THE BIG BOARD'S BIG YAWN
When the New York Stock Exchange commenced after-hours trading on June 13, many a brow was furrowed on Wall Street. Some observers expressed concern that the new system would hide trading data from public view and undermine the Big Board's links with regional exchanges. But the naysayers have had little reason to complain--not because the system is working well, but because hardly anyone is using it.
The NYSE's nascent effort to compete with institutional trading systems and overseas exchanges has aroused barely a ripple of interest from either the public or institutions. When trading began on June 13, 737,000 individual shares were traded, plus 1.6 million stock-basket shares (in units of 15 or more different stocks). But individual shares traded have dropped by two-thirds, with no stock baskets traded on some days (chart).
MATCHMAKING. At brokerages and money-management firms alike, the reaction has been tepid. Discount giant Charles Schwab & Co. reports that just 30 to 50 customers a day--out of 1.5 million--are using the NYSE after-hours system. Another major discounter, Fidelity Investments, has found customer interest to be nil and did not begin to accept orders for after-hours trading until June 24. And even firms that have used the system from the beginning have found it disappointing. At Merrill Lynch & Co., which strongly supports after-hours trading, the Big Board's system has attracted only a scattering of orders and even fewer have been executed. The managing director for listed-equity trading, Robert J. McCann, notes that except for some stock-basket trades, "we have not had a significant transaction in the after-hours trading system so far."
The poor results are a depressing omen for the NYSE, which has geared up its after-hours foray, on a two-year trial basis, to win back business from order-matching systems such as the Crossing Network and POSIT, and from the London and Tokyo exchanges. Through 1993, the exchange will have two daily after-hours sessions, with one session matching buyers with sellers of individual stocks at the 4 p.m. closing price from 4:15 to 5 p.m., Eastern time. The other session permits trading of stock baskets through 5:15 p.m. for institutions that want to reshuffle portfolios.From the beginning, the NYSE system has evoked criticism. For one thing, it is a limited order-matching operation--so trades are executed only if there are buyers and sellers at the closing price. Moreover, some critics have maintained that the matching session undercuts the Intermarket Trading System, which links the NYSE with regional exchanges, because the trading only takes place at the NYSE. The basket session has come under fire because trading data on individual stocks is not disclosed.
LOST CAUSE? The most glaring shortcoming of the NYSE system appears to be that trades can only take place at the closing price. It's a downside not present at POSIT or the overseas exchanges. Usually, only a fraction of match-trading orders can be filled. At one major brokerage, large-block orders totaling 30,000 shares a day were entered into the NYSE system on June 13 and 14--but only about 500 shares a day were traded. "After that," an executive of the firm recollects, "we just didn't bother"--and stopped using the NYSE system. The Teachers Insurance & Annuity Association-College Retirement Equities Fund had a much better initial experience--with 40% of its orders filled on June 13. But the percentage has since dropped to about 3%. The "fill rate" for TIAA-CREF trades placed through Instinet, by contrast, is as high as 15% for large-cap stocks.
For its part, the NYSE is downplaying the sparseness of the volume and the rate of order execution. "If it's an up day and everybody is entering buy orders, people are not going to be matched," notes spokesperson Sharon Gamsin, who contends that reaction to the system has been positive.
But the exchange will not release the overall fill rate of customer orders. And until that number--whatever it is--increases and volume picks up, big customers will stay away. "People are sitting on the sidelines, so there's no volume, so we're sitting on the sidelines," notes Michael Even, a senior vice-president of Independence Investment Associates in Boston. "It's a chicken-and-egg thing." Indeed, the egg may never hatch. Says a top trader at one major brokerage: "It is a nonevent. In a month, nobody will even be talking about it."Gary Weiss in New York