Dopo Mezzanotte Trading System

Dopo mezzanotte Trading abbattendo Dopo ore di trading L'emergere di reti di comunicazione elettronica (ECNs) ha inaugurato una nuova era nella compravendita di azioni. Un ECN è un'interfaccia che permette non solo di singoli investitori di interagire elettronicamente, ma consente anche di grandi investitori istituzionali interagiscono in forma anonima, nascondendo in tal modo le loro azioni. Dopo mezzanotte di trading è stata utilizzata principalmente da investitori istituzionali fino al 1990 quando ECN è diventato più ampiamente disponibili. Dopo mezzanotte trading è ora accessibile alla maggior parte degli investitori attraverso l'utilizzo di conti di intermediazione ed è anche conosciuto come-trading after hours e il mercato after-hours. Il dopo mezzanotte la chiusura del mercato è l'ultima transazione e il prezzo finale di un titolo che viene scambiato sul mercato after-hours. Quali sono After-Hours Orari di negoziazione Gli orari di negoziazione del giorno dopo mezzanotte eseguito da circa 08:00-09:15 Il pomeriggio dopo ore di sessione si estende 16:15-20:00 Alcuni di trading pre-mercato si svolge il più presto 06:00 durante regolari giorni di negoziazione e può durare fino a quando il mercato si apre al mattino. I vantaggi di after-hours trading per i commercianti, ci sono diversi vantaggi alla negoziazione dopo ore di mercato normali. Uno è la convenienza. Gli investitori potrebbero preferire di negoziazione a volte non di punta, e dopo ore di trading fornisce questa flessibilità ha aggiunto. Molti eventi di cronaca di rilievo, come ad esempio sugli utili rilasci e gli indicatori economici, vengono rilasciati al di fuori delle ore di negoziazione standard. Le sessioni di after-hours di trading sono opportunità per il commercio immediatamente su nuove informazioni piuttosto che aspettare per il tradizionale giorno di negoziazione di prendere una posizione. Inoltre, anche se la volatilità è un rischio associato a negoziazione dopo ore, si possono trovare alcuni prezzi attraenti in questo periodo. Trovare i titoli più volatili con After-Hours Volume guadagni della Società o comunicati stampa dopo la campanella di attirare grande attenzione e creare volume e la volatilità come i commercianti reagiscono alla notizia. Molti di questi guadagni rilasci si verificano dopo la chiusura del mercato, offrendo l'opportunità di agire sulle notizie, come si verifica, invece di aspettare il giorno di negoziazione successivo. Il calendario, quindi, fornisce una lista di titoli da guardare dopo ore per l'occasione. Notare le scorte durante il giorno, e restringere l'elenco di una più piccola selezione più gestibile di scorte per il commercio. A tale scopo, filtrando quelli con un volume medio giornaliero inferiore a 1 milione di azioni. Se le azioni non hanno volume significativo durante il normale session9 negoziazione: 30 a. m. a 04:00 ESTthen è improbabile che avere un notevole volume dopo la campanella di chiusura, anche con un importante comunicato stampa. Trading after hours Rischi Lo sviluppo di after-hours trading offre agli investitori la possibilità di risultati significativi, ma si dovrebbe anche essere a conoscenza di alcuni dei suoi rischi e pericoli: Meno di liquidità. Ci sono molti più acquirenti e venditori durante il normale orario. Durante dopo ore di trading, ci può essere meno volume di scambio per il magazzino, e può essere più difficile per convertire le azioni in denaro. Ampi spread. Un volume più basso nel commercio può tradursi in una più ampia diffusione tra offerta e chiedere i prezzi. Pertanto, può essere difficile per un individuo di avere il suo ordine eseguito ad un prezzo favorevole. forte concorrenza per gli investitori individuali: Mentre i singoli investitori hanno ora la possibilità di commerciare in un mercato after-hours, la realtà è che essi devono competere con i grandi investitori istituzionali che hanno accesso a più risorse di l'investitore medio individuale. Volatilità. Il mercato after-hours trading è sottilmente scambiato in confronto alle normali ore di trading. Pertanto, è più probabile che si verifichino forti oscillazioni di prezzi in after-hours trading di negoziazione durante il normale orario. Qual è il Nasdaq 100 TAH Indicator il Nasdaq 100, dopo mezzanotte indicatore è un indicatore del sentimento post-commercializzazione e l'attività di trading, calcolata misurando le after-hours il livello dei prezzi delle scorte all'interno del Nasdaq 100 e utilizzando la stessa metodologia che utilizzato per creare il Nasdaq 100 durante le sessioni di negoziazione regolari. Poiché alcuni stock non possono essere scambiate nella sessione after-hours, i loro prezzi rimarranno al quotidiano vicino nel calcolo dell'indicatore Nasdaq 100 dopo mezzanotte. Come è in ritardo-Day Trading Diverso da trading nel mercato TAH Mentre dopo ore di trading e commercio di fine giornata possono suonare come sinonimi, si tratta di due termini distinti. late trading-day è l'acquisto e la vendita illegale di fondi comuni di investimento, dopo ore di mercato normali. Questa pratica è diverso da after-hours trading delle scorte a causa di una ragione fondamentale: nel mercato after-hours per le scorte, i prezzi dei titoli fluttuano in base alle normali forze di mercato come la domanda. fornitura. e le nuove informazioni. Tuttavia, verso la fine del-giorno di negoziazione dei fondi comuni di investimento, il prezzo del fondo comune (NAV) rimane costante, dopo una certa ora del giorno, perché nessuno è permesso di acquistare e vendere fino al giorno successivo. Questo prezzo costante è a volte indicato come un preventivo stantio, perché, alla fine della giornata, il prezzo non è più vivo e non cambierà. Quindi, se qualsiasi informazione materiale che interessano il fondo diventa pubblica dopo che il prezzo dei fondi è impostato, si crea un'opportunità per i commercianti di capitalizzare sul prezzo citazione stantio: i commercianti che sfruttano questa opportunità compreranno il fondo al prezzo vicino sapendo che le informazioni materiale sarà influenzare il NAV, che hanno cambiato in apertura del mercato. Questa pratica è ingiusto perché è fatto in un momento in cui altri investitori non partecipano acquisto e la vendita del fondo, in modo che i commercianti di fine giornata sono commerciali esclusivamente a prezzi che sono momentaneamente sospeso e non riflettono i cambiamenti nei fondi effettivo worthif altri gli investitori sono stati autorizzati a commerciare il fondo, il prezzo sarebbe stato influenzato dalle forze del mercato in tempo reale, e non una sola persona avrebbe un Trading advantage. Investor pubblicazioni TAH: comprendere i rischi del New York Stock Exchange e il Nasdaq Stock Marketthe più alti centri di mercato del volume negli stati Uniti todayhave tradizionalmente aperti per le imprese 9:30-16:00 Eastern Time. Anche se la negoziazione di fuori che windowor dopo ore tradinghas si è verificato per qualche tempo, ha usato per essere limitato in gran parte a investitori high net worth e investitori istituzionali. Ma che ha cambiato per la fine del secolo scorso. Alcuni scambi più piccoli offrono ora orario prolungato. E, con l'aumento delle reti di comunicazioni elettroniche. o ECN, di tutti i giorni singoli investitori possono accedere ai mercati dopo mezzanotte. Prima di decidere di scambi dopo mezzanotte, è necessario educare se stessi sulle differenze tra regolari e prolungati orari di negoziazione, in particolare i rischi. Si consiglia di consultare il proprio broker e leggere tutti i documenti informativi su questa opzione. Controlla il tuo sito web broker di informazioni disponibili sul trading after-hours. Come con il trading durante il normale orario, i servizi offerti dai broker durante l'orario prolungato variano. Si dovrebbe quindi guardarsi intorno per trovare l'azienda che meglio si adatta alle vostre esigenze commerciali. Mentre dopo mezzanotte presenta le opportunità di investimento di negoziazione, ci sono anche i seguenti rischi per coloro che vogliono partecipare: incapacità di vedere o agire su Quotes. Alcune aziende consentono solo agli investitori di consultare i preventivi dal sistema un trading azienda utilizza per la negoziazione dopo la mezzanotte. Verificare con il proprio broker per vedere se il sistema delle imprese vi permetterà di accedere ad altre citazioni su altri ECN. Ma ricordate che solo perché si può ottenere quotazioni su un altro ECN non significa necessariamente che si sarà in grado di operare sulla base di quelle citazioni. Hai bisogno di chiedere la vostra azienda se si indirizzerà l'ordine di esecuzione per l'altro ECN. Se si sono limitati alle citazioni all'interno di un sistema, non si può essere in grado di completare un mestiere, anche con un investitore disposto, in un sistema di negoziazione diverso. La mancanza di liquidità. La liquidità si riferisce alla vostra capacità di convertire magazzino in denaro. Quella capacità dipende dall'esistenza di acquirenti e venditori e quanto è facile portare a termine un mestiere. Durante il normale orario di trading, acquirenti e venditori di maggior parte degli stock possono scambiare facilmente tra di loro. Durante Dopo mezzanotte, ci può essere meno volume di scambio per alcuni stock, rendendo più difficile l'esecuzione di alcuni dei vostri commerci. Alcuni stock non possono scambiare a tutti durante le ore estese. Quota di maggiore diffonde. Meno attività di negoziazione potrebbe anche significare più ampi spread tra l'offerta e chiedere i prezzi. Di conseguenza, si possono trovare più difficile ottenere il vostro ordine eseguito o di ottenere un favorevole prezzo come si potrebbe avere durante le ore di mercato normali. Prezzo volatilità. Per i titoli con attività di trading limitata, è possibile trovare maggiori oscillazioni di prezzo di quello che avrebbe visto durante il normale orario di contrattazione. I fatti di cronaca annunciato dopo mezzanotte possono avere maggiore impatto sui prezzi delle azioni. I prezzi incerto. I prezzi di alcune azioni scambiate durante la sessione after-hours potrebbero non riflettere i prezzi di tali titoli durante il normale orario, sia al termine della seduta di negoziazione normale o al momento dell'apertura del regolare andamento delle negoziazioni il giorno lavorativo successivo. Polarizzazione verso ordini limite. Molti sistemi di trading elettronico attualmente accettano solo ordini limite, in cui è necessario inserire un prezzo al quale volete che il vostro ordine eseguito. Un ordine limite assicura che non pagherà più del prezzo immesso o vendere per meno. Se il mercato si muove lontano dal prezzo, l'ordine non verrà eseguito. Verificare con il proprio broker per vedere se gli ordini non eseguiti durante la sessione di negoziazione dopo la mezzanotte saranno annullate o se verranno inseriti automaticamente quando le ore di trading regolare iniziano. Allo stesso modo, scoprire se un ordine in corso durante il normale orario verrà riportato alla negoziazione dopo ore. La concorrenza con operatori professionali. Molti dei commercianti dopo mezzanotte sono professionisti con grandi istituzioni, come i fondi comuni di investimento, che possono avere accesso a più informazioni di singoli investitori. Ritardi computer. Come con il trading on-line, che possono verificarsi durante Dopo mezzanotte ritardi o fallimenti ottenere il vostro ordine eseguito, compresi gli ordini di cancellare o modificare i tuoi scambi. Per alcuni mestieri Dopo mezzanotte, l'ordine verrà instradato dal vostro società di brokeraggio a un sistema di commercio elettronico. Se un problema di computer esiste la vostra azienda, questo può prevenire o ritardare l'ordine di raggiungere il sistema. Se si verificano ritardi significativi, è necessario chiamare il proprio broker per determinare l'entità del problema e ciò che si può ottenere il vostro ordine eseguito. Per suggerimenti su come investire saggiamente, visitare la sezione Investor Information del nostro sito. È possibile saperne di più circa l'impatto della ECN e dopo-ore di negoziazione dei mercati mobiliari leggendo uno studio speciale che il personale della SEC preparata nel giugno 2000.After Ore Forex Scalping strategia Io uso il dopo ore strategia di scalping forex per sfruttare il coppia di valute eurodollar durante il forex dopo ore. In particolare tra le 7: 00 PM EST e 0: 00 AM EST. La strategia funziona controtendenza e scambia breve nella parte superiore della gamma e lunga nella parte inferiore della gamma. coppia di valute preferita per il commercio: Euro Time to commerciale: tra 7: 00 PM EST e 0: 00 AM EST (5 ore) Preferiti Timeframe8217s: 