Equity Trading Floor in Hawaii Being Planned

The Pacific Stock Exchange said Thursday that it has agreed to develop a business plan to form a new equity trading floor in Honolulu, an effort that, if completed, would likely link U.S. exchange trading hours to the opening of Asian stock markets.

A new floor--which would be added to the PSE’s existing trading facilities in Los Angeles and San Francisco--could be a key step in bringing stock investors worldwide closer to true 24-hour trading through exchanges. That could enhance the international profile of the PSE, which has been overshadowed by its bigger rivals in New York, London and Tokyo.

The exchange, under new Chairman Maurice Mann, sees links with the burgeoning markets in Tokyo, Hong Kong, Seoul and other Asian financial centers as a key part of its future.

The move also could be a major boost to the economy of Hawaii, struggling to broaden its economic base beyond tourism and agriculture.

A floor in Honolulu “would represent a worthwhile and constructive undertaking,” Mann said in a statement.

“It’s our goal to make Honolulu a significant financial center in the Pacific,” said Phillip Norris, vice president of Prudential-Bache Securities in Honolulu and chairman of the Honolulu Financial Center Task Force, an organization of Hawaii business leaders and others formed last November to attract and expand financial activities there.

However, the floor isn’t a sure thing. A business plan, to be developed with the help of an as yet undetermined consulting firm, could find that PSE members and other U.S. and Asian brokerages won’t direct enough trading volume to the new floor.

Or major brokerages may not be willing to set up big enough trading operations in Hawaii, given the rising cost of living there.

High Costs

“Nothing will work if we don’t get the order flow,” said Fred Sexton, president of the Economic Development Corp. of Honolulu, a private nonprofit organization seeking to attract investments to the city. “If we don’t have a good shot at it, it’s not worth it.”

He noted that concerns about living costs in Hawaii could be a detriment. But, he added, “It’s damn expensive to live in Tokyo or Hong Kong. Our costs look like nothing compared to what they pay there.”

As reported earlier, talks between Hawaiian and PSE officials began last February, when the parties announced that they would undertake a six-month feasibility study.

Details on what hours the new floor would be open and what new services it would provide have not been worked out, Sexton said in an interview. The PSE currently ends trading at 1:30 p.m. Pacific time, leaving a 3 1/2-hour gap until the Tokyo market--the world’s largest--opens at 5 p.m. PST. Honolulu is two or three hours behind PST, depending on the time of year.

It is assumed, however, that the Honolulu floor will be electronically linked with the PSE’s Los Angeles and San Francisco floor in the same way that those floors are linked to each other. The PSE has among the most advanced computer systems of any U.S. stock exchange.

About 50 stocks trade on both the New York Stock Exchange and the Tokyo Stock Exchange, and many of those also trade on the PSE, Mann has said.

Mann and Norris said their next step would be to retain an independent consultant knowledgeable in both securities market and exchange activities. The consultant would work with Hawaiian government officials, its business community and the PSE in completing the business/action plan by sometime this fall.

If everything moves rapidly, a new floor could be formed within a year or so, Sexton said.