Rarely does Wall Street agree on anything, but the pinstriped denizens for New York are marching in lockstep on extended trading: They all agree it is inevitable.
Make no mistake, the push for an evening session -- and eventually a morning one -- is coming more from the competition among the exchanges and electronic communications networks, which match buy and sell orders, than from hoards of traders looking to their
accounts as respite from
Not even the feeling that the initial days of evening trading will be lightly populated or that longer days will be hell on the back offices is dissuading exchanges and brokerage firms from the idea, because they're worried a competitor may get there first.
New York Stock Exchange
chieftain Richard Grasso has said the Big Board could add evening trading as early as July. Wednesday, the
board was scheduled to vote on extended hours, but it wouldn't comment on whether it took any action. And Thursday, Nasdaq parent the
National Association of Securities Dealers
Critics will tell you Nasdaq's planned 5:30 p.m. to 9 p.m. (ET) session and a similar proposal floating around the NYSE are doomed to fail because of light liquidity. And they'll throw in the fact that the evening trading volume will simply be a delayed version of trades that would've gone through during regular hours. "I believe it is a zero-sum game," says one stock exchange executive. "I just don't think there'll be the demand."
Yet Wall Street firms are preparing for the change. If the NASD board approves the proposal, it will then send its plans to the
Securities and Exchange Commission
In the next few weeks, Wall Street's trade group, the
Securities Industry Association
, will begin lobbying alongside its members, the Nasdaq and the NYSE, to try to bring the SEC around to the point of view that extended trading is not something to postpone, according to the head of a major securities firm. They will meet with SEC Chairman Arthur Levitt, who has said he would prefer to wait until 2000 to start extended trading because of Y2K computer-related issues. Levitt's decision is expected in mid-June.
And while there has been some talk about getting trading up this summer, in time to compete with ECN
already planned evening session, established exchanges will have "to work real hard to get this implemented by September,'' says the head of the major firm.
Firms are readying themselves.
has said it will make markets if the exchanges extend hours. The same is true for
"If it's within a Nasdaq-regulated environment and the market rules were somewhat similar, we would be inclined to start a pilot program," says Ken Pasternak, president and CEO of Knight/Trimark.
But at the same time, Knight/Trimark is developing a plan to handle limit orders in extended hours, regardless of whether the exchanges take the plunge.
Salomon Smith Barney
, a partner in Eclipse, says it will work to ensure that customers have "full and complete access" to extended markets, says a spokesman.
, meanwhile, is encouraging exchanges to institute extended trading hours to prevent fragmentation of the market, a spokeswoman says.
Essentially, it has become a competitive issue. "If they
Nasdaq and NYSE do it, we'll have to do it," says Alan Suslow, the CEO of
, an online brokerage. "But there are clearing issues, human costs, and it needs to be determined who is going to provide liquidity."
Suslow's clients and competitors, however, may be the key passengers for extended trading, and they've set the market up for the change. "I think people may ignore it initially, until someone cures the need for sleep," he cracks.
Still, extended trading hours don't seem like they will be a stock-freak slumber party. Suslow's Mr. Stock is owned by
, a major options trading firm. He says Group One often uses
for after-hours trading to hedge its options positions and finds "minimal activity. We go there on a need-to-trade basis," he says.
Since Instinet is the province of institutional traders, the limited liquidity there is understood and anticipated. Retail investors may not bring that experience to the evening session. "In an illiquid market, the spread is much bigger. The winners win more and the losers lose more," Suslow says. (Instinet also is planning to attack the retail brokerage market via an online trading mechanism.)
"Grasso acknowledged if they do
extend hours they're going to have to allow specialists greater latitude in how big the spreads are. They'll be fewer players, less liquidity and more volatility," says Michael Sanderson, the CEO of Eclipse, which will trade only the components of the
in an evening session in conjunction with
. The liquidity will come from its partners Morgan, Solly,
Bernard L. Madoff Investment Securities
Herzog Heine & Geduld
Sanderson isn't sure of the demand but says his firm has "built cost models that show the business being highly profitable going forward. You have to do quite a bit of volume because fees are quite small. But it should be very profitable. We have an advantage: This business can be run with more machines and the same number of people."
boss Jon Najarian is downright ebullient about the prospects for after-hours trading. His options market-making firm trades over 105 issues and stands ready to trade at the market for up to 20 contracts. He's also planning to promote clerks the firm has been grooming into trader positions for the extra hours.
Najarian is more sure of the success of extended hours. "People are just not looking at the West Coast potential. I see it potentially increasing volume 25% within six months," he says. "Exchanges would sell their souls for a 25% increase in volume."
-- Aaron Task and Caroline Humer contributed to this report.