May 20, 1999

                   How the Stock Market Would Be
                   Transformed by a 10 P.M. Close

                   By GREG IP
                   Staff Reporter of THE WALL STREET JOURNAL

                   If Richard Livingston could trade stocks at night, he would be a lot happier
                   and a lot less paranoid.

                   At work a few weeks ago, Mr. Livingston, a mechanical engineer at a
                   Houston consulting firm, was trying to place a trade through his Internet
                   broker and couldn't get onto its Web site for 20 minutes. "I'm surprised my
                   boss didn't call to ask me, 'Why you were online to an Internet brokerage
                   for 20 minutes that morning?' They track that stuff."

                   Mr. Livingston, 25 years old, is a stock-market junkie who spends the
                   hours before bedtime researching and charting stocks. But when the
                   markets are open, he is usually at work. He would love them to be open at
                   night: "As fast as you can get news off the Internet, it would be nice to
                   react to that immediately," he says.

                   He likely doesn't have long to wait. Pushing ahead with plans to offer night
                   trading, a class of small but aggressive "alternative trading systems" is
                   forcing the hand of the nation's major stock markets. Extended hours are
                   coming, with private systems, the Nasdaq Stock Market and the New
                   York Stock Exchange preparing for them as early as mid-July. And
                   24-hour trading may not be far behind.

                   New Demands

                   But what's good for Mr. Livingston could be hell for the securities industry
                   and those who regulate it.

                   After a high-pressure day in the markets, Michael Weiner, 44, a portfolio
                   manager for Banc One Investment Advisors, cherishes his evenings, when
                   he can reflect on strategy, without having to act. "Losing that luxury could
                   drive some of us out of our minds," he says.

                   Extended hours also could stretch the resources of some of the tiny
                   brokers and specialist firms that keep orders flowing smoothly on the floor
                   of the New York Stock Exchange. Buttonwood Specialists LLC has just
                   three traders, responsible for maintaining an orderly market in about 40
                   stocks, says managing member Albert Fried. Buttonwood could train
                   some of its clerks to trade during the extended hours or enter a joint
                   venture with a larger firm. But Mr. Fried says it may ultimately opt to
                   merge with a larger firm, a route many small specialists are taking anyway.

                   Regulators, meanwhile, will have a new territory to patrol. Currencies,
                   government bonds and stock-index futures already trade around the clock.
                   But stocks tend to be more volatile, more sensitive to specific information,
                   easier to manipulate and more likely to be traded by individuals than by
                   market professionals.

                   Specter of Illiquidity

                   The biggest risk of trading at night is illiquidity, which magnifies the
                   potential for market manipulation. During the day, it is relatively easy for a
                   seller to find a buyer. But at night, stocks might move on "much less
                   volume than during the regular trading session," warned Laura Unger, a
                   Securities and Exchange Commission member, in a speech last month.
                   "Dissemination of false or misleading information through chat rooms or
                   bulletin boards could quickly impact a security's price."

                   Then there are the countless technical headaches: If the daytime session
                   ends at 4 p.m. Eastern time and trading resumes from 5 p.m. to as late as
                   10 p.m., when is the official close? Which prices will newspapers publish,
                   and which will mutual funds use to price their shares? When will companies
                   release sensitive news if the market is almost always open?

                   More fundamentally, is all this really necessary? James Pritchard, 49, a
                   church administrator in Memphis, Tenn., who takes his time with his
                   investment decisions, doesn't think so. "What I'd like to have done is
                   bought Berkshire Hathaway in 1968," he says, referring to the publicly
                   traded investment vehicle of famed investor Warren Buffett. "And I could
                   have done that morning or night."

                   Natural Evolution?

                   But for the growing legions of active investors, especially in Western time
                   zones, trading at night is as logical as shopping on Sundays. Tom
                   O'Connell, president and chief operating officer at Discover Brokerage
                   Direct, the discount unit of Morgan Stanley Dean Witter & Co., says 25%
                   to 40% of Discover customers' orders are entered after markets close in
                   New York and queued up for execution the next day. Those investors
                   would like their orders to be executed immediately so they can get on with
                   their lives, he says.

                   Eclipse Trading Inc., New York, which plans to launch a trading session
                   from 6 p.m. to 9 p.m. Eastern time, may be the first major venue for
                   individuals to trade at night. Mr. O'Connell of Discover, one of the firm's
                   subscribing brokers, says the launch could come as early as mid-July, but
                   Eclipse itself will say only that it will be this summer. Online investment
                   bank Wit Capital Group Inc., also based in New York, hopes to launch an
                   after-hours trading network later this year, but doesn't have any
                   participating brokers yet, according to the prospectus for its initial public

                   Founded two years ago by Eugene Choe and Michael Satow, both former
                   SEC enforcement lawyers, Eclipse is one of the alternative trading systems
                   that will attempt to replicate the Nasdaq Stock Market and New York
                   Stock Exchange -- without the overhead. Investors will be able to access
                   Eclipse through subscribing brokers, which presently include Discover,
                   Salomon Smith Barney Inc., a unit of Citigroup Inc., and Dreyfus
                   Brokerage Services, an affiliate of Mellon Bank.

