actively
trading their accounts, (after-hours trading) would be something
that our customers would want to do,'' said Michael Anderson,
president of the brokerage unit of Ameritrade Holding Corp. The
No. 6 online broker isn't planning to join either after-hours
market for now, though it has talked to Eclipse about its system.
Point, Click, Trade
Investors who use Wit's market will see a more detailed
screen than they're accustomed to, as Klein demonstrated when he
clicked through a test version of the market at the firm's
Greenwich Village headquarters.
The customer would log on to his broker's Web site, and then
click on a Wit Capital icon to reach the market site. If the
customer wants to buy Intel, he can enter the stock symbol and
look at the market for the stock -- in other words, the orders to
buy or sell entered by other investors, along with the price at
which they will do a trade.
A trader can simply agree to buy at the lowest posted price,
or submit an order to buy or sell at a specific price. He also
can study the market. If he sees 8,540 shares of Intel offered
for sale at 134, for example, he can click on that entry to see
all the individual orders that make up that block. The investor
can try to negotiate a better price with any of the investors who
have posted sell orders.
The brokerages will collect their commission on the trades
and pass on 2 cents a share to Wit, Klein said.
Eclipse's system also will let investors see all the orders
to buy or sell a particular stock, as well as detailed
information about past trades, Satow said. Investors will trade
right from the home page of their online broker.
Klein said the Wit Capital system will let investors
potentially avoid the wide ''spreads'' on lightly traded Nasdaq
stocks. Market makers, the firms that stand ready to buy or sell
specific shares, often set the price at which they will buy far
below the price at which they will sell to compensate for their
risk.
Without a broad base of investors participating, however,
spreads could be even wider than on the Nasdaq market, said
Credit Suisse First Boston's Burnham.
IPOs
Klein, 38, started Wit in 1996 after selling shares of his
Spring Street Brewing Co. in an online initial public offering.
The firm last year hired Salomon Smith Barney Inc. Vice Chairman
Robert Lessin and other investment bankers in its effort to build
its stock underwriting business.
Wit has helped distribute shares on line in more than 40
stock sales since, including EarthWeb Inc. -- an underwriting led
by J.P. Morgan & Co. -- Tweeter Home Entertainment Group Inc.,
Cyberian Outpost Inc. and the Cleveland Indians Baseball Co.
Satow, 32, and Eclipse managing director Gene Choe left the
SEC in 1997 to start their firm. They've got financial backing
from Polaris Venture Partners, a firm whose investments have
included Allaire Corp., which had its initial public stock sale
last month. |
