A New 24-Hour Stock Market

A small Los Angeles-based electronic discount brokerage firm will introduce a new service Monday allowing small investors to trade a limited number of stocks 24 hours a day, even after the markets are closed.

Spear Securities, an 18-employee firm that began operations last November, said the new service means that investors no longer have to wait until the market opens the following morning to have their overnight trades confirmed.

Until now, small investors have been able to request trades after hours with Spear and other brokerage firms, but the trades haven't been executed and confirmed until the market opens.

"We found that a lot of people with PCs (personal computers) wanted to place their orders at night," Spear Chief Executive Charles M. Spear says, noting that his service will be primarily aimed at personal-computer users who can link up with Spear's computers. "So we thought we ought to take the lead on developing a 24-hour market."

Spear will do this by buying or selling clients' stock for its own account. Such off-exchange "third-market" trading until now has been available only to large institutional clients through securities firms that specialize in it, such as Los Angeles-based Jefferies Group Inc.

Spear won't charge commissions for this after-hours service, but instead will earn its fee by posting a "bid" price, below the last closing price, at which it will buy from clients, and an "ask" price, above the closing price, at which it will sell. If a client wants to buy 500 shares of a stock that closed at $13.375, Spear will sell it to him for $13.75, giving it a spread of 37.5 cents per share.

Assuming Spear can buy that stock at $13.375 when the market opens, the effective commission on such a trade amounts to $187.50, compared to a $108 commission during the day when the firm acts as a regular broker. Of course, the profit could be larger or smaller depending on the price movement.

However, to minimize its risk of losses should news about a company make its stock open at a price far lower or higher than the last close, Spear says it will refuse trades in certain cases. It will also limit trading to no more than 500 shares of any one stock.

In addition, the service initially will be available only for Standard & Poor's list of 100 top stocks and 27 actively traded over-the-counter stocks, although the firm hopes the list will be expanded as investor interest grows. (The OTC stocks will be traded on the firm's regular commission schedule.)

Hugo Quackenbush, senior vice president for planning and marketing at Charles Schwab & Co., the nation's largest discount broker, praised the concept of a 24-hour market but says Spear's trading spreads "seem real high." With the option of refusing certain trades, "it's hard for them to lose money," he says.

"The concept of trying to make money by trading against your customer goes against our business philosophy," Quackenbush says. Schwab may eventually offer a similar service, he says, but with lower spreads, a wider range of stocks and no refusals. It would do that by consolidating orders and executing trades through Jefferies and other third-market traders, he says.

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