NYSE Delays Plan for After-Hours Trading

That screeching sound you heard was Dick Grasso slamming the brakes on extended trading hours at the New York Stock Exchange. No one in the back seat seemed to mind.

Citing Y2K and decimalization concerns, the Big Board's chairman and CEO said Thursday afternoon that the exchange wouldn't begin after-hours trading until the second half of next year. The announcement came after a board meeting at the exchange.

Grasso, pushed by competition with Nasdaq, electronic communications networks and alternative trading systems which are planning after-hours trading, had earlier said the Big Board could launch an evening session as early as July. Many securities firms recoiled at the possibility, citing the need for increased personnel and back-office concerns as potential hurdles.

"This shows our members that we are committed to Y2K and decimalization as our primary focus," says Robert Fagenson, president of specialist firm Fagenson and a NYSE board member until his term expired Thursday. (He didn't attend today's meeting.) Decimalization involves trading stocks in decimals instead of in fractions.

As for talk of a July start, Fagenson says the exchange felt it "needed to be in a position ... to act from a technology point of view if the board went ahead with the change."

Ian Domowitz, a Penn State professor and author of a study on alternative trading platforms, says Y2K and decimalization issues were less the reason for Thursday's announcement than a concerned exchange membership. ECNs, which match buy and sell orders, still pose a competitive risk to the exchange if they push forward with plans to trade into the evening.

"They [ECNs] may be able to attract trading that will stay with them during regular trading hours," he says. "The exchange does not see it as a profitable move. They don't believe the market share will be eroded."

The NASD, which last week said it could begin extended trading hours as early as September, declined to comment on the Big Board's decision. Eclipse, an alternative trading network, still has plans to begin trading in July in Nasdaq 100 and S&P 100 stocks between 6 p.m. and 8 p.m. ET.

Ray Murray, director of trading for Independent Advisors in Minneapolis, thinks the NYSE is trying to back away from extended trading and may use the postponement until 2000 as a way of taking it off the table completely. "This was a negatively perceived idea among many of the institutional traders," Murray says. "And now with this delay, the NYSE has the potential to abandon the idea altogether."

Many institutional trading firms, which make up 70% of the exchange, weren't happy that extended hours were going to mean a significant commitment of personnel and worker-hours. "It was going to be a nightmare for us," he adds.

Fagenson says the delay wasn't simply a mechanism to kill the extended trading hours issue in the face of opposition from some floor brokers; rather, he says, extended trading hours are inevitable.

"This delay was not because we don't think the market is ready. Competition is of the utmost importance," he explains.

Douglas Engmann, the head of clearing firm ABN-Amro Sage, says the delay of after-hours trading in the primary markets could become a long-term benefit.

"If there's true demand for it, this time allows for a thorough and organized process of the issues," he says. "Now it's incumbent upon the SEC and the exchanges to solve the problems associated with this."

Engmann says he had been concerned with back-office processing backlogs, investor protection in an illiquid setting and, in the options market, confusion over exercise and assignment issues that can only be determined by primary market equity prices.

By delaying the plan, the NYSE can attempt to rebuild enthusiasm for more trading hours while giving trading firms time to bring people on and train them. If the exchange returns to the issue next year, however, it may find a market that simply isn't interested in it anymore, especially in the wake of a prolonged downturn.

Or as Murray muses: "The board [of the NYSE] could come back and find the market much less inviting."

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