Originally created 08/28/99

Nasdaq may offer after-hours trading



NEW YORK -- With more investors now able to trade stocks after the close of traditional exchanges, Nasdaq is considering whether to use those after-hours deals when compiling each day's "official" closing stock prices, a move that would have a huge impact throughout the financial services industry.

A spokesman for the world's second-largest stock market said Friday that a decision has yet to be made on whether to change the traditional 4 p.m. Eastern time determination of the official "last price" of a stock, which is used in calculating mutual fund prices and the benchmark Nasdaq composite index. The stock prices also appear in most newspaper stock tables.

"The matter is under discussion," said Scott Peterson, a spokesman at Nasdaq's Washington offices.

Up to now, price changes in stocks traded after exchanges close are not considered official for the purposes of calculating that day's mutual fund values and stock indexes. Stock tables also do not include the after-hours trades.

A decision is expected by Oct. 1, when the Nasdaq Stock Market plans to make its trade reporting and quotation systems available through 6:30 p.m. Eastern time to trading networks that operate after the close of stock markets.

Peterson said Nasdaq will be soliciting comments in the meantime and "revisiting the issue."

"We think there can be a solution found that meets everyone's needs," he said.

Nasdaq said Friday that its systems that track stock prices and trading volume will keep operating longer to help provide more information to investors who trade after hours through electronic networks. These fledgling systems, known as ECNs, have drawn criticism for their lack of liquidity.

Nasdaq's move means that price and volume information on after-hour trades on all ECNs will become available at one central source -- the Nasdaq Trade Dissemination Service. Currently, after-hours investors only can see trades conducted on the networks they use.

As the ranks of ECNs grow, and their hours of operations expand, concern also has risen that the market has become too fragmented and investors will have difficulty finding the best price to buy or sell shares.

On Wednesday, an electronic trading system called MarketXT began allowing individual investors to trade as late as 8 p.m. for the first time. Datek Online Brokerage Services currently allows small investors to trade until 5:15 p.m., and other large online brokers, including ETrade Group, are planning similar forays into after-hours trading.

Critics of after-hours trading have argued that investors could face extremely volatile markets in after-hours trading because the trading volume is expected to be thin, which could lead to wide price swings in short periods of time.

In the past, only the market's biggest, most sophisticated players -- institutional clients such as pension funds and mutual funds -- have participated in after-hours sessions.

The National Association of Securities Dealers, which oversees the Nasdaq Market, is hoping to reduce that risk by providing access to its central trade reporting system. The move is intended to provide "a fair and transparent market to protect investors" during after-hours sessions, according to a NASD statement.

"The after-hours market presents special risks to the investor, including volatility and widely scattered prices of varying quality. We are pleased that Nasdaq has taken steps to make these prices visible to after-hours investors," said Arthur Levitt, chairman of the Securities and Exchange Commission, the government's stock trading watchdog.

Levitt said Nasdaq's move also will help brokers execute investors' orders accurately, "which is crucial to the protection of investors in this still uncharted territory."

Junius Peake, an economics professor at the University of Northern Colorado, and a former member of the NASD's board of governors, said: "Steps that will make the market more transparent and maximize the amount of information available to investors are good and will tend to increase liquidity and, presumably, reduce volatility."

The NASD emphasized that the Nasdaq is not yet extending its trading hours. The Nasdaq and the larger New York Stock Exchange are working with the Securities and Exchange Commission to figure out the smoothest process for extending trading at the United State's two largest stock markets, something that is expected next year.

The NASD's systems are being kept open so that investors can be assured they are operating in a regulated environment, Frank Zarb, the chairman and chief executive of NASD, said in a statment. But Zarb cautioned investors that "there may be different risks in this market such as potential lack of liquidity as well as potential volatility that may not be present during traditional trading hours."