From...

March 13, 1999
Web posted at: 1:01 p.m. EST (1801 GMT)

by Megan Barnett

(IDG) -- Unlike your neighborhood stock broker, online investment sites never close. You can visit them anytime. The Web surfer's ability to execute trades, though, still quaintly reflects the offline world: Before 9:30 a.m. or after 4 p.m. Eastern time, you can't buy or sell stocks. Not for nothing do they call 'em day traders.

But a coming revolution will doubtless lead to sleep deprivation for day traders everywhere. Get ready for round-the-clock trading on the Web.

Leading the charge are Michael Satow and Eugene Choe, a pair of former SEC lawyers who've spent the past two years building a New York-based investment firm called Eclipse Trading. Eclipse has developed Indivex, a Web-based trading platform that electronically matches and executes trades placed when the stock market is closed.

Earlier this month, Eclipse announced its first two customers: Discover Brokerage Direct, a subsidiary of Morgan Stanley Dean Witter, and New York-based Bernard L. Madoff Investment Securities. Eclipse plans to launch Indivex this summer.

MORE COMPUTING INTELLIGENCE
	IDG.net home page
Industry Standard home page
Industry Standard email newsletters
Industry Standard daily Media Grok
Industry Standard financial news
Reviews & in-depth info at IDG.net
IDG.net's personal news page
Questions about computers? Let IDG.net's editors help you
Subscribe to IDG.net's free daily newsletter for computer industry cognoscenti
Search IDG.net in 12 languages
News Radio
	Fusion audio primers
	Computerworld Minute

For years, institutional investors have been able to trade after hours using Instinet, a Reuters-owned electronic communications network (ECN). Both the Nasdaq and the New York Stock Exchange offer more limited electronic order-matching systems that permit trades during a short span just before the market opens and again after the market closes at the end of the day. Those systems are available only to institutional investors; they deny direct access to retail investors.

Until now, the online brokerage community has stayed out of after-hours trading. But an increasingly demanding customer base is clamoring for a method of trading outside normal hours.

While they were at the SEC, Satow and Choe set out to create a way to provide that access to the retail community. "We knew there had to be a different paradigm," says Mike Satow, Eclipse's president and CEO. "We took our wish list as regulators and spent months gathering information from the industry. We used that experience to address the liability issues."

In recent months, regulators have turned up the heat on liability issues for online brokerages. As e-brokers struggle to educate customers on the ABC's of trading during the day, introducing off-hours trading creates new complications. Eclipse's system, for instance, provides a full Nasdaq Level II trading screen, which has far more information than the average investor typically needs or wants.

Eclipse plans to roll out the new service slowly. Initially, Indivex will be open for just two or three hours, beginning at 6 p.m. or 7 p.m. Eastern time, with trading limited to roughly 200 Nasdaq- and NYSE-listed issues. As liquidity grows, so will the stocks available for trade and the hours of operation. The long-term plan: trade around the clock.

Liquidity is the single factor that will determine the system's success or failure. Without a critical mass of investors, buyers and sellers won't bother to access the system. And Eclipse is not the only company preparing an after-hours trading network.

Wit Capital, the New York-based online investment bank, has had a similar system under development for years. With plans to launch the network later this year, Wit recently hired former National Discount Brokers CEO Everett Lang to head up its Digital Trading Facility. So far, Wit hasn't announced any customers for the network.

Meanwhile, Datek Online's Island ECN, a system that electronically executes trades during the day, is quietly extending its hours; it plans to operate 24 hours a day by summer. Archipelago, a smaller ECN that has received national attention following a combined $50 million investment from Goldman Sachs and E-Trade, already executes trades until midnight and opens slightly earlier than Nasdaq and the NYSE.

With its relationship with E-Trade, Archipelago has a useful advantage. Wit Capital, meanwhile, has been wooing online brokerages with IPO-share allocations from deals it helps to underwrite. Eclipse is starting without existing broker relationships and is relying instead on its technology and the regulatory background of the founders as its chief selling points.

Unfortunately, four incompatible after-hours trading operations do not an efficient market make. For the concept to gain critical mass, online traders will have to line up behind a single player. It's a high-stakes game, and the winner could make a real change in the dynamics of stock trading. But most of the entrants aren't going to make it.