Article from CBS MARKETWATCH:
cbs.marketwatch.com
Lengthening the retail trading day
After-hours inching closer to reality
Eclipse links with Dreyfus, Herzog as Instinet eyes
retail
By Emily Church, CBS
MarketWatch
Last Update: 3:35 PM ET May 5,
1999
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NEW YORK (CBS.MW) -- Here's what Eclipse Chief
Executive Michael Sanderson has in mind for
after-hours trading.
It's late July and the "alternative
trading system" that posts quotes for
the purchase and sale of stocks from
market makers and broker-dealers is
open for retail business.
An investor gets home from work,
sees news on, say, Dell Computer and
decides to trade. Her online broker
offers up the closing price on the
Nasdaq Stock Market and then asks if
she'd like to see the night price
instead.
Sure. Go ahead. The online broker
then connects to Eclipse's order book,
where the buy and sell quotes for Dell
are posted. If the investor wants to
pursue the trade, she can place a
limit order into the book. The online
broker would then execute the trade.
"It's as simple as that," said Sanderson.
On Wednesday, Eclipse announced it has lined up
Dreyfus Brokerage Service (www.edreyfus.com) and
market maker Herzog Heine Geduld to provide
after-hours trading. Morgan Stanley Dean Witter's
(MWD: news, msgs) Discover and market maker
Madoff Investment Securities include those already on
board, Eclipse says.
"With all due modesty, our target is every retail
customer in America. We're a complement to
everyone's business," Sanderson said.
But volume might be a bit thin until the Nasdaq follows
through on plans to expand trading hours.
"I'm guessing we'll be trading the S&P 100 initially for
two hours in the evenings, and I'm guessing we'll have
pretty small order flow," he said. "We're going for this.
There's a huge demand, but whether it translate into
order flow, I'll let you know."
Instinet dips toe in
Individual investors have long salivated at the chance
to place a trade before or after the New York Stock
Exchange and Nasdaq open. Online brokers say their
customers have been champing at the bit.
According to a report in The Wall Street Journal on
Wednesday, Instinet, a broker-dealer owned by
Reuters (RTRSY: news, msgs), is ready to start "looking
to tap indirectly" into online trading.
Instinet is the largest of the electronic communications
networks (or ECNs) offering institutions a platform to
trade shares, and any move by Instinet to open its
doors to retail investors -- albeit indirectly, through
investors' own brokers -- would speed the broadening
of access to after-hours trading.
The significance of Instinet's interest in allowing online
brokers access to its platform is that any orders to buy
or sell stocks would bypass market makers. In
Eclipse's case, the market makers join the
broker-dealers' quotes in the order book, Sanderson
said.
Online brokers can place a customer's after-hours
order today through a market maker, but most
apparently don't. It's not clear how eager some of the
brokers will be to give up the payments they get for
sending their order flows to designated market
makers.
"It's going to have to depend on whether their
economics work by doing that," said Guy Moszkowski,
a brokerage industry analyst at Salomon Smith Barney.
"Especially where the online price per trade is
important."
Yet if commissions continue to firm for the online
brokers, there's a chance that the controversial
payment for order flow as a revenue source will
recede in importance for the industry, Moszkowski
added.
Datek-owed Island, another ECN, has been taking bites
out of Instinet's market share thanks to volume
generated by online retail investors.
It's even possible that ECNs could go online
themselves.
"Everybody is making announcements about what their
potential plans are so that they don't look like they are
left out of this move," said Bernard Madoff, principal
of market maker Madoff Investment Securities.
"I think everybody is busy saying 'Me, too,' and I don't
know that anybody has really thought through a lot of
these issues," he said. "It is one thing for any ECN to
make an announcement that they're going to give retail
access into the marketplace through broker-dealers,
but it's another thing for the primary markets to expand
their hours. That is much more complicated."
Emily Church is New York bureau chief for CBS
MarketWatch. |