5 minuti o 15 Min EURUSD Dopo ore di trading Esempio Il dopo strategia ore forex me ha guadagnato 28 pips in 5 ore di negoziazione del dell'eurodollaro. (Vedi screenshot) Come la strategia funziona: Mark fuori alto-basso range compreso tra 16:00 EST e 19:00 EST. Importante L'intervallo dovrebbe essere di almeno 30 pips, altrimenti nessun trading. Commercio range tra 7: 00 PM EST e 0: 00 AM EST. We8217d piacerebbe andare corto nella parte superiore del trading range 16:00 EST e 19:00 EST. We8217d piacerebbe lungo nella parte inferiore della trading range 16:00 EST e 19:00 EST. Smettere scambiato a 0: 00 AM EST. Fuoricampo subito dopo l'eurodollaro tocca la gamma bassa. Guardare al cuoio capelluto 20 pips. Posizionare stop loss 12 pips sotto il minimo del trading range. Vai breve immediatamente dopo l'eurodollaro tocca la gamma alta. Guardare al cuoio capelluto 20 pips. Posizionare stop loss 12 pips sopra il massimo del trading range. Scarica Forex Analyzer PRO gratis TodaySpecial Studio: Electronic reti di comunicazione e dopo ore di negoziazione B - Dinamiche di negoziazione del mercato TAH C-OEA Studio di After-Hours Trading in 15 Azioni Nasdaq D-relazioni dei gruppi di lavoro After-Hours E-NASD comunicazione ai membri 00-07 150 Informativa ai clienti che effettuano trading after hours Sintesi La rivoluzione informatica ha fornito agli investitori nuove scelte di esecuzione. Di particolare nota sono la recente crescita dei sistemi di scambi noto come comunicazione elettronica Networks (quotECNsquot) e le maggiori opportunità per la negoziazione nel mercato after-hours. In conformità ad una richiesta del Congresso, i servizi della Commissione ha preparato una relazione che analizza le operazioni in corso di ECN e dopo ore di negoziazione, il loro impatto sui mercati dei titoli, e le iniziative normative recenti che sono state adottate per affrontare questi sviluppi. La relazione esamina i tipi di partecipanti al mercato che sottoscrivono ECN servizi, così come i benefici che ECN forniscono agli abbonati e al mercato nel suo complesso. Il Rapporto affronta anche iniziative della Commissione, come ad esempio l'Ordine Handling Regole e regolamento ATS, che sono serviti per integrare pienamente le attività ECN nel sistema mercato nazionale, e delinea alcuni sviluppi recenti che coinvolgono ECN. La seconda parte del rapporto analizza le dinamiche di negoziazione in corso nel mercato after-hours. In particolare, il rapporto rileva che, dopo mezzanotte il volume degli scambi resta relativamente piccolo, con la maggior parte di questa attività concentrate nel periodo immediatamente successivo alla 4:00 regolare sessione di chiusura. Il rapporto mette in luce anche i vincoli di liquidità e volatilità dei prezzi che gli investitori continuano ad affrontare in questo mercato e delinea recenti iniziative per migliorare la trasparenza ed estendere le misure essenziali di protezione degli investitori e l'integrità del mercato a questo ambiente. La relazione si conclude con una discussione delle questioni che dovrebbero essere affrontate se i principali mercati decidono di offrire loro sessioni proprio dopo mezzanotte. Nel complesso, il rapporto indica che entrambi i mercati consolidati ed ECN hanno cercato di fornire meccanismi innovativi nel corso degli ultimi anni, per soddisfare le richieste degli investitori per una maggiore flessibilità nei tempi di loro commerci e nelle loro sedi di negoziazione. La Commissione resta fortemente impegnata a lavorare con gli organismi di autodisciplina e l'industria titoli per assicurare che il quadro normativo, in particolare nei settori della tutela degli investitori e l'integrità del mercato, tiene il passo con questo ambiente in rapida evoluzione. Parte I. Introduzione e Panoramica Technology ha cambiato per sempre il nostro modo di andare sulla nostra vita quotidiana. La rivoluzione tecnologica ha toccato quasi ogni aspetto della nostra società. I mercati dei titoli sono stati in prima linea di questo fenomeno. I progressi tecnologici hanno giocato un ruolo chiave nella recente crescita dei sistemi di scambi noto come comunicazione elettronica Networks (quotECNsquot) e le maggiori opportunità per gli investitori al dettaglio al commercio di titoli nel mercato after-hours. In molti modi, questi due sviluppi sono correlati. Mentre ECN attualmente svolgono la maggior parte del loro commercio durante le sessioni di negoziazione regolari 9:30-04:00, 1 media circa il 3 di volume di quota in azioni quotate in borsa e 30 del volume delle scorte Nasdaq, il post - mercato ore ha avuto un ruolo nel loro sviluppo. Uno dei più grandi ECN, Instinet Corp. inizialmente stabilito la sua nicchia di mercato nel 1970, fornendo servizi post-ore per operatori istituzionali e professionali. ECN hanno cercato un ruolo crescente nel commercio dopo ore dagli investitori al dettaglio. Nel rapporto Comitato della Conferenza per H. R. 3194, il Congresso ha incaricato la Commissione di preparare una relazione sulla recente crescita di ECN e gli sviluppi nel mercato after-hours. 2 La presente relazione, redatta dalla Divisione di regolamento del mercato (quotDivisionquot), analizza le operazioni in corso di ECN e dopo ore di negoziazione, il loro impatto sul mercato globale di titoli, e le iniziative normative recenti che sono state adottate per affrontare questi sviluppi. Le divisioni analisi dell'attività di ECN e di trading nel mercato after-hours hanno disegnato su dati compilati dalle Commissioni Ufficio di Analisi Economica (quotOEAquot). In particolare, nella Parte II della relazione, la Divisione discute come ECN attualmente operano e il loro impatto sul mercato globale dei titoli. Discutiamo i tipi di partecipanti al mercato che sottoscrivono ECN servizi, tra cui retail e investitori istituzionali, market maker, e altri broker-dealer. Abbiamo delineare alcuni dei vantaggi che ECN offrono agli abbonati, tra cui l'anonimato nel commercio, così come i benefici che ECN forniscono al mercato nel suo complesso. La Divisione discute poi iniziative della Commissione, come ad esempio l'Ordine Handling Regole e regolamento ATS, che sono serviti per integrare pienamente le attività ECN nel sistema mercato nazionale, e abbiamo delineare alcuni sviluppi recenti che coinvolgono ECN. Nella parte III del Rapporto, la Divisione analizza il mercato after-hours, compresa la capacità estesa di investitori al dettaglio di scambi dopo i principali mercati vicini per la giornata. Discutiamo la struttura in continua evoluzione del mercato dopo mezzanotte, compresi i ruoli attualmente interpretati da mercati consolidati come il New York Stock Exchange e Borsa di Chicago, così come il Nasdaq Stock Market. La Divisione analizza anche le dinamiche commerciali attuali del mercato after-hours, tra cui la concentrazione di attività di negoziazione immediatamente successivo alla 4:00 sessione ordinaria vicino, la preponderanza apparente di attività istituzionale in questo periodo, e la volatilità vincoli di liquidità e il prezzo di fronte da parte degli investitori in questo mercato. Le Divisioni risultati in questo settore sono in linea con l'analisi OEAS di statistiche di qualità mercato durante after-hours trading, fornito come allegato C alla relazione. La Divisione discute anche i recenti sforzi da parte delle organizzazioni di titoli di autodisciplina (quotSROsquot) per sviluppare proposte per migliorare la tutela degli investitori e per affrontare le preoccupazioni operative derivanti dalla diffusa dopo il commercio di ore. Inoltre, la relazione descrive le recenti iniziative per migliorare la trasparenza del mercato dopo mezzanotte e di estendere i programmi essenziali di protezione degli investitori e l'integrità del mercato a questo ambiente. La relazione si conclude con una discussione di questioni che dovrebbero essere affrontate se i principali mercati decidono di offrire loro sessioni proprio dopo mezzanotte, compresa la necessità di nuovi tipi di ordini di compravendita di prendere maggiormente conto più sessioni di negoziazione e benefici di preservare prezzi di chiusura 4:00 pm per le scorte. Seconda parte. Reti di comunicazioni elettroniche I. Panoramica dei sistemi di trading ECN A. Introduzione alternativi, noto come ECN, sono diventati parte integrante dei moderni mercati dei titoli, fornendo agli investitori con una maggiore flessibilità e riduzione dei costi di negoziazione, così come la concorrenza per le borse valori stabiliti e il Nasdaq Mercato azionario. Oggi, ECN rappresentano circa il 30 del volume totale quota e 40 del volume in dollari negoziate in titoli del Nasdaq. 3 ECN rappresentano circa il 3 di quota e dollaro volume totale in titoli quotati. 4 Al contrario, nel 1993, ECN rappresentavano solo il 13 del volume di quota in titoli del Nasdaq e solo 1,4 di volume di quota elencati. 5 La stragrande maggioranza delle attività ECN attualmente coinvolge negoziazione di titoli del Nasdaq durante il normale orario di contrattazione. Nel 1999, una media di 93 volumi di quota ECN è stato segnalato per essere in titoli del Nasdaq. 6 Circa 96 di ECN volume di quota nel Nasdaq National Market System (quotNMSquot) titoli è stata effettuata durante la normale sessione di negoziazione 9:30-16:00 7 Il livello complessivo di attività ECN in azioni quotate è rimasto relativamente piccolo nel 1999, e circa 26 di questo volume la quota è stata effettuata nel mercato after-hours. 8 B. ECN 150 chi sono e che cosa sono i servizi che forniscono In termini più semplici, ECN portare acquirenti e venditori insieme per l'esecuzione elettronica delle transazioni. La Commissione ha definito un ECN come qualsiasi sistema elettronico che ampiamente diffonde a terzi Le proposte immesse in esso da un market maker scambio o over-the-counter (quotOTCquot) market maker, e permette tali ordini da eseguire in tutto o in parte. 9 La definizione esclude specificamente i sistemi di ordine-instradamento di broker-dealer interno 10 e di attraversamento dei sistemi 150 ovvero, sistemi che attraversano più ordini ad un prezzo unico fissato dal ECN e che non permettono l'ordine di essere attraversate o eseguite contro direttamente dai partecipanti al di fuori di i tempi indicati. Ci sono attualmente nove ECN che operano nei nostri mercati mobiliari: Instinet, Island, Bloomberg Tradebook, Arcipelago, REDIBook, Sciopero, 11 raggiungere, NexTrade, XT mercato, e GFI Securities. 12 ECN hanno una grande varietà di abbonati, compresi gli investitori al dettaglio, investitori istituzionali, market maker, e altri broker-dealer. ECN forniscono molti servizi di mercato a questi abbonati. Ad esempio, gli abbonati ECN possono entrare ordini limite nella ECN, di solito tramite un terminale di computer personalizzato o una connessione dial-up diretta. L'ECN pubblicherà gli ordini sul sistema per altri utenti di visualizzare. L'ECN sarà poi abbinare gli ordini contra-side per l'esecuzione. Nella maggior parte dei casi, l'acquirente e il venditore restano anonimi gli uni agli altri, con le relazioni di esecuzione delle negoziazioni sfogliare l'ECN come il partito contro-laterale. Inoltre, gli abbonati possono utilizzare tali caratteristiche come la negoziazione o la dimensione di riserva, 13 e possono avere accesso a tutta libro ECN (in contrapposizione alla quottop del bookquot) che contiene importanti dati di mercato in tempo reale riguardanti la profondità degli interessi di negoziazione. 14 II. Iniziative normative A. ECN e la National Market System Nel 1975, il Congresso ha incaricato la Commissione di agevolare lo sviluppo di un sistema di mercato nazionale dei titoli (quot1975 Amendmentsquot). 15 A quel tempo, il Congresso era preoccupato per la frammentazione di trading e poveri esecuzioni dei clienti derivanti dalla negoziazione dei titoli in mercati non collegati separati. I 1975 emendamenti, che si riflette nella Sezione 11A del Securities Exchange Act del 1934, sono stati progettati per esporre un quadro in cui i mercati concorrenti sarebbero collegati tra loro in modi che produrrebbero i migliori prezzi e le esecuzioni efficienti. Questo quadro ha incluso tre componenti minimi. In primo luogo, gli scambi ed i commercianti avrebbero pubblicare sia i prezzi ai quali erano disposti a scambi e dei prezzi ai quali sono stati scambiati titoli. 