Commentary: Fear Not The Dark, Stock Traders

Are investors safe after dark? Conventional wisdom says they're not. As brokers and alternative trading systems rush to extend stock transactions into the evening and early morning, regulators and experts pile on warnings: Expect to find thin trading, sharp price swings, and wide gaps between bid and ask prices outside the 9:30 a.m.-to-4 p.m. hours kept by Nasdaq and the New York Stock Exchange.

The experts have been right--so far. But maybe not for much longer. Without much prodding from regulators or major markets, after-hours players have been building trading platforms and rules that protect investors' interests. Indeed, by the time major markets get around to extending their hours next summer, off-hours markets are likely to run on sturdier, more reliable technology than the traditional bourses use.

FAST ACTION. What after-hours markets lack is volume. But that's coming. The biggest discount broker, Charles Schwab, was scheduled to launch 4:30 p.m.-to-7 p.m. trading for its 6.3 million customers on Oct. 20. "North of 40% of our customers tell us they want the ability to trade in the evening," says Schwab Vice-Chairman Lon Gorman. Schwab will be joined by two other online brokers, DLJ Direct and Fidelity Brokerage Services, all directing orders to REDIBook's trading platform.

After-hours markets have worked hard to address other risks. Individuals trading in off-hours can place only limit orders--orders to buy or sell shares at a specified price. Orders entered during the day aren't traded after hours. Brokers are educating investors, too. At Datek Online Brokerage Services, customers who want to trade before or after market hours must sign off on disclosures about off-hours risks. And customers who use their PCs to log on to Island ECN and Archipelago--two of the electronic communications networks (ECNs) that match buy and sell orders after hours--can find out more about market conditions than they can usually learn during the day.

To make off-hours markets stronger, these and other ECNs are building electronic links to share price, trade, and quote data. If a Datek customer's order can't be matched in Island, it will be offered to Archipelago's customers--and soon, to those of six other ECNs. Nasdaq is slowly extending its tape. Starting on Oct. 25, it will publish trade and price data until 6:30 p.m. But the system developed voluntarily by the ECNs may give the older market a run for its money.

Does this mean you should trade after work or at breakfast? Most people still won't find many reasons to venture into off-hours trading. "The long-term investor seldom gains anything by buying at night instead of waiting until the market opens," says John Markese, president of the American Association of Individual Investors. But the rapid development of after-hours markets means that when investors are ready to trade after dark, the dangers won't be nearly as great as the experts feared.

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