New York Stock Exchange Group, which is considering an earlier opening, should not be allowed to change its trading hours, according to one trade group.
Instead, the Securities and Exchange Commission should "arbitrate and define the hours of the day that would fall under best execution and what hours would be considered optional, or best efforts" officials of the group recently wrote.
The comments came in a recent letter sent from the San Francisco Security Traders Association (SFSTA) chapter to the Security Traders Association. SFSTA officials have said that their members are already rising at 4 a.m. to prepare for the opening of markets. Trading now begins at 6:30 a.m. Pacific Coast time, which SFSTA officials claim already is difficult.
NYSE Chief Executive Officer John Thain has said the exchange must explore new hours in light of increased competition. Changes would need to be approved by the Securities and Exchange Commission.
An earlier opening, SFSTA chapter officials contend, would impose a hardship on their members, adding new compliance and technological costs as well as raising best execution issues. SFSTA officials also said that any discussions between the STA and the NYSE on new hours should include some of their representatives.
"The SFSTA requests a seat at any table that addresses this issue. If the STA participates, we want full involvement and disclosure," according to the letter, which was signed by John Russell, president of the SFSTA. He declined to say anything beyond what was in the letter.
"Our reasoning is simple. We are deeply concerned about the future of the financial industry on the West Coast if forced to compete with earlier East Coast hours," according to the letter. "Best execution is achieved through factors such as liquidity, transparency, confidentiality, speed, information, and a level playing field; not the duration of the trading day," the letter continued.
Brett Mock, immediate past president of the SFSTA and an STA governor, warned that an earlier opening would hurt the competitiveness of West Coast firms.
"We will have many additional costs with an earlier opening. How do these additional costs get absorbed? It's not fair," Mock told Traders Magazine.
The other West Coast STA chapter, Portland/Seattle, was also said by sources to be preparing a letter opposing any earlier NYSE opening.
"Everyone on the West Coast is upset about this, but the San Francisco chapter is the epicenter of this protest," said one trading official, who declined to be quoted by name.
"STA members have a great interest in this topic," said John Giesea, chairman of the STA. "We have undertaken to understand member opinions across the country."
Giesea said so far the STA has taken no official position on the early NYSE opening. But, he added, that the STA has "found virtually no support for such an initiative." A Traders Magazine poll of 503 investment professionals-mainly buyside and sellside pros-found 68% of respondents opposed or strongly opposed to an earlier opening (See poll results in Industry Watch).
Nevertheless, the NYSE has been considering earlier hours for competitive reasons. Nasdaq's pre-opening trading and longer trading hours in Europe threaten to take more of the Big Board's listed business.
Privately, NYSE officials contend that traders who begin their day earlier trading off board are often staying there for the rest of the day after the NYSE opens. They have also noted that the Big Board needs to keep up with its Archipelago platform, which has its pre-trade opening at 4 a.m.
But SFSTA officials have argued that the Big Board could take the same step as Nasdaq without changing its official trading hours. In the latest letter, SFSTA officials also suggested that the NYSE wants an earlier opening as a way "to protect the floor community."
At press time, an NYSE spokesman said no proposal was before the board for changing the exchange's hours. However, Big Board officials have privately said that new trading hours must be considered.
Indeed, NYSE's Thain has publicly said that he is "concerned" about the loss of NYSE's listed market share. NYSE's listed business peaked in 1978 at just under 90 percent. Last year its average listed business was just under 77 percent.
Thain said that the NYSE must compete not only against domestic electronic markets, but also foreign ones, which have longer hours. A scholar who follows markets said earlier openings for the NYSE are inevitable.
"They (the SFSTA) are just going to have to get used to it," said Benn Steil, a senior fellow with the Council on Foreign Relations. He said that pros are already trading early "when there is serious news affecting markets." However, Steil added that earlier NYSE trading would probably not dramatically increase its level of foreign trading.