16 In secondo luogo, i legami tra i mercati sarebbe aiutare i clienti a ottenere i migliori prezzi disponibili per i loro ordini in qualsiasi mercato e incoraggiare i migliori prezzi di mercato per emergere. E la terza, broker-dealer rimarrebbero obbligati a cercare la migliore esecuzione dei loro ordini dei clienti. La Commissione è stata incaricata di facilitare questi obiettivi, consentendo la massima flessibilità nella progettazione del sistema di mercato nazionale. Un concetto essenziale di un sistema di mercato nazionale è stato quotto rendere le informazioni sui prezzi, il volume e le quotazioni per i titoli in tutti i mercati disponibili per tutti gli investitori, in modo che gli acquirenti e venditori di titoli, ovunque si trovino, possono prendere decisioni di investimento informate e non pagare più di il prezzo più basso a cui qualcuno è disposto a vendere, o non vendere per meno del prezzo più elevato che un acquirente è disposto a offer. quot 17 Quando ECN sviluppato prima, tuttavia, essi non sono stati integrati nel sistema del mercato nazionale, ma soprattutto ha servito come veicoli commerciali private per gli investitori istituzionali e broker-dealer. Nel corso del tempo, come questi abbonati pubblicati prezzi in ECN che erano meglio che i prezzi sono stati distacco in Nasdaq, la citazione pubblico è diventato meno affidabile e il mercato è diventato frammentato. Ciò ha portato a artificialmente ampi spread nei mercati pubblici. Di conseguenza, molti investitori, in particolare gli investitori al dettaglio, stavano ricevendo esecuzioni a prezzi inferiori a quelli visualizzati dai market maker e altri abbonati su ECN. Questo essenzialmente creato un mercato a due livelli 150 il mercato pubblico tradizionale e il nuovo mercato ECN con prezzi migliori e accesso limitato. B. Order Handling Regole Nel 1996, la Commissione ha adottato l'Ordine Handling Regole 18 per affrontare il mercato a due livelli che si era sviluppato. Come descritto in precedenza, prima dell'adozione del regolamento gestione degli ordini, market maker potrebbero pubblicare quotazioni in ECN private che erano meglio di quanto le quotazioni hanno pubblicato nei mercati pubblici. L'uso dei ECN infatti permesso market maker di mantenere artificialmente ampie citazioni del mercato pubblico. Sotto le regole di gestione dell'Ordine, market maker e gli specialisti erano tenuti in modo da riflettere nella loro quote del prezzo di tutti gli ordini hanno messo in un ECN se il prezzo era meglio di loro quotazione pubblica. Ciò potrebbe essere realizzato in uno di due modi. I market maker potrebbero riflettere questi ordini nella loro citazione da loro comunicando come parte del loro preventivo per il loro scambio o associazione titoli nazionali (vale a dire, il NASD) 19 o il ECN potrebbe fornire il prezzo direttamente ad uno scambio o associazione, che sarebbe poi includere la informazioni ECN nella citazione pubblico messo a disposizione di fornitori di dati di mercato (quotECN display Alternativequot). 20 Così, l'alternativa ECN display consentito un ECN di agire volontariamente come intermediario nel comunicare al sistema di quotazione pubblica il miglior prezzo e le dimensioni degli ordini per ciascun titolo che era stato stipulato il ECN da uno specialista o market maker. In base a tale alternativa, uno specialista di scambio o OTC market maker sarebbero considerati di essere in regola con il ECN emendamento se il ECN ha usato: (1) ha fornito a un OAD per l'inclusione nel sistema di offerta pubblica i prezzi e le dimensioni di tali ordini a il prezzo di acquisto più alto e il più basso prezzo di vendita per la sicurezza e (2) hanno reso possibile per qualsiasi intermediario o il commerciante di accedere a tali ordini con la stessa facilità, come se fossero stati pubblicati nella citazione market maker. Attualmente, tutti i ECN hanno scelto di utilizzare questa alternativa per conto dei loro aderenti market maker. 21 Le regole di gestione degli ordini ha avuto un impatto immediato sui mercati mobiliari. I differenziali tra le offerte e le offerte socchiusi in modo drammatico, che ha portato a significativi risparmi sui costi per gli investitori. 22 Inoltre, l'ECN display emendamento ha contribuito a portare ECN nel sistema mercato nazionale. Per la prima volta, Market Maker e specialisti ordini immessi in ECN erano accessibili al pubblico. Le Regole gestione degli ordini, tuttavia, non ha affrontato come ECN dovrebbero essere regolati nei mercati. Mentre market maker e specialisti erano tenuti a rispettare il ECN emendamento, la partecipazione ECN nel ECN visualizzazione alternativa è stata volontaria. Le regole di gestione degli ordini non si applicano alle ECN direttamente. Inoltre, il Regolamento gestione degli ordini non hanno richiesto tutti i partecipanti al mercato a riferire alla quotazione pubblico streaming gli ordini hanno messo in ECN. Così, in molti casi, gli ordini istituzionali e gli ordini creatore non di mercato sono rimaste riservate al pubblico. Questo ha continuato a mettere in pericolo la trasparenza dei prezzi. Queste preoccupazioni, insieme con l'aumento del numero di nuovi mercati elettronici che forniscono le sedi di negoziazione, hanno indotto la Commissione a considerare come incorporare queste nuove sedi di negoziazione nel sistema mercato nazionale. 23 C. Regolamento ATS Nel dicembre 1998, la Commissione ha adottato il regolamento ATS di stabilire un quadro normativo per sistemi di scambi e di integrarli a pieno titolo nel sistema del mercato nazionale. 24 Nella versione adottando per regolamento ATS, la Commissione ha osservato che, anche se i sistemi di scambi organizzati sono i mercati, che storicamente sono stati regolati come tradizionali broker-dealer, con conseguente alcune lacune normative. Per i sistemi di scambi con volume significativo, l'approccio normativo che esisteva in quel momento non ha fornito agli investitori di accedere ai migliori prezzi, non è riuscito a fornire una traccia di verifica completa o adeguatamente sorvegliare negoziazione sui sistemi di scambi, e ha creato il potenziale di sconvolgimento dei mercati a causa di interruzioni di sistema. La Commissione ha cercato di colmare queste lacune normative adottando il regolamento ATS. Ai sensi del regolamento ATS, sistemi di scambi potrebbero scegliere di essere un operatore di mercato e registrarsi come un broker-dealer, o per essere un mercato distinto e registrarsi come uno scambio. Questo approccio ha consentito un sistema di negoziazione di scegliere il ruolo che ha voluto giocare come un business. sono stati richiesti sistemi di scambi con notevole volume di trading 150 e quindi un impatto potenzialmente significativo sul mercato 150 a rispettare i seguenti requisiti aggiuntivi. sistemi di scambi registrati come broker-dealer erano tenuti a collegare con uno scambio raccomandata o NASD e visualizzare pubblicamente i loro migliori ordini di prezzo (compresi gli ordini istituzionali) per quei titoli quotati in borsa e Nasdaq in cui hanno avuto 5 o più del volume di trading . sistemi di scambi ha avuto anche per consentire ai membri degli scambi registrati e NASD per eseguire contro quegli ordini visualizzati pubblicamente. Solo gli ordini che i partecipanti in un sistema di trading alternativo scelto di visualizzare a più di un altro partecipante ha dovuto essere mostrato in pubblico. Di conseguenza, la quota di ordini nascosti alla vista grazie a caratteristiche quotreserve sizequot in sistemi di scambi non aveva bisogno di essere visualizzati pubblicamente. Un sistema di scambi con 20 o più di volume degli scambi ha avuto anche per garantire che i suoi sistemi automatizzati sono incontrati certa capacità, integrità e standard di sicurezza. Questo è stato lo scopo di evitare che il sistema Interruzioni 150 e problemi dovuti al mercato 150 sperimentato da alcuni sistemi di scambi organizzati durante i periodi di volume degli scambi pesanti. Un sistema di scambi con 20 o più di volume degli scambi ha anche dovuto astenersi dal ingiustamente negare agli investitori l'accesso al suo sistema. Questo requisito vietata solo ingiusta discriminazione tra le persone che intendono accedere. I sistemi erano liberi di stabilire criteri equi e oggettivi, come il merito di credito, di differenziare tra i potenziali partecipanti. sistemi più piccoli che hanno scelto di registrarsi come broker-dealer sperimentato alcune modifiche dei requisiti normativi. Come broker-dealer registrati, questi sistemi di scambi hanno continuato ad essere coperta dalla supervisione di una delle organizzazioni di autoregolamentazione. Fornito di un sistema di scambi aveva volume limitato, aveva solo di presentare una comunicazione con la Commissione che descrive il modo in cui essa opera, mantenere un audit trail, e presentare relazioni trimestrali. In sintesi, dopo l'adozione del regolamento ATS, ECN potrebbe o registrarsi come scambi, ai sensi dell'articolo 6 della legge Exchange, 25 e rispettare e di intraprendere le molte funzioni di autoregolamentazione che sono racchiusi nella registrazione di scambio, o restare iscritti come mediatore - dealers, ai sensi dell'articolo 15 della legge Exchange, 26 e conformi ai requisiti del regolamento ATS. Grandi ECN erano soggetti a requisiti supplementari volte ad affrontare il loro mercato (al contrario di loro broker-dealer) attività. Fino ad oggi, due ECN hanno formalmente presentato domande di brevetto per gli scambi. 27 Altri ECN sono attualmente regolati come broker-dealer e sono soggette a regolamento ATS. In short, Regulation ATS recognized the evolving role that alternative trading systems play in our securities markets. It gave these systems the choice of registering with the Commission either as an exchange or as a broker-dealer. The option they chose 150 registering as a market participant . or as a market 150 affected their rights and responsibilities. Regulation ATS provided alternative trading systems with a regulatory structure which incorporated them into the national market system, while preserving their flexibility. In connection with the New York Stock Exchanges proposal to eliminate its rule limiting its members from dealing in its listed stocks, the Commission requested comment on the impact of fragmentation, particularly that arising from internalization of customer order flow. The Commission sought comment on whether this fragmentation undermined quote competition and the price discovery process in the market. The Commission also sought comment on alternative approaches of addressing fragmentation concerns. 28 D. Recent Developments 1. Linkages Currently, the nine ECNs are linked to Nasdaq through SelectNet. 29 This link allows each ECN to display its best orders for Nasdaq securities in the Nasdaq system, and allows the public to access those orders. ECNs, however, are not linked to the exchanges. To more fully integrate ECNs into the listed markets, the Commission recently approved an NASD rule proposal to permit ECNs to register as ITSCAES market makers. 30 Nasdaq market makers that trade listed stocks are currently linked to the exchanges through Nasdaqs CAES systems interface with the Intermarket Trading System (quotITSquot) (these market makers are known as ITSCAES market makers). 31 ITS is an electronic order routing system that facilitates intermarket trading of exchange-listed securities by allowing a broker-dealer in one market center to send an order to another market center trading the same security at a better price. Through the ITSCAES link, orders routed to an exchange floor may be routed to the OTC market for execution. Conversely, an OTC market maker may route orders to the exchanges for execution through the ITSCAES link. 32 Linking alternative trading systems and ECNs to ITS by permitting them to register as ITSCAES market makers will include ECN quotes in listed stocks in the consolidated quotation system for listed stocks, potentially improving the published prices and providing investors with better execution of their orders. Furthermore, alternative trading system and ECN participation in ITSCAES should make the third market more dynamic and competitive. The NASD is currently working on the technical and programming modifications to their systems needed to support this linkage. Under Regulation ATS, ECNs are required to provide access to non-subscribers to the quotes they place in the public quote stream. The access they provide must be consistent with the access provided to subscribers. While Regulation ATS does not prohibit ECNs from charging access fees, in the Regulation ATS release, the Commission stated that ECNs could not set fees that are inconsistent with equivalent access, such that the fees have the effect of creating barriers to access for non-subscribers. The Commission further stated that a SRO could regulate fees of its ECN members to ensure that any fees are charged in a manner consistent with the SROs market (such as requiring the fee to be incorporated in the displayed quote). To prevent fees from being used to bar access to non-subscribers, ECNs are currently permitted to charge non-subscribers the fee they charge a quotsubstantial proportionquot of their quotactivequot broker-dealer subscribers, under the terms of their no action letters. 