Burning The Midnight Trade Station
MarketWatch
How an LSE buyout could bring continuous trading
By David Weidner, MarketWatch
Mar 17, 2006
NEW YORK (MarketWatch) - Imagine a trading day in which market openings and closings are a formality and trading volume moves around the globe with the sun.
In this scenario a profit warning by a major multi-national corporation has sent its shares tumbling in Hong Kong. Fearing their shares will bottom out before Wall Street awakens, bankers in London begin to place orders at 8 a.m. British time.
Meanwhile, the early morning shift of brokers in New York have trudged in at 3 a.m. to find the stock in a freefall. They phone bleary-eyed managers at Fidelity Investments at home, waking them with the news. On the West Coast, the graveyard shift at Merrill Lynch begins to sell. Buyers are found in Paris, a seller in Frankfurt.
That vision could be a step closer to reality should a U.S. exchange win the battle to buy the London Stock Exchange (UK:LSE: news, chart, profile) . The NYSE Group Inc. and Nasdaq Stock Market are either bidding or considering bids for the LSE. Europe's next-biggest exchanges, the Frankfurt -based Deutsche Bourse and Paris-based Euronext are also considering merging as global competition heats up and trading increases.
The possibility of a continuous New York-London stock market creates a staggering array of opportunities -- and challenges. Under their current trading schedules, the market would open at 8 a.m. London time (3 a.m. in New York) and close at 4 p.m. in New York. That's a 13-hour trading day.
But it would probably just be the beginning.
The coming wave of mergers signals that the progressive evolution to the 24-hour trading day is well underway. Big brokerages such as Merrill Lynch & Co. and Morgan Stanley have been moving their order books from Europe to North America to Asia for years, following the open, liquid markets around the globe. Now, that availability would extend to retail investors.
"If the NYSE can merge electronic trading with floor-based trading than we can merge anything with anything," said Michael Goldstein, a former visiting economist at the NYSE and Nasdaq advisory board member. But though most agree it can be done, some question whether there is an incentive to create a global market. "The cost of trading U.S. stocks outside of U.S. hours is too high because the liquidity is not there," said Ben Steil, a senior fellow and director of international economics.
Yet some say a move to a perpetually open market may come sooner than you think. Just 10 years ago, online-trading platforms were in their infancy. In the few years that have followed, came wide acceptance, intense competition and a wave of consolidation.
Bar car to Greenwich
By creating a global marketplace, U.S. buyers in theory could trade with investors in Germany, China or anywhere and have that trade executed in the market that's open, be it the NYSE, LSE or Tokyo Stock Exchange. The major impediment to a global, 24-hour market is demand. Doug Atkin, chief executive of Majestic Research and former head of Instinet, said that the technology already exists to create a 24-hour marketplace. Retail brokers such as TD Ameritrade Holding Corp and Charles Schwab & Co. could provide access to global exchanges, if not for all issues, then at least for the top 40 or 50 publicly traded global corporations.
"They could do it tomorrow," Atk in said. "That's easy to put in if you want to. The reason they don't is they don't feel there's enough demand." For U.S. stocks extended after-hours trading is available today, but volume can be thin. After-hours trading represented less than 2% of the volume seen during the regular session at major markets, according to Dow Jones Newswires.
"If the NYSE bought the LSE they could merge their Archipelago platform with the electronic mechanism at the LSE," Goldstein said. "There would still be an opening in New York because there's evidence that trading interest begins when the market opens." The NYSE is considering expanding its trading hours by opening as much as an hour earlier. But that move is only aimed at capturing trading volume in U.S. stocks and foreign companies listed on the NYSE.
As for staying open later, Atkin recalled the old joke about why the NYSE closes at 4 p.m. - because the last train with a bar car to Greenwich, Ct., leaves at 4:45 p.m. John Thain, chief executive of the NYSE, said the exchange has studied the idea of a 24-hour market - one that would depend on an electronic system - but that U.S. volume would be too light during night and early morning hours.
