After-Hours Trading

ECNs: Fragmented Markets

To increase liquidity in the after-hours markets, many of the major ECNs have agreed to share quotations.

By sharing bids to buy and sell issues, the nine existing ECNs hope to create enough volume to attract large institutional investors and compete more effectively as one virtual market, say analysts.

"If the ECNs all connect, then you'll have fragmented pools of liquidity that search each other for trades," explains Jaime Punishill, an analyst at Forrester Research. "At the end of the day, it's still a big pile of liquidity, and as far as the market is concerned, it does not matter whether it's made up of several networks or not."

Until volume develops in the after-hours market, some analysts plan to avoid it altogether.

"For the individual investor, it's difficult to get a decent trade on a timely basis in after-hours," says analyst Steve Shepich at Olde Discount Corp. in Detroit.

It's almost impossible to gauge the fair price for an issue after the market closes, according to Shepich.

"When a company misses its numbers by 10 cents, what is the fair price based on that new information?" says Shepich. "The stock will move based on supply and demand, and that's hard to estimate in the after-hours market."

"The skinny on after-hours trading is that it's the first inning of a long game," says analyst Dan Burke at Gomez Advisors. "The liquidity levels and fragmentation concerns need to be worked out before there is wide-scale user acceptance."