Contrary to all of the media hype, there is really no pressing demand for after-hours trading in the U.S. equity markets. What's more, Wall Street brokerage houses that invest big bucks in electronic communications networks are merely sheep that are taking risks in companies that are not profitable. At least, that's the opinion of Alan "Ace" Greenberg, the long-time chairman of Bear Stearns & Co.
Speaking at a securities industry luncheon last week, Greenberg described after-hours trading as "very rare" and labeled the ECN-broker/dealer investment trend as "kind of a herd mentality."
In the past few months, a group of ECNs--including Island, Archipelago, Tradebook and Redibook--have either extended their hours past the normal close of Nasdaq and the New York Stock Exchange (NYSE) or announced plans to do so in the near future. Moreover, the Nasdaq and the NYSE themselves are both leaning toward extending their hours sometime next year.
Still, Greenberg remains ultra-skeptical about the potential of post-market trading. While asserting that Bear Stearns has in the past had the capability to trade Big Board listed-stocks until 5:15 p.m.---45 minutes beyond the normal close of the market--he says the firm has hardly ever done that. In addition, he says that NYSE members that "have offices overseas" can trade NYSE-listed stocks after 5:15 p.m. EST with whomever they want--and yet that is "very rarely done."
On top of the lack of demand for after-hours trading, Greenberg said that around-the-clock dealing is not economically feasible. "What people I don't think understand is that the personnel who work for us are very highly paid and highly skilled. To do 24-hour trading, we can't have for eight hours a day these high-priced, very-talented people working for us, and then have a bunch of dummies working for us at night, because that would bust us," Greenberg colorfully explained. "And to have highly paid, highly skilled people working for us 24-hours a day would also bust us. And we're not going bust."
Noting that "some of the finest restaurants in the world" are not open 24-hours a day, Greenberg emphasized that Bear Stearns will not make any effort "to trade to any great extent" after 4 p.m. "If the exchanges want to stay open, that's fine... But as far as we're concerned, we're busy enough operating from 9:30 a.m. to 4 p.m.," he said
As much as he is not enamored with after-hours trading, Greenberg may have even less regard for ECNs. Many of Bear's Wall Street counterparts--including Merrill Lynch, Goldman Sachs and J.P. Morgan--have purchased minority stakes in these equity trade matching systems What's more, Bear Stearns itself is a minority investor in Strike Technologies--an ECN that has struggled to gain a foothold in the U.S. equity market.
Yet, despite Bear's relationship with Strike, Greenberg was quick to point out that most of the ECNs aren't making any money, and that Reuters' Instinet--the one ECN that has traditionally been able to turn a profit--has recently had to "cut its rates" in the face of increased competition. Moreover, he poked fun at broker/dealers' widespread stakes in ECNs. "Everybody who owns a dog also has an ECN. You've got to have an ECN or else people won't like you," Greenberg quipped.
Seemingly as Greenberg joked, the ECN ownership craze grew larger. Late last week, a group of financial services firms--including Prudential Securities--purchased minority stakes in Strike. Prudential was joined by Robertson Stephens, Hull and Associates, Morgan Securities, TIR and Punk Ziegel & Co. Collectively, those firms will invest roughly $23 million in Strike, which also lists Salomon Smith Barney among its owners.