2 Firms Plan After-Hours Trading Systems for Small Investors
Individual investors will soon get the ability to trade stocks after regular market hours--something professional investors have long been able to do.
Rival trading systems planned by two New York companies, Eclipse Trading Inc. and Wit Capital Corp., are aimed at lessening the disparity that has for years allowed institutions to react immediately to news released late in the day--such as a company’s disappointing earnings--while small investors have had to wait until the next morning when the stock involved may have shifted significantly in price.
The after-hours systems planned by Eclipse and Wit won’t yet place individuals on equal footing with Wall Street. But they would allow small investors for the first time to execute orders after markets have closed.
Eclipse announced Wednesday that Discover Brokerage, the discount trading unit of Wall Street giant Morgan Stanley Dean Witter, will give customers access to Eclipse’s system, due to launch this summer. Eclipse also signed up Wall Street trading firm Bernard L. Madoff Securities.
Separately, Wit Capital on Wednesday hired an executive to roll out an Internet-based after-hours system by mid-year.
As individuals increasingly trade stocks over the Net, online brokers are racing to offer advanced trading capabilities.
Still, some analysts think after-hours trading will catch on slowly with individuals.
“As far as consumer demand, it’s probably going to remain a niche product for a while,” said Bill Burnham, an analyst at Credit Suisse First Boston.
The success of after-hours systems will depend in large part on the firms’ abilities to attract sufficient “liquidity,” or enough orders so that investors can easily find other people with whom to trade. Though other firms are expected to announce plans for competing systems, experts predict that only the one or two with the greatest liquidity will survive long term.
Eclipse initially plans to operate from 3 to 6 p.m. Pacific time. Investors would place “limit” orders that specify prices at which they’d buy or sell.
“It’s something that’s completely geared to individual investors,” said Michael Satow, Eclipse chief executive.
Discover customers would pay the same $19.95-per-trade fee over Eclipse they now pay for limit orders in normal online trading.
Wit’s trading hours would be 4 to 7 p.m. Pacific time. Customers would direct their brokers to route orders over its system, said Ronald Readmond, Wit co-chief executive.
The New York Stock Exchange and the Nasdaq market close at 1 p.m. Pacific time, and regional exchanges shut by 1:30. Companies often release news minutes after the close, at which point institutions can trade over Instinet, an electronic service catering to them.
Because the new services won’t immediately operate after trading ends, their customers won’t be able to trade stocks at the same time as institutions. But that’s good because it’ll give investors time to analyze company news before trading, argues Tom O’Connell, Discover’s head of information technology. “The concern here is not to have wild speculation in this market,” he said.
The advantage, potentially, would be in specifying and confirming a trade at a set price after hours--instead of getting in line to trade the next morning at whatever price prevails, when a slew of overnight orders are waiting to be processed at once.
“The only thing you know now is you’ll get a bad execution” by waiting until the next day, Readmond contends.