To address after-hours trading concerns being voiced by a wide range of stock market participants, the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD) have teamed up to form four so-called working groups. The groups, which are expected to deliver their preliminary reports by Labor Day, will examine a plethora of extended-hours trading issuesfrom investor education to the dissemination of market data to the implications of a move to a T+1 settlement date.
The NASD and NYSE have yet to announce the names of the individuals that will comprise the groupsbut have said that each group will be comprised of 12 to 14 representatives. One group will tackle the issue of investor protection and education, one will focus on clearance and settlement and back-office operations, one will look at trading conventions (such as the Intermarket Trading Rules), and one will examine options markets.
The birth of these groupswhich were created after the big board and NASD hosted an after-hours trading summit with the Securities and Exchange Commission (SEC) in late Junecomes on the heels of recent decisions by the NYSE and Nasdaq to hold off on an extended-hours migration until next year. However, a host of electronic communications networks (ECNs)including Datek Online Holdings Island, Automated Securities Clearances Brass Utility (Brut), Strike Technologies and possibly the new yet-to-be named ECN led by Fidelity, Schwab, DLJ and Spear Leedsmay now make the after-hours leap prior to the big boys.
Brian Hyndman, president of Brut, predicts that "at least four ECNs will shift to an extended-hours format before the end of this year. While declining to say whether Brut will be one of those ECNs, he says that the retail investor community is already making a big push for after-hours trading. "Our retail clients certainly want to be able to push their order flow over to us after hours," says Hyndman.
However, in a letter he fired off to SEC chairman Arthur Levitt last month, Philadelphia Stock Exchange (PHLX) Chairman and Chief Executive Officer Meyer Frucher said the fact that after-hours trading is most likely to generate interest among retail investors should be a red flag. "Few of these investors are likely to understand the liquidity and volatility issues involved when they trade in thin markets, and few of them are likely to understand the difference between entering an order after hours and executing it after hours," Frucher said in his letter.