Plan For Night Trading OK'd
The National Association of Securities Dealers voted Thursday to expand trading hours on the Nasdaq Stock Market into the night, throwing down the gauntlet to the New York Stock Exchange to follow suit.
The NASD said the late trading would be from 5:30 p.m. to 9 p.m or 10 p.m. Eastern time and that it would be limited to stocks in the Nasdaq 100, the most heavily traded stocks. No time frame was given for when the expanded trading would begin but the president of the NASD said earlier this week it would not be before this fall.
The approval of late trading comes as Nasdaq and the NYSE feel pressure from electronic communications networks, which are increasingly eating their business. Some 17 percent of stock trades now take place off the exchanges through the so-called ECNs.
In a pointed aside to its nascent competitors, the NASD said in a statement that "if a portion of the industry acts to preempt an orderly transition, then The Nasdaq Stock Market is prepared to move quickly."
NYSE Chairman Richard Grasso began bracing member firms for expanded hours last year. In a speech in Vancouver, Canada, Thursday, Grasso cautioned industry leaders not to rush into expanded hours and to examine the consequences of a longer trading day, such as a possible lack of liquidity.
He also said that the NYSE had moved up its plans for expanded trading hours in 2000 and was ready to launch the longer trading day as soon as this summer, if need be. NYSE officials had no further comment on the NASD vote.
Wall Street itself is giving the plan a lukewarm reception, saying it will cause tremendous front- and back-office problems as companies like Merrill Lynch and Morgan Stanley Dean Witter figure out how to redeploy thousands of brokers and support staff.
Plans to shepherd in 24-hour trading by introducing evening hours has also received a lukewarm reception from some mid-sized and smaller Wall Street firms reluctant to staff in shifts.
The Securities Industry Association has called in NYSE and Nasdaq officials "to clarify their public statements" regarding expanded hours, said spokeswoman Margaret Draper. Nasdaq officials are expected to meet with SIA's brokerage firm members in the operations committee, which represents the firms' so-called back offices, on June 3.
The NASD said participation in the after-hours session by market makers, ECNs and order-entry firms would be voluntary.
The expanded hours proposal needs to be published in the Federal Register - which could take one day, but that's not very likely. Then it goes to the Securities and Exchange Commission, which has to approval the rules before they can take effect.
A comment period follows and then a SEC staff review for a total for 45 days. The SEC doesn't have to act in 45 days and can extend the process for further review, SEC officials noted.
It's most likely that the NYSE will have to go through the same steps as well, SEC officials said.
"It'very possible that somebody may try to do something this year, but I think whoever does will have it on a fairly limited basis," said Lee Korins, president of the Securities Traders Association.
"There are more questions than there are answers and nobody to answer the questions right now," he added.
Written By Emily Church, CBS MarketWatch