Extended trading hours haven't begun yet, but the National Association of Securities Dealers expects that they will happen within months.
Boards for the NASD and the Nasdaq market -- which handles the vast majority of U.S. technology stocks -- this week approved the idea of extended trading hours, said Frank Zarb, NASD chairman. Details haven't been worked out yet, but the move would likely entail a second session four days a week, from 5:30 p.m. EDT to 9:30 or 10 p.m. EDT, the NASD said.
NASD officials want to work out a structure with other members of the securities industry, including the New York Stock Exchange, Zarb said, during an afternoon press conference. "We are calling on the industry to do the right thing and coordinate and be responsible and move in unison so the investor can be properly protected in the new world of extended hours," he said.
For months the financial industry has buzzed with speculation that the NYSE and NASD would move toward extended hours. Demand from online traders, investors in other time zones, and other retail investors, are driving the move to extended hours, Zarb said."We're all forced to recognize demand when it's there, because that's the consumer way," he said.
Brokerage houses and other investment professionals are divided on the idea of extended hours. One recent survey of NASD members indicated that the majority oppose the move. Many smaller brokerages lack the resources to handle extended trading.
And most professionals used to working current market hours aren't about to change their habits, said Bill Schaff, chief investment officer of SF-based investment firm Bay Isle Financial Corp. "I won't be participating in it," Schaff said. "My hours are ridiculous enough already."
Critics of extended hours trading argue that it could be more dangerous for investors, because the later session will see fewer market makers -- the brokerages that match buyers and sellers, and keep shares flowing. Fewer market makers means less liquidity, often in resulting in larger spreads, which are the differences between bids and asking prices. "There could be a lot of manipulation," Schaff said.
That's why the NASD wants to talk to other industry members and the SEC before implementing longer hours, said Zarb, who expects it will take several months before extended hours actually begin. But the financial industry can't ignore the growing influence of retail investors, he said.
"I've been in this business my whole adult life, it has never been a business of complete consensus, it has been fairly fractious in its views, especially when it comes to changing systems," Zarb said. "In the end we had the unanimous opinions of both boards to go forward. ... The marketplace needs this kind of innovation."
The most important is making sure investors are protected in extended hours trading, he said. NASD officials also plan to look at ways to protect smaller brokers, perhaps by having larger firms act as hubs to handle smaller investment firms' orders during later trading.
Many years down the road, even extended hours won't be enough, Zarb predicted.
"Over a long period of time, the biggest securities in this world will trade globally, trade electronically, and go through price discovery on a 24-hour basis," he said. "We're jamming a lot of volume into the same old hours these days, so there's something to be said about these extended periods.">