                   Eclipse's plans have spurred the National Association of Securities
                   Dealers, Nasdaq's parent, to plan for evening trading as early as this
                   summer. "We think there's going to be an after-hours market whether
                   we're in it or not," says NASD President Richard Ketchum. "There are
                   strong arguments that can be made that it makes sense for us to be part of
                   that, from a competitive standpoint and investor-protection standpoint."

                   And this, in turn, has prompted the Big Board to consider matching action.
                   Neither Nasdaq nor the Big Board are committed to extending hours this
                   year, if at all, and Richard Grasso, the Big Board's chairman and chief
                   executive, is urging the SEC -- which would have to approve such changes
                   -- to ensure all markets and private systems such as Eclipse extend trading
                   hours at the same time.

                   Last month, SEC Chairman Arthur Levitt said major markets shouldn't
                   extend their hours until next year at the earliest, after they have resolved
                   the regulatory and technology burdens of the year-2000 bug and of trading
                   in decimals, instead of fractions.

                   Many on Wall Street think individual-investor demand for after-hours
                   trading is a temporary phenomenon that will expire at the same time the
                   bull market, especially in Internet stocks, is over.

                   'How Much More Do We Need?'

                   But some are resigned to extended hours eventually whether they like it or
                   not. And many don't. "I'm looking at one billion shares a day and saying,
                   'How much more do we need?' " says Banc One's Mr. Weiner, whose
                   firm manages the One Group of mutual funds. "There's probably nothing
                   wrong with saying the window is closed."

                   Lee Korins, president of the Security Traders Association, which
                   represents 7,500 traders and financial professionals, says, "This is not a
                   business where people can operate for 14 or 16 hours a day." He says his
                   group's members have questions about what kind of personnel they will
                   need. "At a minimum, when a firm is involved in trading, there have to be
                   compliance people around, senior people to make decisions," he adds.

                   Stock-trading hours have been extended before over the decades, though
                   the extensions have been much more incremental than the ones now
                   envisioned. From 1873 until 1952, the New York Stock Exchange was
                   open from 10 a.m. to 3 p.m. weekdays and 10 a.m. to noon Saturday. In
                   1952 the close was extended to 3:30 p.m., and the Saturday session
                   scrapped. The close was moved to 4 p.m. in 1974 and the opening to
                   9:30 a.m. in 1985. Several regional stock exchanges stay open until 4:30

                   A small number of securities dealers and trading systems have long
                   allowed professionals and institutions to trade outside regular hours. The
                   primary venue is Reuters Holdings PLC's electronic trading system,
                   Instinet Corp., on which after-hours trading soared during the 1991 Gulf
                   War. But Instinet's trading, which is off-limits to individuals, is
                   concentrated just before and after the regular session, and is relatively

                   Moreover, at present, after-hours trading can be plagued by illiquidity.
                   That can lead to volatile stock prices and wide spreads between bid and
                   ask prices, which make a trade more costly. On Tuesday at 5:45 p.m.
                   Eastern time, for example, Instinet, according to one of its subscribers,
                   showed a bid-ask spread of 25 cents for MCI WorldCom Inc., $1.125
                   for Microsoft Corp. and $4 for Inc. During the day, those
                   stocks normally have a 6.25-cent bid-ask spread. Such spreads, however,
                   may well not be representative of a formal evening session in which dealers
                   are committed to quoting better spreads.

                   New Breed of Investor

                   For years, lack of demand and regulatory concern for their financial safety
                   limited individuals' after-hours access. The Internet has changed all that by
                   spawning a crowd of self-confident, self-directed investors. Now, even
                   Instinet plans to cater to individuals through partnering brokers. Some
                   other, smaller firms already have offered individuals after-hours access, but
                   have yet to gain significant volume.

                   Extending hours may be the biggest challenge the New York Stock
                   Exchange's floor-based market has ever faced. Consider that Eclipse's
                   Mr. Satow claims his system easily can be scaled to handle the New York
                   Stock Exchange's current volume of about 800 million shares a day, a
                   claim that certainly is unlikely to be tested for some time to come. Yet the
                   firm has just 38 employees, many of whom dress casually, and $9 million
                   worth of hardware in a Jersey City, N.J., data center.

                   In the same building that houses Eclipse's cramped offices, workers are
                   gutting several floors to make way for the Big Board's
                   10,000-square-foot, $40 million -- plus trading room for foreign stocks,
                   scheduled to open in June 2000; business attire will be mandatory.