33 Broker-dealers have a duty of best execution in handling customer orders that generally obligates broker-dealers to seek the best prices for those orders. At times, an ECN may display the best price for a security. If a broker-dealer routes an order to an ECN, however, the ECN may charge a fee that may add significantly to the cost of executing the order. By contrast, market makers may not charge fees for access to their quotes. The Division is currently analyzing ECN fees and their impact on best execution, as well as the market as a whole. Part III. After-Hours Trading I. Overview Trading in U. S. stocks outside of regular market hours is not a new phenomenon. For years, institutional investors and market professionals have sent their after-hours orders to broker-dealers for execution on ECNs or non-U. S. markets. 34 These market participants traditionally have been willing to accept the risks of trading outside of regular market hours, including the potential price volatility and lack of liquidity, because they operate sophisticated worldwide trading strategies that require them to make 24-hour adjustments to their portfolios and risk containment hedges. 35 Moreover, many of these institutions avoid market risks by negotiating the execution prices of their after-hours trades beforehand. 36 The after-hours market, however, is increasingly driven by many of the same technological advances and investor demands that are transforming the securities market as a whole. Starting in mid-1999, growing numbers of broker-dealers began providing their retail customers with the ability to have their orders directed to ECNs after the major markets close for the day. The Commission supports investor choice in trading hours provided that essential protections for investors and the markets are not compromised. Given the reach of todays technology and the global nature of the current securities markets, it was perhaps inevitable that some investors would seek expanded opportunities to effect their securities transactions outside of traditional market hours. Over the past few years, the Commission has been supportive of initiatives by the securities markets and ECNs that promise to give investors the benefits of expanded competition among trading venues and increased flexibility in the timing of their trades. This part of the Divisions Report discusses the structure and trading dynamics of the current after-hours market, as well as recent regulatory initiatives taken by the SROs and the Commission to develop a framework for further developments in this market. A. Structure of the After-Hours Market It is important to keep in mind that there are several different trading venues in the current after-hours market in U. S. stocks. While media reports can give the impression that all after-hours volume is handled electronically by ECNs such as Instinet and Island, the actual post-4:00 p. m. trading environment is more complex. Most of the nations stock exchanges have for years offered investors at least some opportunities to have their orders executed after the 4:00 p. m. regular session close. For example, both the New York Stock Exchange and American Stock Exchange provide crossing sessions in which matching buy and sell orders can be executed at 5:00 p. m. at the exchanges 4:00 p. m. closing prices. 37 In addition, four regional exchanges currently have post-primary trading sessions: the Boston Stock Exchange (quotBSEquot) and the Philadelphia Stock Exchange (quotPhlxquot) have post-primary sessions that operate from 4:00 p. m. to 4:15 p. m. the Chicago Stock Exchange (quotCHXquot) and the Pacific Exchange (quotPCXquot) operate their post-primary sessions until 4:30 p. m. As discussed below, since October 29, 1999, the CHX has also operated an quotE-Sessionquot to handle limit orders from 4:30 p. m. to 6:30 p. m. 38 The after-hours volume in NYSE-listed securities handled by the stock exchanges is substantial. For example, on the sample date of January 18, 2000, 39 consolidated tape data indicate that the exchanges accounted for over 92 of the share volume in NYSE-listed securities between 4:00 p. m. and 6:30 p. m. Some of this exchange volume included regular session closing transactions on the NYSE that were reported to the tape shortly after 4:00 p. m. Nevertheless, even if the entire volume reported by the NYSE between 4:00 p. m. and 4:15 p. m. was excluded from the Jan. 18 sample, the remaining exchanges still accounted for 69 of the after-hours volume in these securities. 40 While this situation may change as ECNs expand their activities in NYSE-listed securities, the role of the stock exchanges in after-hours trading should not be overlooked. Moreover, it is important to recognize that a variety of market participants, not just ECNs, have been active for years in the after-hours market for Nasdaq securities. Key Nasdaq trading and price reporting systems, such as SelectNet, Automated Confirmation Transaction Service, Nasdaq Trade Dissemination Service, and the Nasdaq Trade Dissemination Service, have operated until 5:15 p. m. since 1992. 41 These services are used by market makers and other broker-dealers, as well as by ECNs, to trade after the 4:00 p. m. close of the regular trading session. As discussed below, while ECNs are active in after-hours trading, other entities account for over half of the total after-hours share volume in Nasdaq securities. B. The Trading Dynamics of the After-Hours Market Historically, after-hours trading was concentrated in the period immediately following the 4:00 p. m. regular session close and there were limited numbers of issues with significant market liquidity after this initial post-close trading activity. 42 This continues to be the case today. A phrase that is often heard is that after-hours trading remains a quotmarket of stocksquot rather than a true quotstock market. quot While further enhancements to market transparency and advances in linkages among after-hours trading venues may improve the liquidity of this market in the years to come, full-fledged 24-hour a day trading in U. S. stocks remains in the future. 1. Volume Distribution The current level of trading after hours is extremely low in comparison with that of the regular sessions in exchange-listed and Nasdaq securities. On the sample date of Jan. 18, only 3 of the share volume in NYSE-listed securities was effected after 4:00 p. m. Similarly, share volume from post-4:00 p. m. trades in Nasdaq securities on Jan. 18 accounted for only 3 of the daily total. Moreover, the vast majority of after-hours share volume in both NYSE-listed and Nasdaq securities was effected shortly after the regular session close. The share volume distribution in NYSE-listed securities throughout the regular session and after-hours period on Jan. 18 is illustrated in the graph provided at B-1 . 43 The graphs presentation of consolidated tape share volume in 15-minute increments shows the usual heavy volume surges at the regular session opening and close with a small volume run-off immediately after 4:00 p. m. and a small volume rise at 5:00 p. m. as NYSE crossing session volume is reported. The graph at B-2 shows that the sharp decline in volume levels in listed stocks after 4:00 p. m. is evident even if all NYSE volume is excluded. 44 The concentration of after-hours trading in NYSE-listed securities during the periods immediately following the 4:00 p. m. close is shown in the graphs provided at B-5 and B-6 . In fact, less than 1 of the total NYSE-listed share volume after the close was effected from 5:30 p. m. to 6:30 p. m. The graphs at B-7 and B-8 indicate that this pattern holds even if the regular session runoff and crossing session volumes on the NYSE are excluded. Again, less than 1 of the total after-hours share volume on the regional exchanges and third market combined was executed from 5:30 p. m. to 6:30 p. m. 45 The intra-day volume distributions in Nasdaq securities appear to be similar to those in NYSE-listed securities. The graph at B-11 shows an inverted bell curve pattern for Nasdaq volume during the regular session on Jan. 18, with a sharp drop-off in volume after the close. The graph at B-12 shows that 73 of the total after-hours volume in Nasdaq securities occurred in the 4:00 p. m. to 4:15 p. m. period. 46 The graph at B-13 illustrates the rapid decline in volume levels from 4:15 p. m. to 6:30 p. m. While this drop-off in Nasdaq volume is less abrupt than that indicated in NYSE-listed securities on the same trade date, Nasdaq volume between 5:30 p. m. and 6:30 p. m. still accounted for only 3 of the total after-hours volume in these securities. 2. Volume after 6:30 p. m. The Divisions analyses of after-hours trading are largely based on consolidated tape information that is disseminated on a daily basis until 6:30 p. m. The Office of Economic Analysis analyzed Nasdaq share volume on selected trade dates in January and February 47 to determine if significant share volume was effected after tape dissemination ceased at 6:30 p. m. 48 OEA found that an average of only 5.4 of after-hours volume was effected from 6:30 p. m. to 11:59 p. m. on these dates, with an additional 1.9 of total after-hours volume effected from 12:00 a. m. to 8:00 a. m. on the next day. In short, based on this sampling, there is little evidence that significant after-hours activity routinely occurs after tape dissemination ceases at 6:30 p. m. 3. Average Share Size The Divisions intra-day analysis of average share size for transactions on Nasdaq appears to indicate that much of the after-hours activity immediately after the 4:00 p. m. close remains institutional in nature, with retail activity becoming more prominent thereafter. For example, the graph at B-14 indicates that the average share size for trades on Nasdaq from 9:30 a. m. to 4:00 p. m. on Jan. 18 was 714 shares. From 4:00 p. m. to 4:15 p. m. however, the average share size spiked to over 2,000 shares and continued at over a 1,000 shares for four additional 15-minute intervals. This increase in average share size typically would indicate that institutional investors were active during this period. From 5:45 p. m. to 6:30 p. m. however, smaller sized retail activity was indicated with average share volume dropping to 358 shares. The graph at B-15 shows that this intra-day pattern held for the four trade dates from Jan. 18 to 22, 2000. From 9:30 a. m. to 4:00 p. m. the average share size was 735 shares, while the average share size surged to 2,242 shares from 4:00 p. m. to 5:00 p. m. and dropped back to only 496 shares during the interval from 5:00 p. m. to 6:30 p. m. 4. Breakdown of ECN Activity As discussed above, it would be a mistake to assume that all after-hours trading is conducted by ECNs. Data supplied to the Division by Nasdaq 49 indicate a more complex picture of after-hours trading, with the level of ECN trading fluctuating on particular days and time periods. The Division focused on trading by the ten most active firms in the after-hours market in Nasdaq securities for each trade date from Jan. 18 to 21. The graph at A-5 shows that the proportion of ECN activity ranged from a low of 20 on Jan. 18 to a high of 66 on Jan. 21. For the four trade dates, ECNs effected an average of 41 of total Nasdaq share volume from 4:00 p. m. to 6:30 p. m. The graphs at A-6 show that, while the total after-hours share volumes by the ECNs were generally largest from 4:00 p. m. to 4:30 p. m. ECN activity as percentages of total volume were often greatest as overall volume declined during the period from 5:15 p. m. to 6:30 p. m. The graphs at A-7 support these findings. Specifically, while the average amount of share volume effected by ECNs from Jan. 18 to 21 declined from over 2 million shares from 4:00 p. m. to 4:30 p. m. to slightly less than 1.5 million shares from 5:15 p. m. to 6:30 p. m. the percentages of total ECN volume during these intervals grew from 36 to 63, respectively. The relative increase in ECN activity after 5:15 p. m. appears to be consistent with the Divisions finding that the average share size of Nasdaq trades declined during this post-5:15 p. m. period. As discussed above, smaller average transaction share size is usually associated with increased activity by retail investors who tend to route their after-hours trades through ECNs. 5. Liquidity Constraints and Price Volatility Most stocks that trade in the after-hours market trade only during the period immediately after the 4:00 p. m. regular session close. For example, on sample date Jan. 18, a total of 2,077 Nasdaq issues traded from 4:00 p. m. to 6:30 p. m. representing 43 of the Nasdaq issues that traded that day. As indicated in the graph at B-16 . however, the number of Nasdaq stocks traded after-hours on Jan. 18 declined sharply after the initial 4:00 p. m. to 4:15 p. m. interval while 1,994 issues traded during this initial period, only 469 issues traded from 4:15 p. m. to 4:30 p. m. After 5:15 p. m. only about 100 issues traded. Most of the after-hours trading volume still appears to be concentrated in a small number of stocks, particularly those that have been the subject of major corporate news announcements issued after the 4:00 p. m. regular session close. 