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March 23, 2005

The Downside of an Earlier NYSE Opening

By Gregory Bresiger

Opening the New York Stock Exchange two hours earlier - a proposal under consideration - will not help the buyside, an industry trade group wrote in a letter to the Big Board. "Buyside institutions have only a finite amount of orders in any given day. Extending trading hours will not increase the number of those orders," wrote John Giesea and James Duncan, president and chairman, respectively, of the Security Traders Association.

"In fact, extending the exchange's hours could have an adverse impact on liquidity by spreading it out over a longer time span," according to the STA letter. STA complained that a 7:30 a.m. opening could wreak havoc with West Coast traders. One buyside trading executive said he understood the STA complaints. Still, he sympathized with the potential NYSE move, which would require close SEC attention "The Big Board would not do this by choice. They're afraid of competition," said the veteran trader. "Nasdaq," he added, "is extending their trading time. NYSE is looking at significant liquidity pool pre-opening demands."

Indeed, at the end of January, Nasdaq sent out several alerts to members about moving up trading hours by late March. "Nasdaq will enhance its pre-market trading capabilities by providing three sessions of pre-market trading for Nasdaq-listed securities," Nasdaq said. The sessions included one on unlocking/uncrossing a market using similar processes, such as automatic executions and order deliveries to ECNs. In a memo, Nasdaq said that pre-market trading will begin at the end of March, pending SEC approval. "Many traders," said the trading executive, "are going to trade before the NYSE opens through Nasdaq and ECNs and then just decide to stay there. At least this is what the NYSE is considering."

Joe Gawronski, chief operating officer with listed and Nasdaq agency brokerage Rosenblatt Securities, said NYSE members would support an earlier opening if Big Board CEO John Thain could justify it as helping business. That's even though Gawronski has already heard complaints from West Coast clients. Gawronski adds that market share concerns are not an issue for the NYSE's potential earlier opening.

"Today, ECNs and European exchanges trade miniscule volumes of even the very largest listed stocks prior to the NYSE open, so market share alone doesn't seem to justify the change," according to Gawronski.

Steve Austin, an Instinet spokesman, said the firm's INET ECN records, "a financially insignificant amount of its business in the pre-opening period." An Archipelago spokeswoman declined comment, saying the company was more interested in its own initiatives. Gawronski said that, unless the market share concerns of the early opening changes, the NYSE will be unlikely to move up its opening by more than a half hour. "We are looking at the issue of an early opening. But the issue hasn't been decided nor has any time been decided," said Diana DeSocio, a spokeswoman for the NYSE.