(June 8 – 16:30 ET) – The Securities and Exchange Commission has just released a report entitled “Electronic Communication Networks and After-Hours Trading”, concluding that after-hours trading is inevitable, if inefficient.
The report, requested by Congress, discusses the current operations of ECNs and after-hours trading, their impact on the securities markets, and recent regulatory initiatives.
The report concludes that, “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.” Its research found that most after-hours trading happens right after the close in response to major news announcements. It warns that prices can be wild, even in liquid stocks. Illiquid stocks can cause investors to receive “surprisingly unfavorable prices after the regular session close”.
Nevertheless, the SEC says it recognizes the inevitability of extended trading hours, so that while “it is still in its infancy, investor demands could someday make after-hours trading a mature, robust trading session”.
The SEC says that NASDAQ is contemplating the addition of more trading rules to the after-hours session, including the short sales rule. It suggests that NASDAQ is also looking at a full-fledged after-hours session down the road and the NYSE may expand its own efforts, too. The SEC says before it approved this it would have to develop special types of orders to function in a late session. It also recommends that a formal close be maintained for the purpose of valuing portfolios at a set time, reporting prices in newspapers, and other functions that rely on close prices.