Three Weeks Later, After-Hours Trading Is Still an Afterthought

Burton Carlson, 30, of Detroit isn't your typical investor. He has actually placed an after-hours trade.

His take on it? A lot more hype than trading. And Carlson's not alone in his thinking.

Neither MarketXT, the company that hosts a new evening trading session, nor participating brokers Discover Brokerage and Dreyfus Brokerage or market maker Herzog Heine Geduld say they're worried or surprised by the session's anemic volume.

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TSC Message Boards. For example, Thursday evening's session saw the 10 most-active stocks trade a grand total of 4,775 shares, led by Dell (DELL) with a whopping 1,200 shares. In the first half-hour of Nasdaq trading Monday morning, by contrast, 2.3 million shares of Dell alone changed hands.

The slow start to the after-hours trading sessions was expected, the firms say, and was in part by design: A mid-August launch promised that the impact of any technology-related problems would be minimal. Beyond the hurdle of launching, though, there is another larger question: Is the U.S. ready for a 7-Eleven in the securities industry?

Truly significant growth in after-hours trading will come when the New York Stock Exchange and the Nasdaq stock market get involved, says Samuel Hayes, a professor at Harvard Business School. Both exchanges have said they're planning to launch after-hours trading in 2000.

"It would be unusual if something like this were to take off with a bang," Hayes says. "I think it's more likely to start with a whimper and gather momentum if the exchanges have the staying power."

As the NYSE and the Nasdaq vie for leadership in international markets, they are likely to do whatever is needed to pull in customers, including creating U.S.-based trading sessions that will compete with foreign markets, Hayes explained.

Retail investors have been drawn into the U.S. stock market during the longest bull market in history, but institutions still hold the majority of stocks here. Overseas, institutions have an even larger hold on stock ownership, with individual investing lagging behind the U.S. trend.

The additional traffic likely will have a ripple effect. But MarketXT isn't exactly waiting around; it is on the hunt to develop some home-grown volume through more partnerships with retail brokerage firms.

"We need to get more people to have access to it," says MarketXT founder and President Michael Satow. "The Salomon Smith Barney entrance with over 6 million accounts will help us." Solly plans to let all its clients trade with MarketXT by the end of September.

So after having been around for three weeks, MarketXT, formerly known as Eclipse Trading, may be acting more as a wake-up call to anyone who's paying attention than as a credible market for any particular stock.

Indeed, in an effort to meet with increased demand for after-hours trading, the Island electronic trading system said Monday it plans to extend its trading close to 8 p.m. this week. Currently, Island allows its subscribers, who are mostly broker-dealers, to trade from 8 a.m. to 5:15 p.m. Eastern time.

Island's vice president of sales, Jack Vensel, said Island had been talking to subscribers about lengthening the session since the beginning of the summer and that the move wasn't made in direct response to the MarketXT session, which runs from 6 p.m. to 8 p.m. Vensel said that 73 of its more than 200 subscribers have used the after-hours session so far.

On some evenings, the MarketXT system has traded fewer than 10 issues, leaving its most-active stocks table incomplete.

But with three Wall Street firms making markets, the wide bid-asked spreads feared by some critics haven't generally prevailed.

Bernard L. Madoff Investment Securities, Herzog Heine Geduld and Morgan Stanley Dean Witter (MWD) have committed manpower and liquidity to the markets, with the goal of keeping an orderly market in the 200 biggest stocks that trade on MarketXT, whose sessions run Monday through Thursday.

Emanuel "Buzzy" Geduld, president and chief executive of the Nasdaq market maker, says that what started as a staff of eight traders and salespeople for the after-hours session contracted to six, then four. The work required now could be done with one or two people, he said.

Geduld's firm's involvement, and that of the other market makers, is one reason investor Carlson says he is trading with MarketXT instead of Island. Carlson says he has an account at both Discover and Datek Online, which began offering after-hours trading through the Island electronic communications network (also owned by Datek) in July. Island is a pure electronic order matching system, while MarketXT is an electronic-order matching system with market makers entering both bids and offers.

"At first I thought I'd be able to make a buck off it," he says. "I thought I'd be able to take advantage of someone leaning the wrong way and I haven't been able to do that.

"That's just because no one else is playing," Carlson continues. "The only reason I would stop is if the liquidity dried up."

It looks like that liquidity -- however limited -- will be staying in the system. MarketXT isn't turning off the computers, the brokerages aren't closing off their links and Geduld has no plans of sending all his traders home early.

"For us, it's not a big deal. We can keep a couple of guys there."

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