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NASD Votes to Extend Nasdaq Trading Hours

Securities: Historic step could mark the start of a move toward a 24-hour market for all investors. Plan still needs SEC approval.


The National Assn. of Securities Dealers voted Thursday to extend trading hours on the Nasdaq Stock Market to accommodate the growing number of individuals who trade stocks in the evening, a historic first step toward what could eventually become a 24-hour market.

NASD's approval of a second daily trading session from 5:30 p.m. Eastern time to either 9 or 10 p.m. speeds the changes sweeping through almost every facet of the securities industry and gives individual investors greater clout to compete against large Wall Street institutions.

Though Nasdaq and the New York Stock Exchange have been reluctant to lengthen their trading days, they fear losing a potentially blockbuster business to upstart firms that are targeting small investors after hours.

"The fact is that the online trader is not going to go away," Frank Zarb, NASD chairman and chief executive, said at a news conference. "There are going to be more online traders a year from now than there are today. And that means the marketplace is shifting and moving in a [new] direction."

There are questions, however, about whether individuals would really be better off trading at night. With stock prices more volatile in after-hours sessions, regulators fear unwitting individuals could find themselves being whipsawed by wild price swings.

Some observers believe evening trading could lure newcomers to the market, but most predict that individual investor participation in after-hours trading will be sparse at the start.

The NASD plan, which still needs Securities and Exchange Commission approval, has riled smaller Wall Street firms that fear the added costs of staffing trading desks in the evening.

Initially, investors would be able to trade stocks in the Nasdaq 100 index of large companies. Though the NASD had contemplated adding the new session as soon as September, it backed away from that Thursday and said it has not yet decided on timing.

Though the plan must be approved by the SEC, observers said the NASD vote seemed to formally acknowledge that individual investors will be able to trade stocks after traditional market hours, which are 9:30 a.m. to 4 p.m. Eastern time.

The NYSE is considered likely to extend its hours later this year, and several private companies have announced plans for after-hours operations that would start as soon as this summer.

Institutional investors such as mutual funds and pension funds have long been able to trade after hours through an electronic communications network, or ECN, run by Instinet Corp., a unit of Reuters Group. In recent years, active investors known as day traders also have had access to late trading through other ECNs, most notably Island, which is run by Datek Online Holdings.

However, the bulk of individual investors trading over the Internet have been shut out of the after-hours market. Late trading is considered important because many companies release earnings reports or make other announcements after the market closes. Professional investors can immediately buy or sell the companies' stocks, but small investors must wait until the next morning, when stock prices may already have moved significantly.

Eclipse Trading Inc. and Wit Capital Corp. each have announced plans for after-hours trading by this summer. Instinet expects to roll out a similar plan by year-end.

"The two major existing marketplaces have to respond" to competitive threats, said one NASD board member.

The NASD has not yet decided when to close the second session. But because it would be either 6 or 7 p.m. Pacific time, when many people are commuting or eating dinner, California investors still may find it difficult to trade after work. However, the private companies probably would soon extend their evening hours if late trading catches on.

Stock prices can be more volatile in after-hours markets because there is less trading volume and because investors often react to news on the spur of the moment.

"The commission strongly supports investor choice in trading hours," SEC Chairman Arthur Levitt said in a statement released after the vote. "Before widespread trading begins outside of regular hours, however, a number of investor protection and market integrity issues need to be addressed."

One NASD board member expressed concerns about the cost impact on smaller brokers.

"This proposal could be a disaster if it's not implemented in a correct and reasonable fashion," said Alan Davidson, who is also president of the Independent Broker-Dealer Assn.

But other observers said extended hours will draw new people into the market just as a later closing time for a retail store lures new customers.

"You don't necessarily take the same pie and redistribute it. You actually make it bigger," said Richard Schenkman, Instinet chief operating officer.

Hear Times staff writer Walter Hamilton assess the markets most weekdays on the KFWB-Los Angeles Times Noon Business Hour on KFWB-AM (980). Hamilton can be reached at

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