                   West Coast Revolt

                   In 1991, the New York Stock Exchange proposed opening at 9 a.m. to
                   better compete with London, but its members revolted, especially those on
                   the West Coast, who would have had to be at their desks by 6 a.m. local

                   However, with ambitions of taking on stock exchanges in London,
                   Frankfurt and Tokyo, the exchange's Mr. Grasso broached the topic anew
                   last December, with a proposal for a 5 a.m. to 9 a.m. Eastern time session
                   pegged to European trading, a domestic session from 9:30 a.m. to 4 p.m.,
                   and a 5 p.m. to midnight session pegged to Asian trading. Only foreign and
                   a few U.S. stocks, among the exchange's 3,100 companies, initially were
                   to be traded outside regular hours.

                   Since then, however, the extraordinary growth in online trading and
                   Eclipse's imminent debut have shifted the focus to trading U.S. stocks.

                   On the Agenda

                   At its June board meeting, the Big Board will discuss preparations for a
                   session beginning at 5 p.m. or 6 p.m. Eastern time and extending until 10
                   p.m.; those later hours could start between mid-July and mid-October,
                   Mr. Grasso says. The exchange would begin by providing for trading in at
                   least the constituents of the Standard & Poor's 500-stock index, and
                   phase in its remaining stocks over three months or so, he says. The NASD
                   board is to discuss a plan next week to trade 100 or so of Nasdaq's
                   largest stocks from 5 p.m. to 9 p.m. Eastern time. The NASD will also
                   consider extended hours for its American Stock Exchange unit.

                   The consolidated tape, the continuously updated record of trades, quotes
                   and volume operated by the nation's securities markets, runs only from
                   9:30 a.m. to 4:30 p.m. Eastern time for exchange-listed stocks, and 9:30
                   a.m. to 4 p.m. for Nasdaq stocks. Thus, someone trading U.S. stocks
                   outside regular hours now has no authoritative benchmark to determine
                   what is a fair price until the market reopens.

                   With Nasdaq or the New York Stock Exchange open, the tape would
                   continue to run, giving after-hours trading critical legitimacy. The Nasdaq
                   would update its indexes while its market was open. The Dow Jones
                   Industrial Average would be calculated as long as the Big Board was
                   open, says John Prestbo, editor of Dow Jones Indexes, a unit of Dow
                   Jones & Co., publisher of The Wall Street Journal and the Interactive

                   Unresolved Questions

                   But many other issues must be resolved. Both the Big Board and Nasdaq
                   expect evening trades to be counted as part of the next day's trading,
                   affecting a stock's high, low, close and volume for that day. Eclipse says it
                   will settle evening trades in the standard three days, but both the Big Board
                   and Nasdaq expect four days. Most mutual funds may stick to 4 p.m.
                   Eastern time as the basis for pricing their net asset values, but the
                   Investment Company Institute, the mutual-fund trade group, says, "There's
                   no way to know how this will go across the industry at this point." Mr.
                   Grasso says the issue of how expiring options and futures would settle still
                   is under discussion.

                   In any case, Wall Street is likely to have to accept the inconveniences now
                   endured by its foreign counterparts. "Nighttime trading can be done from
                   home with a skeleton crew with personal computers and cellular phones,
                   which is what the London people do," says Peter DaPuzzo, president of
                   Cantor Fitzgerald & Co. "They take their cell phones and trade from their
                   dinner table for the last few hours on the American market."

                   Releasing News

                   While Thomson Financial Investor Relations, a unit of Toronto publishing
                   and financial-services company Thomson Corp., estimates that only 11%
                   of S&P 500 companies release their corporate news after markets close,
                   many are widely followed technology companies based on the West
                   Coast. "We're concerned about making material announcements while the
                   market is open," says a spokesman for Intel Corp., Santa Clara, Calif.

                   Keith Mullins, head of emerging-growth research at Salomon Smith
                   Barney, imagines a world where every company releases potentially
                   market-moving news at 4 p.m., giving Wall Street one hour, instead of all
                   night, to study a company's release, listen to the company's conference call
                   with analysts, prepare a recommendation and brief its sales forces.
                   "Especially during earnings-reporting season, it would be brutal," Mr.
                   Mullins says.

                   Individual investors may also find night trading involves more sacrifice than
                   day trading. Tracy Livingston, 25, wife of Richard, the Houston engineer,
                   says she sees little enough of him as it is. "We're planning to start a family.
                   With the market being open as late as 8 or 9 here in Houston, that means
                   he'll be upstairs, away from us."

                   She figures the sacrifices are worth it as long as Mr. Livingston's trading
                   profits keep helping with the house payments. Says Mr. Livingston, "If I
                   start losing money -- that's another problem."