Higher Costs Hobbling After-Hours Trading

After-hours trading in stocks generally produces higher costs and more severe price swings for investors, the Securities and Exchange Commission staff says.

In a new report, the staff of the agency’s division of market regulation found that conditions after hours “deteriorated significantly” from standard trading.

On average, the spread between “bid” and “asked” prices on the largest Nasdaq stocks more than tripled after regular trading ended.

These findings confirm what many investors have already learned about trading after the official market close. Because there are far fewer people buying and selling shares, those who do trade after hours have generally found it harder and more expensive to complete transactions.

“If you need to trade after hours, you’ve got a desperation problem,” said Jeff Ricker, a San Francisco-based stock market strategist. “Where you have to get the trade done immediately, you are going to have to pay for it.”

The SEC staff report said its findings were consistent with an examination of market conditions by the agency’s office of economic analysis in early February.

Richard Grasso, chairman of the New York Stock Exchange, recently complained to the SEC about the volatility of trading in after-hours markets. Grasso said the market’s price “transparency” risked severe harm if investors couldn’t rely on smooth pricing.

After-hours trading is conducted by so-called electronic communications networks, many of which expect to be major competitors for the NYSE in coming years.

In other market news on Wednesday:

* The NYSE’s Grasso said he expects the exchange to begin quoting 50 stocks in decimals, rather than fractions, in September--the pilot move toward U.S. market decimalization. The SEC, however, has yet to make a final call on the NYSE’s pilot proposal.

* The NYSE confirmed it is in talks with major foreign markets to form an around-the-clock global exchange, mirroring the strategy of the Nasdaq Stock Market to build a worldwide trading network.

“The [GEM] global equity market project is the first attempt to create a world exchange working 24 hours a day,” said Jean-Francois Theodore, head of Euronext, a planned consortium of major European markets.