After-hour's trading losing its appeal

One of the most familiar sights of the historic New York Stock Exchange is the ringing of the bell to open and close the market.

Often this duty is performed by a celebrity or an executive of a company about to go public. For example, Muhammad Ali rang the bell on December 31st, 1999, to signal the end of trading for the last millennium.

Although almost 5,000 companies trade their securities on the Nasdaq Stock Exchange, the world's first electronic based market, the Nasdaq did not have a physical presence where members of the public could go to watch trading activity. That changed last autumn when it opened the Nasdaq Marketsite in a building situated right in the heart of Times Square in, appropriately enough, the theatre district on Broadway and 43rd Street.

With glass all around and several floors high, the brightly coloured company ticker symbols and price quotes flash by on a huge screen which is often used as a backdrop for financial news reporters broadcasting on television.

Over the past three years, electronic communication networks (ECNs) have grown into a formidable force in the Nasdaq market. ECNs are electronic systems that disseminate stock orders to third parties in a manner similar to an auction market. ECNs are registered agency broker/dealers that match buy and sell orders of their clients.

However, unlike other agency broker/dealers, ECNs are allowed to post their best bid and offer on the Nasdaq quote montage, a market privilege previously given only to Nasdaq market makers.

According to Celent Communications, a research firm in Boston, nine ECNs account for nearly a third of all Nasdaq trade volume. It predicts they will comprise more than 50 per cent of all Nasdaq trading share volume by 2003 helped in part by their role in trading stocks after the official market closing at 4 p.m.

The largest ECN is Instinet which is owned by the Reuters Group. Instinet operates 24 hours a day and trades an average 400 million shares a day during traditional market hours and extended hours. About 30 million shares are traded through Instinet during pre- and post-market sessions which represents up to 50 per cent of all stocks trading after market hours.

The second largest ECN is Island which is owned by private equity firms including Bain Capital. It operates from 7:00 a.m. to 8:00 p.m. It trades about 300 million shares a day, about 20 million of these during extended hours of 7-9:30 a.m. and 48 p.m.

After hours trading of Nasdaq stocks is not new, however last week, for the first time, the chairman of a Nasdaq listed company led the Nasdaq Market Transition between the official 4:00 p.m. (eastern standard time) close of the stock market to extended trading hours for Nasdaq stocks.

James C. Morgan, chairman and chief executive officer of Applied Materials, a $10 billion company that produces systems that make microchips, pressed the button at the Nasdaq MarketSite to signal after-hours trading. "This signals the closing of the exchange and the move to after-hours trading," Mr Morgan said.

Mr John Hilley, chairman and chief executive officer of Nasdaq International, who hosted the ceremony said: "We are proud to have Mr Morgan here as the first CEO of a Nasdaq company to preside over a Nasdaq Transition Ceremony. We view this as a symbol of our vision towards a global marketplace that will allow for 24-hour seamless stock trading around the world regardless of official market closing times."

However, with the recent downturn in the US stock markets and a slowdown among technology stocks, the future of day trading and after-hours trading is not as rosy as it was last year.

One consultant at a large insurance company in Jersey City said last year many of his co-workers spent a large portion of their work day trading stocks online. Now, he said, "that's history. Nobody mentions the stock market anymore. I think a lot of people are embarrassed to admit how much they lost".

I asked Jack Krupansky a columnist with Harry Newton's Technology Investor newsletter, if he thought shares in technology companies would continue to plummet. "Corporate decision makers have investment and tech spending in a death grip," he said.

"It's a vicious cycle: every time a company cuts a job or spending, those `savings' come out of the revenues of other companies who are then forced to do the same."

In what could be a sign of things to come, Charles Schwab, the US's largest online brokerage last week said it would cut 3,400 jobs, 13 per cent of its workforce, because it does not expect a rebound in investor sentiment. The company expects the job cuts will save it about $50 million a quarter.

"We face a period where our clients are trading less, and trading less in a profound way," said Mr David Pottruck, co-chief executive officer of Schwab. Now that stock trading is waning, it seems customers want more advice.

Other securities firms that have announced job cuts recently include Merrill Lynch and Bear Stearns.

"People aren't talking about day trading anymore," Mr Krupansky said. He believed the only companies that seem to be doing any business are the in-house trading operations at hedge funds and brokerages. "There are three things that brokerages are doing: IPOs, selling stock to retail investors and short-selling stocks they sold last year," he said.

While Nasdaq may be leading the way with after-hours trading, the question is whether there is anyone with the stomach, let alone the money, to trade stocks.