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August 9, 2006

Study Challenges NYSE Hours

By Gregory Bresiger

Opening the New York Stock Exchange earlier would boost volume but only by about 2 percent and would mostly benefit specialists, according to a study commissioned by two West Coast chapters of the Security Traders Association (STA).

The study comes as a response to comments by Big Board officials that they would like to open the exchange 30 minutes earlier. The study says that any extension of Big Board trading hours would also increase volatility. The traders who want longer hours usually cause the volatility, according to the study, which was commissioned by the Los Angeles and San Francisco chapters of the STA. "The pre-opening trading event being sought contributes far more to volatility than to volume; even then, the bulk of volatility is not related to events, but rather to the market being open," according to the study. The study, which is entitled, "There Is No Free Lunch at the New York Stock Exchange," was written by business consultant Phillips and Associates of Pasadena, Calif. Big Board officials have frequently said they need more hours to be able to compete with exchanges worldwide.

NYSE officials, citing competitive issues, fear that the traders beginning with Nasdaq's pre-trade opening might stay with an exchange competitor for the rest of the day. But Tom Carter, STALA chapter president, dismissed competitive concerns in a recent letter to the national STA, arguing that NYSE's recent losses in listed business would not be changed. "Opening earlier...would not address many of the NYSE's problems that have led to market share loss," he wrote. "The reasons for this decline," Carter, a JonesTrading official wrote, "have resulted from the increased competition from the electronic marketplace that offers, quick anonymous executions as well as the specialist scandals that buffeted the traditional trading venues." Carter predicted that the NYSE will also continue to lose listed share as Reg NMS becomes effective.

"Changing hours," Carter said in an interview with Traders Magazine, "would have an inconsequential effect on trading volume." Carter said STALA members had met with dozens of members of Congress. He said making the Big Board more electronic would help the exchange much more than extending hours. NYSE declined comment.