Topics for October
Copyright (c) 2000 Commodity Systems Inc. (CSI). All rights are reserved.
Topics discussed in this month's journal.
Defining The Trading Day on U.S. Security Exchanges
Technological advances continue to streamline transactions at U.S. equity exchanges but, surprisingly, some trading innovations have led to delayed quotations of daily summary data. For example, changes made at the stock exchanges in October 1999 led some CSI customers to complain that they did not get their stock data early enough. We agreed that later was generally not better, but in this case, later was the only way to maintain an accurate record of market activity. Fortunately, the inconsistencies introduced in October 1999 and explained below are coming to an end. We anticipate that the very latest innovations at the U.S. securities exchanges will be good news for CSI customers and traders around the world.
Let's review: Before October 1999, all of the U.S. equity exchanges closed at 4:00 p.m. Eastern time. Until then, it was fairly easy for CSI's staff to verify and post the current day's summary data by about 5:00 p.m. These updates included prices, trade volumes, stock split information, dividends, etc. Starting in October 1999 and continuing for nearly a year, while the NYSE halted trading at 4:00 p.m., Nasdaq and some regional exchanges offered trades of Big Board (NYSE) stocks (as well as their own listings) during the evening hours.
A complicating feature of this arrangement was the inconsistent way trades were reported for the various exchanges. All trades for Nasdaq-listed issues that occurred in the late trading session (after 4:00 p.m.) were sent from Nasdaq as Form-T trades. By Nasdaq rule, these trades were not (and still are not) allowed to change the official daily high-low-last price data, but they do increment the volume. Ostensibly, this is because Nasdaq uses 4:00 p.m. prices to calculate indices. They (apparently) have no way to preserve the 4:00 p.m. price quote for each index component. In contrast, trades on Nasdaq of NYSE-listed issues were sent as regular trades, which altered the official composite high-low-last quote.
CSI has traditionally supplied only the complete (official) summary composite stock prices for NYSE stocks, and we continued with this practice during the year of inconsistent closing times. This meant that our quotes for NYSE stocks contained trade records through the 6:35 p.m. closing at Nasdaq and regional exchanges. Any after-hours trades that were sent to the consolidated tape were included, though trades through ECNs (electronic communication networks such as Island, Instinet, and Archipelago) were not.
After all the U.S. stock exchanges close trading for the day, CSI's data banking department runs programs that perform tolerance checks on high-low ranges, insures that all dividends are included and of reasonable value, verifies split ratios, checks to be sure no stocks are missing, etc. When these issues have been addressed, all of this information is packaged into various file formats, compressed, etc. for customer downloading. By the time the Nasdaq close of NYSE stocks rolled around at 6:35, it generally allowed for data availability from CSI around 7:30 p.m. Eastern time.
This delay should be a thing of the past by the time you read this Journal. We are pleased to report that the NYSE introduced a rule that, beginning September 21, 2000, all after-hours trades of NYSE-listed issues must also be designated as Form-T trades. Therefore, the high, low and last now reflect the 4:00 p.m. NYSE close.
We speculate that this change was precipitated by Richard Grasso's (chairman of the New York Stock Exchange) expression of concern to the Securities and Exchange Commission that after-hours trades distorted the market, based on the fact that there were many instances of significant stock price volatility on small-lot trades during the low-volume, after-hours trading interval. With the advent of Form-T trades for NYSE issues, small-lot, after-hours trades will no longer distort prices.
National newspaper reports deliver prices from all exchanges as of 4:00 p.m. daily, despite the fact that volume reports are incomplete and, before September 21, NYSE stock prices were incomplete. The 4:00 p.m. close is now a more legitimate figure for all U.S. securities and we are contemplating a procedure change here at CSI to better accommodate it so that data delivery times can be vastly improved. We hope to provide for one update of stock data in an early snapshot form (as newspapers do), and then offer a later or alternate update including the same prices with late trading volume. Of course, this action, if and when taken, would be accompanied by a possible doubling of access frequency without additional cost. We welcome the new Form-T new designation for after-hours trades of NYSE stocks, as it means that prices are reported uniformly for all U.S. securities, regardless of their primary exchange listing.
As this Journal goes to press in mid September, we are awaiting implementation of the new NYSE rule. We expect that it will result in earlier availability of securities prices and earlier access times for CSI customers. Despite the human body's need for rest, the seemingly remote possibility of heavy night trading volume could further expand trading hours beyond 6:35 p.m. In any event, CSI's goal is to provide the most timely, accurate record of exchange-sanctioned data available anywhere.