50 As a result, sharp price swings in these issues in the after-hours market are not unusual. For example, the issuers for the two most active stocks in the after-hours market on Jan. 18, Microsoft Corp. and Corel Corp. both issued post-close earnings reports on that day. During the regular session on Jan. 18, Microsoft shares closed at 115 516. Following the post-4:00 p. m. release of the companys earnings report, 2.9 million shares of Microsoft were traded by 6:30 p. m. leaving shares at 112 190, down 2 916 (2.2) from the 4:00 p. m. close. This after-hours volume represented 7.2 of the daily volume on Jan. 18. Microsoft shares reopened at 9:30 a. m. on Jan. 19 at 110 189 and ended the regular session at 107 with volume of 48.8 million shares. 51 The second most active issue in the after-hours market on Jan. 18, Corel, ended the regular session at 20. Following the companys post-4:00 p. m. earnings report, 1.39 million shares traded by 6:30 p. m. leaving shares at 23 2332, up 3 2332 (18.6) from the regular session close. After-hours volume in this less liquid stock represented 32 of the total daily volume on Jan. 18. Share prices reopened the next morning at 21 78, with prices generally declining thereafter to close at 20 916 on volume of 8.5 million shares. 52 Not surprisingly, the largest percentage price swings in the after-hours market are often experienced by extremely illiquid quotpenny stocksquot in which small absolute price swings translate into large percentage changes. For example, the largest percentage price gain in the Jan. 18 after-hours market was in shares of Western Water Co. which traded from a price of 1 132 at 4:00 p. m. to rise to 1 1532 at 6:30 p. m. representing a gain of 42. 53 The largest percentage price decline was in shares of Covol Technologies, which ended at 6:30 p. m. at a price of 1 116 for a decline of 19 from the regular session close. 54 The Divisions analysis of after-hours trading on the sample date of January 18 highlights the liquidity constraints and price volatility faced by investors in this market. These findings are consistent with OEAs analysis of market quality statistics during after-hours trading, provided as Attachment C to the Report. OEA analyzed quotations spreads, trading costs, and price volatility for regular session and after-hours trading in the 15 largest capitalization stocks in the Nasdaq 100 index for February 7-11, 2000. This analysis indicated that market quality in these securities deteriorated significantly after the regular session close. For example, the average (median) quote spread in these stocks more than tripled (from 8 cents per share from 9:30 to 4:00 p. m. to 26 cents per share from 4:00 p. m. to 6:30 p. m.). Effective spreads, a measure of trading costs, increased from 13 cents per share to 36 cents per share in after-hours trading. Trade price volatility, a measure of the average price change between trades, was 5 cents during regular hours and increased to 15 cents in after-hours trading. 55 In sum, the analyses performed by both the Division and OEA indicate that investors need to carefully consider the heightened trading costs and potential risks of the current after-hours market before directing their orders to this venue. II. Regulatory Initiatives A. Increased Access by Retail Investors to the After-Hours Market Beginning in mid-1999, increasing numbers of broker-dealers began offering their retail customers the opportunity to direct their orders to ECNs so that the orders would be eligible for execution after the regular session close. As discussed above, these developments promised retail investors some of the same flexibility in after-hours trading that institutions and professional traders have had for years. While the Commission was generally supportive of these developments, it was clear that more needed to be done to adequately disclose to retail investors the potential risks of trading in the often illiquid and volatile after-hours market and to consider the ramifications of widespread after-hours trading for key investor protection and market integrity regulations. The Commissions concerns were heightened in early 1999 when the major markets appeared to have been rushing into their own after-hours trading sessions without first adequately considering critical investor protection and operational issues. 56 B. After-Hours Trading Summit and SRO Working Groups On June 30, 1999, Chairman Levitt, NYSE Chairman Richard Grasso, and NASD Chairman Frank Zarb jointly hosted an after-hours summit that laid the groundwork for a more thorough consideration of the issues raised by widespread after-hours trading. The more than 40 participants in the Summit included consumer protection advocates and representatives from all facets of the securities industry, including large and small brokerage firms, on-line investment firms, ECNs, clearing firms and organizations, as well as representatives from the other SROs. At the Summit, the NYSE and NASD announced that they were forming several Working Groups that would canvass a wide range of viewpoints on after-hours trading from both inside and outside the securities industry. 57 These Working Groups were directed to produce recommendations concerning issues related to investor protection and potential changes to trading conventions, as well as operational issues related to clearance and settlement. 58 The Working Groups issued their final reports to the NASD and the NYSE in early October 1999. The NASD and NYSE posted the reports on their web sites to provide the public with an opportunity to review and comment on the Working Groups recommendations. 59 1. Investor Protection and Education Investor protection issues are of paramount importance in any market, and especially in the current after-hours trading environment. The Working Group on Investor Protection and Education was formed to examine common standards that could be developed to maximize protections and minimize confusion for investors. The recommendations of the Working Group included the following: Full disclosure of the nature and risks of extended hours trading for investors should be required, and a best practices document should be adopted industry-wide. Investors should be required to give specific instructions to their broker-dealers to quotopt inquot to having orders eligible for execution in the after-hours market. Given the current nature of the market, investors should use limit orders. The industry should coordinate an education campaign on after-hours trading to reach investors through printed materials, web sites, and public service announcements. In addition to issuing these recommendations, the Working Group outlined best practices and disclosure guidelines for broker-dealers to ensure that customers, prior to participating in after-hours trading, are knowledgeable about the nature of the market and how each firm operates in that market, and are fully aware of the risks and opportunities associated with after-hours trading. 60 2. Clearance amp Settlement and Operations Issues The Working Group on Clearance amp Settlement and Operations Issues examined not only the clearance and settlement process, but also issues surrounding back-office operations and risk management procedures at broker-dealers. In addition, the Working Group considered the implications for margin calculations and various critical Commission and SRO rules relating to back-office operations, including the Commissions net capital rule. The Working Groups recommendations included the following: After-hours stock trades should be processed as quotsame dayquot trades, with settlement by the third day after the trade date (quotT3quot). Orders should be specific to a session, and should not carry over from the traditional trading period to the after-hours session, or the reverse, unless specifically designated. There should be new types of orders available to investors, including: (i) orders designated for the after-hours session (ii) orders entered during the day session and designated to extend to the after-hours session (iii) good-till-cancelled orders designated to remain active through the day and after-hours session and (iv) good-till-cancelled orders entered in the after-hours session and designated to carry over to the next day. The traditional trading session should stop at 4:00 p. m. and the after-hours session should begin one hour later. A break between the day and evening sessions would: (i) allow time for the 4:00 p. m. closing price to be captured (ii) provide a window for corporate announcements (iii) give specialists and market makers time to adjust their order books (iv) give member firms and processors time to close and re-open their systems and (v) reinforce the message that the after-hours trading session is a fundamentally different type of market. Closing prices for reporting, valuations, etc. should be based on the 4:00 p. m. close of the traditional trading day. Issuers should be encouraged to make corporate announcements during the period between the day and after-hours sessions. 3. Trading Conventions Prior to widespread after-hours trading by the major markets, there should be some consensus on trading conventions that could affect the U. S. capital markets and the national market system. This Working Group examined issues involving the dissemination of market data, trading halts for news and other corporate developments, intermarket trading rules, lending issues, and mutual fund valuations. The Working Group tried to reconcile and distinguish between the different after-hours trading environments that existed at the time of its report and those that might exist in the future. As a result, some of the Working Groups recommendations apply if the primary exchanges extend their trading hours. Other recommendations apply even if the primary exchanges do not move to full scale after-hours trading, but retail trading continues to occur after-hours. The Working Groups recommendations included the following: The consolidated tape for last-sale and quotation information should be used for after-hours trading. Regulations that govern the usage of these systems and best execution during traditional trading hours should be continued in the after-hours trading session. If the primary markets decide to offer their own after-hours sessions, they must determine if they need to extend their regular session trading rules to assure liquidity and the maintenance of an orderly market by their members. When primary markets are not open, certain responsibilities should rest with broker-dealers and ECNs who participate. Bids and offers should be displayed with the percentage change from the 4:00 p. m. closing price. Only limit orders should be accepted. Brokers who accept orders should disclose clearly the hours during which they will attempt to execute and protect orders, as well as any other limitations on their ability to do so. Even if the primary exchanges are closed, the SROs should have the ability to halt trading in single stocks under certain circumstances. When the primary markets are not open, principles of best execution should continue to apply to broker-dealers and ECNs accepting orders in the after-hours market. Broker-dealers and ECNs who choose to accept after-hours orders should be held to the investor protection and market integrity rules of the SROs and the Commission. 