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July 31, 1999

Preparing for Extended Trading Hours

By Joe Anastasio

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  • Preparing for Extended Trading Hours
  • Page 2

The U.S. stock market is dramatically dividing between who is offering and who will offer twilight trading. Eclipse Trading in New York, for instance, plans to launch an electronic order-matching system this summer that will facilitate after-hours trading for institutional and retail investors.

So what does that mean for the traditional exhanges?

Well, Nasdaq and the New York Stock Exchange have also announced their plans to provide extended trading hours. Nasdaq plans to offer extended hours for trading its top 100 listings. There is a great debate as to whether or not this is in response to pressure from the increased activity by individual online investors. The Big Board, driven more by institutional trading than retail business, has delayed the implementation of its plans to extend the trading day, until the second half of 2000. That's because it wants to allow itself enough time to prepare for other events, such as Year 2000 programming and the switch to decimalization.

Even before the Big Board's decision to hold off, critics of extended trading hours questioned the timing of this enormous task. However, the deciding factor may be as simple as the bottom line. The U.S. exchanges are fiercely competing for the investors' dollars, not only with each other, but with the new stock exchanges - albeit electronic communication networks, or ECNs - and the foreign markets as well.

If U.S. investors don't have access to their local market when they want it, they can easily turn to opportunities in Europe or in Asia. Retail investors with the right tools - simply a computer and modem - want the same opportunity to trade as institutional investors, who currently trade after hours in foreign markets. The opportunity to execute trades in the evening gives investors with daytime jobs the ability to react to news and execute a trade in real time.

What may seem like a logistical nightmare today could, in reality, become a long-term success story. Extended trading hours can be beneficial for everyone, including investors and the financial services industry and the economy - if the proper steps are taken to prepare. The following should be considered:

* Increased Budgets - Firms that set their 1999 budgets months ago could not have foreseen the need to add personnel or enhance technology to accommodate extended trading hours. No dollar figure for the industry has been determined. The costs associated with extended trading will most likely be determined on a firm-by-firm basis.

* Staffing - Employers may find it difficult to staff up quickly. Attempting to find qualified and experienced professionals can be difficult in a market that has low unemployment. Larger firms could possibly stagger shifts as part of their solution.

* Small or start-up brokerages - Increased staffing and added costs are magnified at smaller firms, thereby making it difficult for them to compete with the bigger, more established firms. This could deter other smaller firms and start-ups from breaking into the industry.