Yesterday on CBS MarketWatch
Updated:
5/27/99 10:55:48 AM ET
The approval of late trading comes as Nasdaq and the NYSE feel pressure from electronic communications networks, which are increasingly eating into their business by serving a growing army of individual investors who want to trade after they get home from work. Some 17 percent of stock trades now take place off the exchanges through the so-called ECNs.
In a pointed aside to its nascent competitors in the e-channel, the NASD said in a statement that "if a portion of the industry acts to preempt an orderly transition, then The Nasdaq Stock Market is prepared to move quickly."
The Securities and Exchange Commission quickly weighed in on the issue, however, warning that the securities industry must ensure investors are fully educated on the ins and outs of after-hours markets before "widespread" activity can begin.
"Broker-dealers should inform retail investors in particular about after-hours liquidity and volatility conditions so investors can make an informed choice concerning whether their orders should be executed in the after-hours market," SEC Chairman Arthur Levitt said in a statement.
The SEC has veto power over any exchange rule changes governing trading hours, although it does not regulate ECNs.
Levitt said the commission will work with the exchanges and major brokerages to make sure its concerns are addressed. While urging caution, the commission "strongly supports investor choice in trading hours," the chairman said.
NYSE Chairman Richard Grasso began bracing member firms for expanded hours last year. In a speech in Vancouver, Canada, Thursday, Grasso cautioned industry leaders not to rush into expanded hours and to examine the consequences of a longer trading day, such as a possible lack of liquidity, or trading orders, that could lead to big price swings in stocks.
He also said that the NYSE had moved up its plans for expanded trading hours in 2000 and was ready to launch the longer trading day as soon as this summer, if need be. NYSE officials had no further comment on the NASD vote.
In a press conference, Grasso said late hours would appeal more to retail buyers, while institutional buyers would focus on traditional hours. Although heated discussion over the costs and personnel challenges arose while the NASD considered the move, the vote was unanimous.
Lukewarm reception
Wall Street itself is giving the plan a lukewarm reception, saying it will cause tremendous front- and back-office problems as companies like Merrill Lynch and Morgan Stanley Dean Witter figure out how to redeploy thousands of brokers and support staff.
"One of the things the Street is most concerned about would be the confluence of extended hours and T-plus-one," said Bill Irving, the capital markets industry leader for consulting at PricewaterhouseCoopers, referring to plans to process equity trades overnight vs. the current three day, T-plus-3 schedule.
"If you collapse the trade cycle, you're going to have to collapse to some extent the front, middle and back offices," he added. The NASD expects that evenng session trades would be considered next-day trades when sent to clearing.
Plans to shepherd in 24-hour trading by introducing evening hours has also received a lukewarm reception from some midsized and smaller Wall Street firms reluctant to staff in shifts.
The Securities Industry Association has called in NYSE and Nasdaq officials "to clarify their public statements" regarding expanded hours, said spokeswoman Margaret Draper. Nasdaq officials are expected to meet with SIA's brokerage firm members in the operations committee, which represents the firms' so-called back offices, on June 3.
The NASD said participation in the after-hours session by market makers, ECNs and order-entry firms would be voluntary.
And now for the SEC
The expanded hours proposal must be published in the Federal Register -- which could take one day, but that's not very likely. Then it goes to the SEC for approval.
A comment period follows and then a SEC staff review for a total for 45 days. The SEC doesn't have to act in 45 days and can extend the process for further review, SEC officials noted.
It's most likely that the NYSE will have to go through the same steps as well, SEC officials said.
"It's very possible that somebody may try to do something this year, but I think whoever does will have it on a fairly limited basis," said Lee Korins, president of the Securities Traders Association.
"There are more questions than there are answers and nobody to answer the questions right now," he added. |