Even the idea of an earlier open has its critics, he said. "I can tell you it's not popular on the floor and it's certainly not popular on the West Coast." Atkin agreed. He said the market consolidation wave is more the result of cost savings and market share needs of the exchanges. "I don't think much actually changes (in the trading day) except the exchanges themselves create a lot of value for themselves and their shareholders," he said. "Hopefully the investor will benefit by getting those savings passed on to them."
Regulation
Another obstacle to a fluid, global marketplace for stocks is regulation. On Tuesday, U.K. Financial Services Authority chief John Tiner said regulations shouldn't stand in the way of a purchase because the authority had signed a market oversight agreement with the U.S. Securities and Exchange Commission. See full story.
Meanwhile, SEC Chairman Christopher Cox said firms listed on the LSE would not necessarily need to meet U.S.-listing requirements - specifically stringent Sarbanes-Oxley requirements.
The key, however, is retail trading. Currently, trading in LSE stocks is limited for U.S. retail investors. Should LSE-listed stocks become readily available and as easy to trade as common U.S. issues such as General Electric Co. and Ford Motor Co. to domestic investors, the SEC could step in. "You can easily build a common trading platform and have different rules," "It can work...that's not to say it's a good idea," Steil said. "Institutions can pretty much bypass this nonsense. The real issue is problems on the retail end."
However, while the SEC may question listing standards overseas, it is clearly interested in seeing U.S. investors getting the best price for their trades. This year, the SEC will implement regulation NMS. The rule essentially calls for investors to get the best price for their trades regardless of what market is quoting that price. In the U.S. market that means an order placed in the Nasdaq could be filled on the NYSE. In a future global market, that order might be filled in Hong Kong.
"The industry people don't like the idea of 24-hour trading," said Reena Aggarwal, a finance professor at Georgetown University who specializes in international stock markets. "Effectively are we getting close to 24 trading? Yes. With a merger more hours can be captured and that is definitely happening."
How an LSE buyout could bring continuous trading
By David Weidner, MarketWatch
Mar 17, 2006
NEW YORK (MarketWatch) - Imagine a trading day in which market openings and closings are a formality and trading volume moves around the globe with the sun.
In this scenario a profit warning by a major multi-national corporation has sent its shares tumbling in Hong Kong. Fearing their shares will bottom out before Wall Street awakens, bankers in London begin to place orders at 8 a.m. British time.
Meanwhile, the early morning shift of brokers in New York have trudged in at 3 a.m. to find the stock in a freefall. They phone bleary-eyed managers at Fidelity Investments at home, waking them with the news. On the West Coast, the graveyard shift at Merrill Lynch begins to sell. Buyers are found in Paris, a seller in Frankfurt.
That vision could be a step closer to reality should a U.S. exchange win the battle to buy the London Stock Exchange (UK:LSE: news, chart, profile) . The NYSE Group Inc. and Nasdaq Stock Market are either bidding or considering bids for the LSE. Europe's next-biggest exchanges, the Frankfurt -based Deutsche Bourse and Paris-based Euronext are also considering merging as global competition heats up and trading increases.
The possibility of a continuous New York-London stock market creates a staggering array of opportunities -- and challenges. Under their current trading schedules, the market would open at 8 a.m. London time (3 a.m. in New York) and close at 4 p.m. in New York. That's a 13-hour trading day.
But it would probably just be the beginning.
The coming wave of mergers signals that the progressive evolution to the 24-hour trading day is well underway. Big brokerages such as Merrill Lynch & Co. and Morgan Stanley have been moving their order books from Europe to North America to Asia for years, following the open, liquid markets around the globe. Now, that availability would extend to retail investors.
"If the NYSE can merge electronic trading with floor-based trading than we can merge anything with anything," said Michael Goldstein, a former visiting economist at the NYSE and Nasdaq advisory board member. But though most agree it can be done, some question whether there is an incentive to create a global market. "The cost of trading U.S. stocks outside of U.S. hours is too high because the liquidity is not there," said Ben Steil, a senior fellow and director of international economics.
