Commentary

Derek Edward Schloss
Traders Magazine Online News

What the !@#$ is a Security Token?

In this first part of a series, Mr. Schloss will begin to explain what a security token is by explaining how the building blocks of securities law are fundamental to understanding the tremendous value security tokens will one day unlock.

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August 31, 1999

Clearing the Way for the 21st Century

By Richard J. Maturi

Some are pessimistic about the value of extending the hours. "It will happen and we will be ready to participate in extended trading hours but we don't know anybody that is clamoring for it. At this stage it is driven more by the press than reality and early trading should prove to be very diminutive," says Behrens of InvestecErnst.

The move toward extended hours trading heated up in late August when E-Trade Group announced it would offer individual investors access to after-hours trading through Instinet, a unit of Reuters PLC and the biggest market for buying and selling stock when traditional exchanges are closed. In contrast with other trading systems limited to Nasdaq stocks, Instinet provides E-Trade customers after-hours access to New York Stock Exchange issues.

"We are keeping our options open in regard to extended trading hours, monitoring what is happening in the marketplace. One major concern is the degree of liquidity that will be available in extended hours trading and educating our customers on the differences from regular trading hours. In the meantime we are reviewing the implications on our trading operations and systems," explains Fidelity's Mazzarella.

Fidelity Investments, Charles Schwab Corporation, Donaldson, Lufkin & Jenrette and Spear, Leeds & Kellogg announced an agreement in late July forming a joint venture to launch a new ECN. The group's strategy for establishing the ECN is to provide customers with high-quality executions and increase liquidity by pooling the large order flow of the four firms.

Remaining competitive in a global market may warrant around the clock trading. "We believe we will have to be ready for extended trading hours before the industry. The need to compete globally leads to extended hours. Risk management will eventually force the need for real-time trading," cautions Pershing's Baker.

Baker also sees an industry consolidation taking place as innovative, entrepreneurial companies lead the way, seeking partners to acquire needed capital to grow or attract acquirers seeking to buy into market niches and new technologies.

As the volume is anticipated to increase, firms must be prepared. "At this stage, we do not know what the impact on volume will be due to extended hours trading. We have not yet added new trading staff. We pride ourselves on being technologically advanced and offering a full array of financial products and services to our customers and will add staff to the trading desk as volume dictates," boasts Son of Penson Financial Services.

Laying out the exact approach to handle extended hours requires careful planning. "We're taking a three-pronged approach to extended trading hours. First of all, we are trying to understand industry events, new technologies and new companies with new products and services. Second, we focus on the needs of our clients to determine who is and who is not interested so we can respond appropriately. Third, we are making sure the proper technologies and operating mechanisms are in place to serve our customers. Our main focus here is on providing a high quality of service. Extended trading hours will happen and we will make changes as the need arises," concludes Weiss, Peck & Greer's Nadel.

To be sure, plenty of challenges remain as the securities industry enters the 21st century but clearing firms and their industry counterparts have been working hard to make the path a smooth one. Minor glitches will occur but the overall clearing and settlement process will move forward on track, providing clients and end-users with quality transaction service. The future looks bright for those armed with years of preparation.