Wall St moves to evening trading

News analysis: Longer opening hours at the NYSE will `extend the lunacy', say critics

RELAXING AT his home this weekend, a mutual fund manager in New York lets out a despairing sigh. We have been discussing plans afoot to introduce evening trading on Wall Street, perhaps as early as this autumn. "It will just extend the lunacy," he says. "Wasn't it Warren Buffett who suggested opening the markets one day a year? Then maybe we could get sensible valuations instead of the madness we have now."

He is not being serious, because, like everyone else, he can see the writing on the wall. The traditional 9.30am-4pm session currently observed by the New York Stock Exchange (NYSE) and the Nasdaq is about to go the way of early closing on Wednesdays in Britain. And that may only be a first step as the New York markets look towards globalising their business.

Just how quickly all this will happen is not certain. On Thursday the owners of the Nasdaq said they will look at beginning evening sessions later this year, which probably means September. Under consideration is a second bout of trading from 5.30pm to 9pm, during which only the top 100 of the Nasdaq stocks, led by Microsoft, would be available. The announcement put instant pressure on the board of the NYSE, which meets later this week to decide its own strategy.

Richard Grasso, the chairman of the NYSE, has indicated that his exchange could be ready to make the transition as early as July, if it has to. But like many others on Wall Street, he would prefer to proceed more slowly. Ideally he would like to wait until the summer of 2000. "`What is the rush?' is my issue," he asks. "And what are the costs in terms of investor protection?"

Indeed, it is tough to find any enthusiasm on Wall Street for the longer hours. Small brokerage firms worry, for example, about the sheer expense of keeping open and staffing themselves with brokers and backroom record keepers to accommodate night-time operations.

Others, including Mr Grasso, wonder at the wisdom of such upheaval when the industry is preparing for the year 2000 and the possible disruptions that will bring, as well as plans to move from fractions to decimals in stock quotations.

Meanwhile, there is concern that the new trading sessions will, at least at the outset, attract only light volume and liquidity. That, in turn, could lead to wilder swings in prices. Increased volatility could be especially dangerous for individual investors.

And yet it is the small players who are most eager for the change. Charles Schwab, America's hugely successful discount broker, said last week that 70 per cent of its customers would like to be able to trade in the evening hours, when many of them are just returning home from work.

In an instant poll conducted last week by the financial news channel, CNBC, 53 per cent of viewers said they wanted late-hours trading while only 31 per cent opposed it.

To an extent, the exchanges can also claim to be reacting to the huge growth in Internet trading. Online share trading businesses calculate that 40 per cent of orders are placed after hours but execution of those orders has to wait until the next day. What is really driving the NYSE and Nasdaq to embrace longer hours is stiffening competition and the fear of losing business. "It's globalisation or vaporisation," says Mr Grasso.

The pressure is coming, above all, from private trading systems and electronic communications networks, called ECNs, which create their own virtual markets by matching the buy and sell orders of individual customers. Increasingly, the ECNs are encroaching on the main exchanges.

The Goliath of after-hours trading on private networks is the Reuters- owned Instinet. For now, only institutional investors can trade on Instinet after the closing bell. The company, however, may soon offer its services to private investors.

More immediate, however, are the manoeuvres of the New York-based Eclipse Trading. It recently announced plans to offer after-hours trading to individual traders from 12 July this year. If the NYSE plunges into evening trading this summer, it will be thanks to Eclipse.

Richard Schenkman, the chief operating officer of Instinet, says colliwobbles about extended hours are natural but that they will pass. He recalls the scepticism that greeted the notion of 24-hour opening for US supermarkets. Today shoppers cannot conceive of being without such conveniences.

"As you change the market, you also change the behaviour of the market," Mr Schenkman says. "When things are easier, you do it more often. When they're more difficult, you do it less. It's a fact of life."

Marc Beauchamp, spokesman for the North American Securities Administrators Association, sees it in a similar light. "We're now a nation of stockholders and the markets are reacting to that by offering convenience - just as banks did by extending hours and installing ATMs [cash machines]," he says.

For its part, the NYSE may even introduce not one but two additional sessions, an evening one and an early morning one. The first would run from 5am (New York time) until 9am, aiming to capture as many investors in Britain and Europe as possible. At night, the exchanges would be looking towards the US west coast, the Pacific Rim and Asia.

Capturing overseas investors will be necessary to ensure sufficient levels of liquidity in the new sessions. More important, however, will be firing the enthusiasm of mutual fund managers.