Yet some say a move to a perpetually open market may come sooner than you think. Just 10 years ago, online-trading platforms were in their infancy. In the few years that have followed, came wide acceptance, intense competition and a wave of consolidation.
Bar car to Greenwich
By creating a global marketplace, U.S. buyers in theory could trade with investors in Germany, China or anywhere and have that trade executed in the market that's open, be it the NYSE, LSE or Tokyo Stock Exchange. The major impediment to a global, 24-hour market is demand. Doug Atkin, chief executive of Majestic Research and former head of Instinet, said that the technology already exists to create a 24-hour marketplace. Retail brokers such as TD Ameritrade Holding Corp and Charles Schwab & Co. could provide access to global exchanges, if not for all issues, then at least for the top 40 or 50 publicly traded global corporations.
"They could do it tomorrow," Atk in said. "That's easy to put in if you want to. The reason they don't is they don't feel there's enough demand." For U.S. stocks extended after-hours trading is available today, but volume can be thin. After-hours trading represented less than 2% of the volume seen during the regular session at major markets, according to Dow Jones Newswires.
"If the NYSE bought the LSE they could merge their Archipelago platform with the electronic mechanism at the LSE," Goldstein said. "There would still be an opening in New York because there's evidence that trading interest begins when the market opens." The NYSE is considering expanding its trading hours by opening as much as an hour earlier. But that move is only aimed at capturing trading volume in U.S. stocks and foreign companies listed on the NYSE.
As for staying open later, Atkin recalled the old joke about why the NYSE closes at 4 p.m. - because the last train with a bar car to Greenwich, Ct., leaves at 4:45 p.m. John Thain, chief executive of the NYSE, said the exchange has studied the idea of a 24-hour market - one that would depend on an electronic system - but that U.S. volume would be too light during night and early morning hours.
Even the idea of an earlier open has its critics, he said. "I can tell you it's not popular on the floor and it's certainly not popular on the West Coast." Atkin agreed. He said the market consolidation wave is more the result of cost savings and market share needs of the exchanges. "I don't think much actually changes (in the trading day) except the exchanges themselves create a lot of value for themselves and their shareholders," he said. "Hopefully the investor will benefit by getting those savings passed on to them."
Regulation
Another obstacle to a fluid, global marketplace for stocks is regulation. On Tuesday, U.K. Financial Services Authority chief John Tiner said regulations shouldn't stand in the way of a purchase because the authority had signed a market oversight agreement with the U.S. Securities and Exchange Commission. See full story.
Meanwhile, SEC Chairman Christopher Cox said firms listed on the LSE would not necessarily need to meet U.S.-listing requirements - specifically stringent Sarbanes-Oxley requirements.
The key, however, is retail trading. Currently, trading in LSE stocks is limited for U.S. retail investors. Should LSE-listed stocks become readily available and as easy to trade as common U.S. issues such as General Electric Co. and Ford Motor Co. to domestic investors, the SEC could step in. "You can easily build a common trading platform and have different rules," "It can work...that's not to say it's a good idea," Steil said. "Institutions can pretty much bypass this nonsense. The real issue is problems on the retail end."
However, while the SEC may question listing standards overseas, it is clearly interested in seeing U.S. investors getting the best price for their trades. This year, the SEC will implement regulation NMS. The rule essentially calls for investors to get the best price for their trades regardless of what market is quoting that price. In the U.S. market that means an order placed in the Nasdaq could be filled on the NYSE. In a future global market, that order might be filled in Hong Kong.
"The industry people don't like the idea of 24-hour trading," said Reena Aggarwal, a finance professor at Georgetown University who specializes in international stock markets. "Effectively are we getting close to 24 trading? Yes. With a merger more hours can be captured and that is definitely happening."
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