Night Owl Update: Livening Up the After-Hours Trading Party

The big hitters are on deck.

Charles Schwab (SCH), the nation's largest online brokerage, in early October said it would start letting its 6.5 million customers trade after the official stock market close. Through the RediBook ECN, in which Schwab recently took a 25% stake, customers will be able to place trades from 4:30 p.m. to 7 p.m. Eastern Time. Schwab will be accepting limit orders for most Nasdaq and listed stocks.

That announcement followed by only a week news that Merrill Lynch (MER) -- which like Schwab will start offering a $29.95 online trade this fall -- wants to be a player in the after-hours game too. Merrill's still-nascent plan includes an after-hours service through the Archipelago ECN, in which Merrill has a stake, and Knight/Trimark (NITE), which clears through Merrill.

Schwab and Merrill are coming to the retail after-hours club a bit later than some of the smaller broker-dealers that jumped into the programs through growing electronic trading systems this summer.

Online Trading's After-Hours Club
Brokerage	Platform	Details
Datek Online	Island ECN	8 a.m. to 8 p.m. Nasdaq stocks, limit orders only.
Dreyfus Brokerage, Discover Brokerage	MarketXT Trading	4:30 p.m. to 8 p.m., Monday through Thursday. Some 300 active NYSE and Nasdaq issues, limit orders only.
Salomon Smith Barney	MarketXT Trading	Hours as listed above for telephone trades.
E*Trade	Instinet	4:05 p.m. to 6:30 p.m. Nasdaq and NYSE stocks. Limit orders only.
TD Waterhouse	RediBook	4:30 to 7 p.m. Nasdaq stocks, limit orders only. Effective November, certain NYSE stocks as well.
Charles Schwab	RediBook	4:30 - 7 p.m. Most Nasdaq, some NYSE stocks. Limit orders only.
Fidelity	RediBook	4:30 to 8 p.m. Most Nasdaq, some NYSE stocks. Limit orders only.
DLJDirect, Pershing (DLJ unit that clears for 600 firms)	RediBook	8 - 9:15 a.m., 4:15 - 7 p.m. Most Nasdaq, some NYSE stocks. Limit orders only.
Ameritrade	Island, MarketXT, Knight/Trimark, Chicago Stock Exchange	Not available yet.
Merrill Lynch	Archipelago, Knight/Trimark	After Jan.1, 2000.
Wit Capital	Proprietary system	6 or 7 p.m. to 10 p.m, planned for November. Nasdaq- and NYSE-listed stocks, limit orders.
CyberBroker	Island, Nextrade, MarketXT, others	8 a.m. to 8 p.m. NYSE and Nasdaq stocks, limit orders only.
Onlinetradinginc.com	Nextrade ECN	24 hours, effective April. Nasdaq stocks, limit orders only. Or from 5:15 p.m. to 9 a.m., NYSE-listed stocks, limit orders only. Also offers Instinet before and after market opens.

Stock Exchanges
Chicago Stock Exchange	4:30 p.m. to 6:30 p.m., Oct. 29. All S&P 100 and Nasdaq 100 issues, and 50-100 of the most active non-S&P 100 and non-Nasdaq 100 issues, limit orders only.
Nasdaq	Not committing to a timeline.
NYSE	Planned for 3Q 2000.

For its part, Schwab says that it wanted to wait to sign off on the agreement between ECNs on linking up for improved liquidity and transparency. Schwab Capital Markets & Trading President Lon Gorman also said that he had been lobbying for Nasdaq to extend its Selectnet hours until 6:30 p.m. (Selectnet is a system used by Nasdaq market makers to communicate prices. In October Nasdaq got Securities and Exchange Commission approval and began staying open later.)

"We have an outstanding opportunity to provide one of the better liquidity platforms when used in concert with our RediBook partners, when they eventually come up with a similar strategy," Gorman said.

Indeed, Schwab is just the first of some other large online brokerages planning to come to the game before the end of the year. Both Fidelity and Donaldson Lufkin & Jenrette (DLJ), which owns Pershing -- one of the nation's largest clearing firms -- and online broker DLJdirect (DIR), will send order flow to RediBook after hours.

The lineup for the after-hours trading game also includes E*Trade (EGRP), which started trading in October, a bit behind schedule; TD Waterhouse (TWE), which is now on board with RediBook after backing away from the Island unit of Datek Online Holdings; and Ameritrade (AMTD), which has announced for sometime this fall.

A quick look shows that delays in this area have been plentiful. In addition to E*Trade and TD Waterhouse, the Chicago Stock Exchange was held up by its application to the SEC. The exchange initially announced hours believing that it would be able to go ahead under a new pilot program rule that the SEC released in April, but then decided that it would have to file a separate application with the SEC. That approval came through along with the Nasdaq OK on Oct. 14.

So far, the Chicago Stock Exchange is the only self-regulatory organization that is heading into after-hours territory, effective Oct. 29. That will likely make its quotes the only ones to show up at first when the consolidated tape, which combines listed quotes from all the national stock exchanges, extends its closing time to 6:30 p.m. That move by the Consolidated Tape Association is, like with Nasdaq's planned extension, designed to increase transparency in the markets.

Currently, there are several different after-hours markets. Instinet, a unit of Reuters (RTRSY); Island, a unit of Datek Online; MarketXT; RediBook; and NexTrade all offer trading after the market closes. Instinet, Island and NexTrade also offer premarket sessions.

And despite all the noise by these players, another quick glance shows that after-hours trading is still very thin. Some stocks trade in small lots and others don't trade at all, while spreads can be as wide as 1/4.

Schwab's Gorman hopes it won't always be that way. With one-third of Schwab's customers in California (more than 2 million) and Fidelity and DLJ due to bring their millions of customers' orders in with the institutional orders that Spear Leeds & Kellogg already provides to RediBook, he's hoping this will be it.

"If there was an after-hours venue that should and would be successful, it should be this one," Gorman said.

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