61 Because the primary market closing price has become the standard of valuation for many financial instruments and settlements, a quotclosing pricequot mechanism should be preserved by the primary exchanges and set at 4:00 p. m. This should be followed by a break of at least 60 minutes before reopening for an after-hours trading session. The Working Group believed that the break between the regular and after-hours sessions would provide an opportunity for the orderly public dissemination of corporate news, thereby reducing the need for SROs to impose possibly disruptive ad hoc trading halts in specific securities. The Working Group noted that the Commission should examine its rules to assure flexible pricing conventions for primary and secondary securities offerings, so that pricing can occur either in the post-4:00 p. m. break or prior to the days market opening. Specifically, the Commission should consider permitting verbal confirmation (and booking) of purchases subject only to: (i) final pricing ( e. g. . within a prescribed price range) and (ii) the SECs declaration of effectiveness of the registration statement. This would allow issuers and underwriters the flexibility to price at 4:00 p. m. following the after-hours session, or before the 9:30 a. m. regular session opening. C. SRO Initiatives 1. NASD Model for Investor Disclosure As discussed above, the report of the Working Group on Investor Protection and Education provided firms with best practices and disclosure guidelines regarding retail customer participation in the often illiquid and volatile after-hours market. On January 28, 2000, the Commission announced that it had approved proposed NASD Regulation Notice to Members No. 00-07 that reminded member firms that they have an obligation to their retail customers under existing NASD rules to disclose the material risks of after-hours trading before permitting customers to engage in this activity. 62 These rules include NASD Rule 2110 (just and equitable principles of trade), and NASD Rule 2210 (the advertising rule, which requires that all communications with the public be based on principles of fair dealing and good faith). While the Notice did not require a standard disclosure, NASD Regulation staff provided model after-hours trading risk disclosures as guidance to member firms. The Notice recognized that members were free to modify the model disclosures, or draft disclosures of their own, provided they address, at a minimum, all of the material factors outlined in the Notice. 2. Transparency Enhancements As discussed above, the Working Groups recognized the critical need for more transparency in the after-hours market. Specifically, the Working Groups recommended that the consolidated last-sale and quotation information that is available for the regular trading sessions should be extended to cover the after-hours market. The Commission approved several SRO programs in October 1999 that were designed to further these goals. a. Nasdaq Extended Hours Pilot On October 13, 1999, the Commission approved on a temporary or quotpilotquot basis a Nasdaq program to extend the operation of key trade and price reporting systems until 6:30 p. m. 63 These systems include SelectNet, Automated Confirmation Transaction Service, Nasdaq Trade Dissemination Service, and the Nasdaq Trade Dissemination Service. It is important to recognize that the pilot does not expand the Nasdaq regular trading session beyond 4:00 p. m. it simply extends the post-close operation of some key systems from 5:15 p. m. to 6:30 p. m. 64 Under the pilot, the posting of quotations and trading of securities by NASD members during the period of time following Nasdaqs normal market close and before 6:30 p. m. is voluntary. If a Nasdaq market maker chooses to post quotations and trades during the 4:00 p. m. to 6:30 p. m. period, however, it is obligated to post firm two-sided quotations when opening and making its market. NASD member firms that choose not to open their market and instead send customer or proprietary orders to other market participants for display andor execution (or that choose to hold those orders until the next days regular trading session) are not obligated to post firm two-sided quotes. Regardless of an NASD members quotation activity, all transactions in Nasdaq National Market, SmallCap, Convertible Debt and OTC transactions in exchange-listed securities executed between the hours of 8:00 a. m. and 6:30 p. m. must be reported to ACT within 90 seconds. As discussed below, this greater market transparency for after-hours trading provides broker-dealers with essential price information needed to meet their best execution duties for customer orders in the after-hours environment and also supports the extension of key investor protection regulations to this market. b. Chicago Stock Exchange E-Session Pilot On October 13, 1999, the Commission also approved the Chicago Stock Exchanges pilot program for an quotE-Sessionquot that operates from the end of its existing post-primary session at 4:30 p. m. to 6:30 p. m. 65 While trading during the E-Session is conducted in many respects as it is during the CHXs primary trading session, the CHX added new features to more fully automate the transmission of orders and to provide additional protections to investors who trade after-hours. To participate in the E-Session, investors are limited to the use of unconditional limit orders, and each limit order must be affirmatively designated for trading in the E-Session, to prevent a situation where an investor unknowingly participates in after-hours trading. Any orders that remain unexecuted at the close of the E-Session are automatically canceled, and are not carried over to any other trading session. 66 Specialists continue to make two-sided, continuous markets in their assigned stocks. 67 One of the major benefits of the CHX E-Session Pilot is that the consolidated tape for exchange-listed stocks now continues to operate until 6:30 p. m. 68 Together with the Nasdaq Extended-Hours Pilot and the NASDs 90-second trade reporting requirements for OTC transactions in listed stocks, the running of the consolidated tape significantly enhances the ability of investors to have access to essential price information for the critical 4:00 p. m. to 6:30 p. m. segment of the after-hours market. D. Investor Protection and Market Integrity Rules When the SRO extended-hours pilots were initiated in October 1999, both the SROs and the Commission determined that essential investor protection and market integrity rules should apply to the after-hours market. 1. Manning Rule The proposal for the Nasdaq Extended-Hours Pilot included modifications to NASD Rule 4617 (Normal Business Hours) to make clear to Nasdaq market makers who voluntarily open their markets after the traditional close that, except as modified by the proposal, they are generally obligated to conduct their business during the extended session in conformity with all NASD Rules. 69 In addition, Nasdaq amended NASD IM-2110-2 (also known as the quotManning Rulequot) to extend its applicability until 6:30 p. m. 70 The Manning Rule prohibits an NASD member firm that is holding a customer limit order from trading for that members market making proprietary account at a price that would satisfy the customers limit order without executing that customer limit order. 71 2. Firm Quote Rule In general, Exchange Act Rule 11Ac1-1(b)(1)(ii) requires an association to disseminate the best bid, offer, and quotation sizes for subject securities whenever quotlast sale information with respect to reported securities is reported by a member acting in the capacity of an OTC market maker pursuant to an effective transaction reporting plan. quot NASD members, including OTC market makers, who choose to trade from 4:00 p. m. to 6:30 p. m. are required to report last sale information pursuant to the NASDs rules, and the NASD disseminates quotes during this time. These procedures, in turn, trigger Exchange Act Rule 11Ac1-1(c)(2) (the quotFirm Quote Rulequot), which generally obligates OTC market makers to execute any order to buy or sell a subject security, other than an odd-lot order, presented to it by another broker or dealer, or any other person belonging to a category of persons with whom such responsible broker or dealer customarily deals, at a price at least as favorable to such buyer or seller as the responsible brokers or dealers published bid or published offer. Thus, if an OTC market maker chooses to quote in the extended-hours period, it is required to honor its quotes up to the published size. 3. ECN Display Alternative Similarly, the reporting of last sale information to the NASD triggers the ECN Display Alternative. 72 Accordingly, an order entered by a market maker into an ECN that widely disseminates the order is deemed to be a bid or offer to be communicated to the market makers association for at least the minimum quotation size required by the Associations rules if the priced order is for the account of the market maker, or the actual size of the order up to the minimum quotation size required if the priced order is for the account of a customer. The ECN Display Alternative deems the market maker to be in compliance with this requirement if the ECN displays the market makers order in Nasdaq. Thus, if an ECN is receiving OTC market maker orders before 6:30 p. m. the ECN must transmit those orders through SelectNet for display in the Nasdaq montage, or the OTC market maker must post the quote separately in its own quote line in the montage in order to be in compliance with the ECN Display Alternative. 4. Limit Order Display Rule In addition, Exchange Act Rule 11Ac1-4 (the quotLimit Order Display Rulequot) is not limited to regular trading hours, but also applies to market makers that choose to participate in after-hours trading sessions. Simply put, the Limit Order Display Rule requires an OTC market maker to publish immediately a bid or offer that reflects the price and full size of each customer limit order that improves the bid or offer of the OTC market maker, and that reflects the full size of the customer limit order that is priced equal to the bid or offer of the OTC market maker or the national best bid or offer, and represents more than a de minimis change in the size of the OTC market makers bid or offer. 73 5. Regulation ATS Regulation ATS also applies to market participants who choose to operate from 4:00 p. m. to 6:30 p. m. Any alternative trading system that has five percent of more of the average daily trading volume in a security must display its best orders in that security in the public quotation stream during regular trading hours. Under Regulation ATS, in calculating their volume, alternative trading systems must include all trades executed during the twenty-four hours that constitute a day. Thus, any alternative trading system that meets the five percent threshold must display its orders in the public quotation stream whenever the public quote systems make display possible. E. Current Issues 1. Potential Enhancements to Nasdaq Extended-Hours Pilot Nasdaq officials have informed the Commission staff that they are considering whether it might be appropriate to apply some additional trading rules to the Extended-Hours Pilot. As noted above, NASD Rule 3350 (quotNASD Short Sale Rulequot) is currently applicable only to the Nasdaq regular session. Nasdaq officials are seeking to determine if the after-hours market has developed to the point that the application of the NASD Short Sale Rule to trading from 4:00 p. m. to 6:30 p. m. would be beneficial to mitigate the high levels of price volatility that are often experienced after the regular session close. 74 Similarly, Nasdaq officials are considering whether the application of NASD rules prohibiting quotlockedquot and quotcrossedquot markets for quotations from 4:00 p. m. to 6:30 p. m. would improve the trading environment during this period. 75 Eventually, Nasdaq will determine whether to propose a full-fledged after-hours trading session in which market-maker participation would be mandatory and all normal trading rules would apply. 