Stock Exchanges Battle over After-Hours Sessions

By Fatsis, Stefan | THE JOURNAL RECORD, April 2, 1991 | Go to article overview

Stock Exchanges Battle over After-Hours Sessions


Fatsis, Stefan, THE JOURNAL RECORD


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By Stefan Fatsis NEW YORK - In a bitter dispute over the future of securities trading, the nation's regional stock exchanges are trying to block the first after-hours sessions in the 199-year history of the New York Stock Exchange.

The battle is a striking example of intermarket warfare. It also reflects the growing tension on Wall Street as new technology, private competition and foreign markets reshape the world financial scene.

At issue is a proposal by the nation's dominant exchange for two trading sessions after the NYSE's close at 4 p.m. New York time, itself a radical departure for the tradition-bound Big Board.

The plan is wrapped in technical terms like ``crossing networks'' and ``good-til-canceled'' orders, but it could affect everyone who buys and sells securities - and the places they are traded.

As such, it has generated accusations of power-mongering and hypocrisy from officials at the Boston, Philadelphia, Midwest and Pacific stock exchanges. Those, in turn, have been met with cries of sour grapes from the NYSE.

``Off-hours trading is intended as a competitive initiative,'' the NYSE said in a letter to the Securities and Exchange Commission, which must approve the plan before it can go forward. ``The regional exchanges are free to follow the NYSE's lead.''

Competition underlies the vitriol. The Big Board's share of trades in its own stocks tumbled to 66 percent in 1990 from 85 percent in 1980. The regional exchanges have done most of the siphoning, and want to protect their gains.

Private stock trading networks, not affiliated with exchanges, also are capturing several million shares of trades daily. Soon to come on line is a three-times-a-week computerized stock auction for big institutional traders, designed by Wall Street executive R. Steven Wunsch.

The NYSE wants to offer its own high-tech alternatives to recapture lost business and prevent further erosion of its market share. Its after-hours plan is part of a broader scheme for 24-hour trading by the year 2000.

``These more efficient systems that are being built privately are direct threats to (the NYSE's) viability,'' said Junius W. Peake, a financial markets consultant.

One of the exchange's sessions is designed to attract certain forms of computerized ``program trading'' now being done in London. The plan would waive transaction fees and ease disclosure requirements for participants. There is no opposition to that proposal.

The other session is intended to compete with the regional exchanges and the private trading networks Instinet and Posit, which are being used by institutions that want to cut out the middleman at the NYSE.

The regional exchanges say such a session would undermine one of the Big Board's basic tenets: that investors get the best price at all times based on supply and demand.

``It's another step by the NYSE away from ... the traditional auction market that they have defended so fervently over the years,'' said Brian Riddell, executive vice president for trading at the Boston Stock Exchange.

The so-called ``crossing session'' generating debate would last from 4:15 p.m. to 5 p.m. with all transactions occurring at the NYSE's 4 p.m. closing prices.

Orders to buy or sell shares of stock would be entered and paired off electronically. Trades that don't find a match would carry over to the next day. In addition, prearranged trades would be entered and executed during the session.

The trading method deviates from the Big Board's usual system, in which bids and offers determine the value of stocks in what is known as ``price discovery.'' Trading flow normally is regulated by ``specialists'' on the stock exchange floor, but they would have no role in the after-hours sessions. …

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