Several Hurdles On Road to 24-Hour Trading
JAMES M. KENNEDY
Sep. 21, 1990
NEW YORK (AP) _ They asked for a show of hands at a meeting this week of financial market experts. Who thinks 24-hour market trading has already arrived?
A few hands waved affirmatively among the hundred or so participants.
Then, the follow-up question: Who thinks it will take lots more money and time before 24-hour, global trading really takes off?
Dozens of hands shot up amid a few knowing chuckles.
The scene was a seminar on round-the-clock trading sponsored by the Information Industry Association, a group of so-called ''data vendors'' whose job is to disseminate market prices and analysis to everyone from newspaper readers to professional traders.
Representatives from the various stock and commodities markets spoke on their plans for going global. A watchdog from the Securities and Exchange Commission told how regulators would react. The vendors themselves outlined the enormous logistical problems and huge expense of wiring the world for continuous trading.
Few conclusions were reached, except that much work remains to be done.
The few who said 24-hour trading was already a reality were right. Big market players have been burning the midnight oil and cutting deals electronically in London and Tokyo for some time.
But what they're talking about now is institutionalizing this sort of thing, making after-hours trading a regular part of doing business in the markets.
They want to set up shop on the moon, not just land on it.
Whether American astronauts will get back to the moon before average American investors trade stocks in the middle of the night is anyone's guess. Some of the hurdles left to jump are staggeringly high.
The principal concern right now, in the middle of a recession on Wall Street, is the cost.
Everyone with an eye on this future marketplace agrees it can't be built without a tremendous capital investment. The basic tool of a 24-hour market is a computer system that never goes down, speaks all languages, executes trades in a wink from point A to point Z, and updates itself while it works.
That's some invention, with some price tag.
Who will build it? Mostly joint ventures, like the Globex partnership for trading futures and options being developed by the Chicago Board of Trade, Chicago Mercantile Exchange and Reuters Holdings PLC.
The people who eventually make money on 24-hour trading will be the ones who commit the money to erecting the framework, Charles Lebens, chairman of Bridge Information Systems, told the meeting of data vendors.
The issue of standards is just as critical. For the market to move efficiently across borders and time zones, common formats and guidelines must be established for traders.
Currently, world traders find it difficult to agree on the simplest things, even ticker symbols.
''Take Volvo,'' explained Lebens. ''There are nine different symbols for it in nine different markets and some don't even begin with 'V'.''
There are also different currencies and exchange rates to worry about, different rules for public disclosure of trades, and all sorts of technical headaches.
One elementary, but nonetheless vexing, question is when to declare the end of the day for record-keeping - 4 p.m. Eastern time, 6 p.m., midnight, 5 o'clock the next morning? Pick one.
The regulatory questions are equally sticky. How do you police a market that never closes and conducts business across international borders? Regulators around the world have begun to consider the problem under the leadership of the SEC, but officials are bound to have their hands full keeping files, enforcing rules and tracking crooks around the world.
The SEC, mostly known for reacting to the market's needs instead of anticipating them, will likely need a budget infusion to move more aggressively on these fronts. That means Congress must be heard from on the question of 24-hour trading before too long.
The consequences of taking shortcuts to the global future will be severe, the experts agree. Without adequate standards, infrastructure and police, the action is bound to get rough.
It's also bound to push the little guy farther away from the market than he's already been shoved.
This move to 24-hour business is fundamentally different from opening up the supermarket or the cash machine all night. It's not being done for the convenience of the working stiff who'd like to buy some IBM on the way home from the late shift.
Global trading is mainly a business for big guns. For instance, the New York Stock Exchange's plan for after-hours trading later this year is designed for institutional investors who move millions of shares of stock by computer.
Some might say the disenfranchisement of the small investor is inevitable, notwithstanding global trading. After all, few people today still sit around the kitchen table picking stocks out of the evening paper. If they're in the market at all, they're buying generic shares of it through mutual funds or through contributions to pension funds.
Despite this trend, the rocket to the investing moon will lose a valuable passenger if it takes off without Mr. and Mrs. America. The challenge for those now mulling plans for a global market will be to make it safe and accessible for everyone.
Unless the market that never closes is truly open, the builders may find it wasn't worth the investment.
End Adv AMs of Friday, Sept. 21