2. After-Hours Sessions for the Major Markets If Nasdaq decides to pursue a full-fledged after-hours trading session or the NYSE decides to develop a new type of post-4:00 p. m. trading session in lieu of its current limited crossing sessions, they would need to file rule change proposals with the Commission for notice and comment. This would give the public and other interested parties an opportunity to comment on the structure and trading rules applicable to the new sessions before the Commission determines whether to approve the proposals. While the recommendations from the Working Groups are not binding in terms of after-hours session proposals, the Commission would need to consider a number of key issues that were addressed by the Working Groups if the major markets propose full-fledged after-hours sessions. a. Development of New Order Types If the major markets decide to implement after-hours trading sessions, there will be a need to develop standardized order types to avoid investor confusion and to ensure that these orders receive best executions. For example, as discussed above, the Working Groups recommended consideration of at least the following order types to take into account the new trading sessions: Orders designated for the after-hours session. Orders entered during the day session and designated to extend to the after-hours session. Good-till-cancelled orders designated to remain active through the day and after-hours session. Good-till-cancelled orders entered in the after-hours session and designated to carry over to the next day. The Division believes that, before widespread after-hours trading begins, the SROs should consider whether these or other order designations would serve to minimize confusion concerning when particular buy or sell orders would be eligible for execution. b. Preservation of 4:00 p. m. Closing Prices The Working Groups noted that investors and the securities industry have come to rely on 4:00 p. m. closing prices in equity securities for a variety of valuation purposes. Regular session closing stock prices are also used by many other parties in todays financial industry, including investment companies and advisors, banks, lawyers, accountants, and other professionals, to value positions and liabilities in a variety of contexts. Moreover, closing prices play a role in a number of the Commissions regulations in areas such as secondary offerings. The Division believes that proposals by the major markets for after-hours trading sessions should make provisions to preserve distinct regular session closing prices for equity securities. III. Conclusion Despite recent advances in trading venues and enhanced market transparency, the after-hours market in stocks remains an often illiquid and volatile market that requires retail investors to exercise caution when attempting to capture short-term profits by trading after the major markets close. Even in relatively liquid stocks, steep after-hours price swings can surprise investors that base their trading decisions on the regular sessions closing prices. In less liquid stocks, investors need to be even more cautious to avoid receiving surprisingly unfavorable prices after the regular session close. Nevertheless, the Commission recognizes that, in todays electronic world, investors will continue to seek greater flexibility in the timing of their trades and trading venues. Thanks to the information technology revolution, todays investors enjoy unprecedented access to the nations markets. Investors have at their fingertips the ability to direct their own investment decisions. With a click of the mouse, investors can review the performance of their portfolios on a near real-time basis. They can retrieve vast amounts of market information to make informed investment decisions 150 and when they have made a decision, they can again click the mouse and place their orders. While the after-hours market is still in its infancy, investor demands could someday make after-hours trading a mature, robust trading session. Both the established markets and ECNs have sought to provide innovative mechanisms to meet investor demands for after-hours trading. The Commission remains committed to working with the SROs and the securities industry to ensure that the regulatory structure, particularly in the areas of investor protection and market integrity, keeps pace with this rapidly changing environment. 1 All times are Eastern. 2 See Division B of the Conference Committee Report on H. R. 3194 (H. Rept. 106-479), Public Law 106-113, at Cong. Record Vol. 145, No. 163, Part II, pg. H12308, Nov. 17, 1999. 3 The graphs provided at A-1 show that, while total share volume by ECNs in Nasdaq securities rose from about 18 billion shares in the first quarter of 1999 to around 26 billion shares in the fourth quarter, the percentage of total share volume attributed to ECNs remained at approximately 30 throughout the period. These graphs are based on data compiled by OEA from routine quarterly reports submitted by ECNs to the Commission as well as data supplied by Nasdaq web sites. It should be noted, however, that there apparently are some significant differences in methodologies employed among ECNs in compiling their trading statistics. As a result, aggregate trading statistics for ECNs are, at best, approximations. 4 The graphs provided at A-2 indicate that, while total share volume by ECNs in NYSE-listed securities rose from about 1.56 billion shares in the first quarter of 1999 to around 1.77 billion shares in the fourth quarter, the percentage of total share volume attributed to ECNs remained at approximately 3 throughout the period. 5 See Division, Market 2000, An Examination of Current Equity Market Developments (January 1994)(quotMarket 2000 Reportquot), at II-13. The graph in the upper portion of A-3 shows the growth in ECN share volumes in Nasdaq securities since 1993. The graph in the lower portion of A-3 shows a similar proportionate increase in ECN activity in NYSE-listed securities since 1993. 6 The graph in the upper portion of A-4 illustrates the preponderance of ECN activity in Nasdaq securities. 7 The relatively limited role of ECNs in after-hours trading in Nasdaq securities is shown in the graph in the middle portion of A-4 . 8 The larger percentage of after-hours trading in listed securities by ECNs is shown in the graph in the lower portion of A-4 . 9 Exchange Act Rule 11Ac1-1, 17 CFR 240.11Ac1-1. 10 These order-routing systems may be operated by, or on behalf of, an OTC market maker or exchange market maker that executes customer orders primarily against the account of such market maker as principal, other than riskless principal. 11 The Strike ECN recently consolidated with BRUT. Strike operates on the technology platform previously used by BRUT. See letter from Belinda Blaine, Division Associate Director, to J. Craig Long, Foley amp Lardner, dated January 14, 2000. 12 Market XT is an ECN only for the after-hours market. 13 The negotiation feature permits subscribers to conduct anonymous negotiations over price and size. Reserve size orders are orders that show only a part of the available size, permitting subscribers to enter large orders that can be displayed and executed in part. 14 See Regulation of Exchanges and Alternative Trading Systems, Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844 (December 22, 1998). 16 Congress considered the public availability of quotation information to be critical to fair and competitive markets because published quotations provide investors, broker-dealers, and other market participants with essential information about the condition of the market. This information assists investors in making investment decisions and in finding the best market for a security, while also making it possible for investors to evaluate the quality of their executions. 17 See Order Handling Rules at 88 quoting SEC, Statement of the Securities and Exchange Commission on the Future Structure of the Securities Markets (February 2, 1972), 37 FR 5286 (February 4, 1972). 18 Exchange Act Release No. 37619A (September 6, 1996), 61 FR 48290 (September 12, 1996) (quotOrder Handling Rulesquot). In addition to specifically addressing the markets created by ECNs, the Commission required market makers and specialists to display customer limit orders that were priced better than a specialists or OTC market makers quote or that added to the size associated with such quote. 19 Exchange Act Rule 11Ac1-1(c)(5)(i), 17 CFR 11Ac1-1(c)(5)(i). 20 Exchange Act Rule 11Ac1-1(c)(5)(ii), 17 CFR 11Ac1-1(c)(5)(ii). 21 Letters dated January 17, 1997 from Richard R. Lindsey, then-Director, Division, SEC, to Charles R. Hood, Senior V. P. and General Counsel, Instinet Corporation Joshua Levine and Jeffrey Citron, Smith Wall Associates TONTO System, now known as Archipelago Gerald D. Putnam, President, Terra Nova Trading, LLC Bloomberg Tradebook Roger D. Blanc, Wilkie Farr amp Gallagher (counsel to Bloomberg) letter dated October 6, 1997 from Richard R. Lindsey, then-Director, Division, SEC, to Matthew G. Maloney, Dickstein, Shapiro, Morin amp Oshinsky LLP (counsel to Spear, Leeds amp Kellogg) letter dated February 4, 1998 from Robert L. D. Colby, Deputy Director, Division, SEC, to Linda Lerner, General Counsel, All-Tech Investment Group, Inc. letter dated April 21, 1998 from Richard R. Lindsey, then-Director, Division, SEC, to Mark Dorsey, Fried, Frank, Harris, Shriver amp Jacobsen (counsel to Brass Utility, LLC) letter dated November 13, 1998 from Robert L. D. Colby, Deputy Director, Division, SEC, to Lloyd H. Feller, Morgan, Lewis, Bockius LLP (counsel to Strike Technologies LLC) letter dated November 13, 1998 from Robert L. D. Colby, Deputy Director, Division, SEC, to John Schaible, PIM Global Equities, Inc. letter dated January 4, 2000 from Robert L. D. Colby, Deputy Director, Division, SEC, to Sam Scott Miller, Orrick, Herrington amp Sutcliffe LLP (counsel to Market XT) and letter dated April 24, 2000 from Belinda Blaine, Associate Director, Division, SEC, to Robert Crossan, Chief Financial Officer, GFI Securities. 22 This reduction can also be attributed to the display of customer limit orders by market makers and ECNs. According to the NASD, quoted spreads declined by up to 41 percent following the implementation of the Order Handling Rules. See Market Quality Monitoring Overview of 1997 Market Changes, NASD Economic Research, March 17, 1998. See also Effects of Market Reform on Trading Costs and Depths of Nasdaq Stocks . Michael Barclay, et al., Journal of Finance, Vol. VIV, No. 1 (February, 1999) (this study found that the quoted and effective spreads for Nasdaq stocks declined approximately 30 percent). 23 As of October 1997, there were four ECNs linked to Nasdaq through the Nasdaq SelectNet service. Today, as described above, there are ten ECNs in operation. 24 See Regulation of Exchanges and Alternative Trading Systems, Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844 (December 22, 1998). As discussed above, ECNs are a type of alternative trading system. 27 See Applications for and Amendments to Application for Registration as a National Securities Exchange (quotForm 1quot) for Island, dated June 28, 1999 and NexTrade, dated March 24, 2000. In addition, Archipelago initially filed a Form 1, dated August 11, 1999. Archipelago is currently considering whether to become a facility of the Pacific Exchange, rather than an independent SRO. 28 See Exchange Act Release No. 42450 (February 23, 2000), 65 FR 10577 (February 28, 2000). 29 is a screen-based system on Nasdaq workstations, offered to NASD members to facilitate negotiation of securities transactions. Broker-dealers may enter orders directed to either one broker-dealer or to all market makers, and negotiate the terms of the orders through counteroffers entered into the system. 30 See Exchange Act Release No. 42536 (March 16, 2000), 65 FR 4857 (February 1, 2000). 31 CAES (Computer Assisted Execution System) is a NASD system that enables members to direct agency orders of up to 1,000 shares in both Nasdaq securities and exchange-listed securities to market makers for automatic execution. 32 The Commission recently expanded the securities that can be traded through the ITSCAES link to include so-called Rule 390 securities. Rule 390 securities refer to securities that were subject to the New York Stock Exchanges off-board trading restrictions. The Commission recently approved the rescission of NYSE Rule 390. See Exchange Act Release No. 42758 (May 5, 2000), 65 FR 30175 (May 10, 2000). 33 All of the ECNs charge a fee to market participants that execute through SelectNet against an order displayed in the ECN. 34 For example, one ECN, Instinet, has been offering after-hours services since 1975. See also Market 2000 Report, at II-13 amp II-14. 35 Many institutions and professional traders also adjust their portfolios and hedges by trading stock index futures, many of which trade at night on automated systems operated by futures exchanges. In addition, portfolio hedges are often adjusted through after-hours exchanges of stock index futures with baskets of underlying stocks (so-called quotExchanges for Physicalsquot or quotEFPsquot). Most of these basket trades are effected after-hours on foreign markets such as London and Tokyo. 