SEC Lets Big Board Expand Sessions to Win Back Trades

The Securities and Exchange Commission took a key first step on Monday toward its goal of round-the-clock stock trading in the United States by approving a modest expansion of trading hours by the New York Stock Exchange.

The action, aimed at winning back the trades that have moved overseas in an era of instant communications, is only the beginning of a determined effort to keep the U.S. markets the focus of high-volume securities activity.

Investors already can trade around the clock by placing buy and sell orders in the exchanges at London, Tokyo and other cities. But the SEC members want to bring that business home to the United States and ensure that it stays here.

The SEC voted 4-1 to authorize the first change in trading hours since 1985, when the NYSE began its 9:30 a.m. to 4 p.m. schedule.

After the floor shuts down at 4, exchange members will be allowed to send buy or sell orders through their computers on any stock until 5 p.m. The order will be executed at 5 p.m., at the final price reached before the regular closing time.

This means prices won’t fluctuate after the normal closing time, but an investor gets an extra hour to decide whether to buy or sell shares.

The second expansion of trading is designed for the needs of big institutions, such as mutual funds, pension funds and corporations, which often go into foreign markets to trade big bunches of shares after trading halts in New York.

These big market players could trade portfolios, containing at least 15 stocks with a total value of at least $1 million. The value of the individual stocks within the portfolio could vary from the closing prices in the regular trading hours.

The portfolios would be swapped on a basis of equal value. For example, one group of 20 stocks worth a total of $150 million would be traded for a package of 30 stocks with a value of $150 million. These swap packages would be traded at 5:15.

The NYSE will begin the new trading system on June 13, with individual member firms deciding if they want to participate.

The system will be operated as a two-year pilot program. After 18 months, the SEC staff will do a detailed review and recommend to the commission whether the program should be permanent. Also in six months, the staff will study ways to provide more disclosure on portfolio trades.

The exchange will offer its “strengths as a public marketplace--enhanced liquidity through broad participation, and regulatory oversight,” William H. Donaldson, the exchange’s chairman and chief executive, said Monday after the SEC vote.

The Big Board now has an average trading volume of 190 million shares daily. An estimated 15 million to 20 million shares are traded in the after-hours market. But there are no precise figures because reporting is fragmentary for many of the other markets when compared to the U.S. system.

Neither the NYSE nor the SEC have a particular target for recapturing the after-hours trading. Instead, they are hoping that a determined effort to expand trading in the United States will forestall any significant future leakage of securities activity into foreign markets.

The SEC hopes to avoid a minor irritant from growing into a major competitive threat. “This ability for issuers to list their securities on several exchanges around the world means that the only question is where the ‘after-hours’ trading will occur, not whether it will happen at all,” SEC Chairman Richard M. Breeden said.

The plan “may seem incremental, but its effect will be felt around the world as a sign that United States markets are changing their habits to meet the needs of an increasingly globalized marketplace,” he said. Breeden called it “an important first step, a modest step” that will lead to 24 hour-a-day trading by the year 2000.

The commissioners indicated their eagerness to move into the new world where trading never stops for sunrise or sunset. The expansion is “a small step, I’m tempted to say a baby step,” Commissioner Philip R. Lochner said.

The lone dissent came from Commissioner Edward H. Fleischman. He favors expanded trading hours but objected because the public will not be informed of the stocks, and the prices involved, in the portfolio trades of $1 million or more. Keeping the information secret is “too high a price to bring these (trades) back” from Europe, Fleischman said.

The only information disclosed will be the total volume of shares and the money involved in the portfolio exchanges. However, the volume and names of the stocks will be disclosed for the individual shares traded at 5 p.m.