36 For example, an institution might arrange with its broker-dealer to have an after-hours trade executed at a volume-weighted average price for the stock during the regular trading session. 37 Several regional exchanges also offer investors the opportunity to have orders entered after 4:00 p. m. that are eligible for execution at the primary markets 4:00 p. m. closing prices. In addition, the NYSE offers a separate crossing session for program trades that can be effected after the 4:00 p. m. close at negotiated prices. 38 The CHX E-Session (as well as the exchanges primary and post-primary sessions) also offers opportunities to trade Nasdaq stocks. 39 The Division selected Jan. 18, 2000, as a sample date because it fell within a recent period when many large corporations traditionally issue post-close announcements regarding quarterly earnings reports. After-hours trading traditionally has been most active during these so-called quotreporting periods. quot In some cases, the Report compares after-hours trading on Jan. 18 with activity on the remaining trade dates that week. 40 If all NYSE volume was excluded, the regional exchanges still accounted for over 48 of share volume in NYSE-listed securities between 4:00 p. m. and 6:30 p. m. on Jan. 18. 41 Descriptions of these Nasdaq systems are provided in Part II of this Report. As discussed below, the Nasdaq pilot program that was approved by the Commission in October 1999 extended the operation of these services and mandated 90-second trade reporting for Nasdaq and exchange-listed securities until 6:30 p. m. in order to provide enhanced transparency to investors in the after-hours market. 42 On September 25, 1996, Chairman Levitt forwarded to Congressman John D. Dingell, Ranking Member of the House Committee on Commerce, a Division report that analyzed after-hours trading in selected stocks in July 1996 (quot1996 Studyquot). The Divisions 1996 Study found, among other things, that after-hours trading was concentrated in the periods immediately following the post-close corporate news announcements and during the period immediately before the next days regular session opening. 43 The Division used consolidated tape data compiled by the Commissions Office of Economic Analysis to produce the graphs of NYSE-listed share volume provided in Attachment B . 44 The graphs at B-3 and B-4 show that this pattern holds even for volume on the CHX and the so-called quotThird Market, quot respectively, which are among the more active participants in after-hours trading. Activity by ECNs in NYSE-listed securities is included in the Third Market reports on the consolidated tape. 45 Again, the graphs at B-9 and B-10 show that this pattern holds even for volume on the CHX and the Third Market, respectively (these markets continue to report trades to the consolidated tape until 6:30 p. m.). None of the CHX volume and only 1.3 of the Third Market after-hours volume were executed from 5:30 p. m. to 6:30 p. m. on Jan. 18. 46 Nasdaq data indicate that 94 of the share volume from 4:00 p. m. to 4:15 p. m. resulted from after-hours transactions rather than runoff from the regular trading session. 47 OEAs analyses focused on Nasdaq trading on January 28 and 31, and February 7 and 8, 2000. 48 While trades effected after 6:30 p. m. are not reported to the consolidated tape, trade reports are still submitted to the NASD for surveillance purposes. These non-public trade reports were used in OEAs review. Because this information is non-public, only aggregate statistics are provided in this Report. 49 firm-specific data supplied to the Division is based on non-public surveillance reports. The Divisions Report, therefore, presents only aggregate data for after-hours activity by ECNs and non-ECNs. In addition, it is important to note that differences among ECNs concerning trade-reporting procedures make it difficult to properly aggregate these volume reports for statistical purposes. Specifically, some ECNs report all of their trades to the tape, even if the seller in the transaction is another broker-dealer (normally, the selling broker-dealer reports a trade for tape dissemination). Other ECNs follow the convention of having the selling broker-dealer report under these circumstances. This situation makes it difficult to compare volume among ECNs and between ECNs and other broker-dealers with precision. The volume statistics in this Report, therefore, are approximations. 50 The current concentration of after-hours activity in a small number of quotstoryquot stocks is consistent with the findings of the Divisions 1996 Study. 51 Intra-day price movements in Microsoft shares during the regular trading sessions on Jan. 18 and 19 are shown in the Bloomberg graph provided at B-17 . 52 Intra-day price movements in Corel shares during the regular trading sessions on Jan. 18 and 19 are shown in the Bloomberg graph provided at B-18 . 53 price movements in Western Water shares on Jan. 18 and 19 are shown in the Bloomberg graph provided at B-19 . 54 Intra-day price movements in Covol Technology shares on Jan. 18 and 19 are shown in the Bloomberg graph provided at B-20 . 55 OEAs findings are also consistent with those of a recent study of trading in 250 Nasdaq stocks in the first half of 1999. Barclay and Hendershott, Price Discovery and Trading Costs After Hours . Working Paper, University of Rochester Simon School of Business, Jan. 24, 2000. 56 For example, the Commission staff learned in discussions with market officials that the NYSE and Nasdaq were contemplating different quottrade datequot standards for after-hours trading that could needlessly complicate essential clearance and settlement functions. One market was contemplating treating after-hours transactions as quotnext-dayquot trades while the other market would have reported after-hours transactions on the next day but with quotas-ofquot designations with the previous day as the trade date. This would have resulted in after-hours trades in the two markets being on differing settlement schedules that would have significant ramifications for the major clearing agencies. Moreover, it was also evident that the major markets had not yet adequately considered the burdens of widespread after-hours trading on member firm systems, particularly in view of the then-ongoing efforts of the securities industry to prepare for the year 2000 transition. 57 Immediately following the Summit, the NYSE and NASD used their web sites to provide the public with an opportunity to comment on the proposed agendas of the Working Groups and to submit comments on the issues that would be covered. 58 In addition to the three Working Groups which are discussed below, a Working Group on Options Markets was formed to conduct a comprehensive review of issues that would impact the options markets as after-hours trading evolves, including coordination with the stock markets, dissemination of market data, clearance, settlement and back office issues, the effects on exercise and settlement procedures, and how best to inform investors of the implications of after-hours trading in options, including modifications to the Options Disclosure Document which is currently provided to options investors. When the initial deadlines were set for issuance of the Working Groups final reports, it was determined that the Working Group on Options Markets should issue its final report several weeks after the other Working Groups, to allow sufficient time for the Working Group on Options Markets to analyze the contents of the other reports and make recommendations accordingly. At the time the other Working Groups issued their final reports, the Working Group on Options Markets (which was composed of representatives of the registered options exchanges, as well as a representative of the International Securities Exchange), was focusing on plans to link the options markets. Because that issue was of primary importance, and remains so to date, the Working Group on Options Markets has not issued a final report. 59 The Working Groups final reports are available at nasd and nyse . Copies of these reports are provided in Attachment D to this Report. 60 A copy of the Working Groups quotBest Practices Relating to Extended Hours Tradingquot document is included in Attachment D . 61 The application of these rules in the after-hours market is discussed below. 62 The NASD, through its wholly owned subsidiary, filed this Notice to Members with the Commission as a proposed rule change on January 11, 2000, NASD Regulation, Inc. See Exchange Act Release No. 42363 (January 28, 2000), 65 FR 5715 (February 4, 2000)(SR-NASD-00-01). A copy of the Notice to Members is provided in Attachment E to this Report. 63 See Exchange Act Release No. 42003 (October 13, 1999), 64 FR 56554 (October 20, 1999)(SR-NASD-99-57. The Nasdaq Extended-Hours Pilot was initially approved to operate until March 1, 2000. The Commission subsequently approved an extension of the pilot until October 1, 2000. See Exchange Act Release No. 42481 (March 1, 2000)(SR-NASD-00-07). 64 As discussed above, many of these systems had operated daily until 5:15 p. m. since 1992. 65 See Exchange Act Release No. 42004 (October 13, 1999), 64 FR 56548 (October 20, 1999)(SR-CHX-99-16). The CHX E-Session Pilot was initially approved to operate until March 1, 2000. The Commission approved an extension of the pilot until October 1, 2000. See Exchange Act Release No. 42463 (February 28, 2000)(SR-CHX-00-02). 66 The CHX requires members to provide certain disclosures to non-members before accepting orders for execution in the E-Session. Specifically, before a member can accept an order from a non-member, the member must first disclose that: (1) orders for E-Session eligible securities are eligible only for a single E-Session--if not executed during that E-Session, the orders will be automatically canceled (2) the only orders that are eligible for execution during the E-Session are unconditional limit orders (3) there may be greater fluctuations in securities prices because there will likely be less liquidity during the E-Session once traditional trading hours have ended and (4) because distinct systems and facilities offer trading in securities after the close of the traditional trading period, at any particular time, quotations and transaction prices for a security may vary among those systems and facilities. CHX requires these disclosures to help ensure that participants in the after-hours market understand the potential risks of trading outside traditional trading hours. 67 As discussed above, the CHX trades both exchange-listed and Nasdaq stocks during the day and during its 4:00 p. m. to 4:30 p. m. post-primary session. The most active of these stocks are also eligible for trading in the 4:30 p. m. to 6:30 p. m. E-Session. 68 Technically, the consolidated tape runs until 6:35 p. m. to ensure that it captures any run-off from the 4:30 p. m. to 6:30 p. m. E-Session. The CHX reimburses the Securities Industry Automation Corp. (which administers the tape) for extending tape operations until 6:35 p. m. 69 The NASDs short sale rule is currently not applicable beyond traditional market hours. See NASD Notice to Members 94-68. As discussed below, however, Nasdaq is currently considering whether the application of the NASD short sale rule would be beneficial. 70 The Manning Rule previously applied only during traditional Nasdaq market hours. 71 If a customer does not formally assent (quotopt-inquot) to processing of their limit order(s) during the extended hours period commencing after the normal close of the Nasdaq market, limit order protection will not apply to that customers order(s). 72 Exchange Act Rule 11Ac1-1(c)(5), discussed in Part II, above. 73 There are certain exceptions to the Limit Order Display Rule. Those exceptions would continue to apply during an after-hours trading session. See Exchange Act Rule 11Ac1-4(c). 74 The NASD Short Sale Rule determines price changes or quotticksquot based on the securitys bid side of the Nasdaq Best Bid and Offer (quotNBBOquot), which reflects the highest published bid quotation (quotBest Bidquot). The NBBO began to be disseminated by Nasdaq from 4:00 p. m. to 6:30 p. m. starting on February 7, 2000. Nasdaq delayed initiating the NBBO until February 7 in order to give mutual fund complexes and vendor systems used by funds sufficient time to adjust and test systems that use a securitys regular session closing NBBO for end-of-day valuations for net asset valuation purposes. 75 A quotlockedquot market exists if a securitys Best Bid equals the Best Offer. A quotcrossedquot market exists if the Best Bid is higher than the Best Offer. Modified: 03172006