E*Trade Users Get Instinet Brian Graney (TMF Panic)
August 17, 1999
As part of its effort to create an ever-increasing amount of value for its investing clientele, online broker E*Trade Group (Nasdaq: EGRP) announced today that it will let its customers execute after-hours trading through an agreement with the Instinet unit of financial news and information provider Reuters Group PLC (Nasdaq: RTRSY).
The deal fits in with E*Trade's overarching mission of democratizing personal finance, as after-hours trading is currently considered to be the private domain of large institutional investors, mutual funds, and broker/dealers. As usual, the company put a trailblazing spin on things in an attempt to show-up its rivals in the fast-growing, competitive Web brokerage market. "The addition of after hours trading reinforces our position as a global leader and recognized authority in the delivery of electronic personal financial services,'' chairman and CEO Christos Cotsakos said. Given that some of E*Trade's rivals were moving into the after-hours space ahead of it, however, the deal with Instinet is not all that surprising.
With today's agreement, E*Trade clients will get the chance to trade NYSE and Nasdaq listed stocks from 4:00 p.m. to 6:30 p.m. Eastern time, allowing traders who just can't wait until the next morning to trade on late-breaking news and announcements after the official closing bell. The 2 1/2 hour after-hours window is longer than the 4:00 to 5:15 slot currently offered by rival Web broker Datek in conjunction with electronic communications network (ECN) Island. More brokers are expected to enter the fray in the near future.
Cotsakos told CNBC today that the demand is there, with 25% to 30% of E*Trade's customers wanting to trade after-hours. Whether these customers represent E*Trade's highest quality customers (those holding the largest accounts in terms of per-customer assets) is unclear. However, that really may not matter since E*Trade's cost of offering after-hours trading to all of its customers will be practically nothing. Rather than investing buckets of money to create its own system, Instinet will do most of the dirty work. Therefore, any increase in average trading revenue per account thanks to after-hours trading will be gravy for E*Trade.
Offering after-hours trading probably won't drive legions of new quick-draw traders to E*Trade, but expanding the company's array of services seems like a smart way to keep current users from jumping ship to some other broker. In the past year and a half, E*Trade has added online tax filing services, mortgage information, proprietary index funds, pay-per-view sell-side research, access to online investment banking firm E*Offering, and other features for its customers. Customer retention is already an issue in this sector, and will probably become even more pronounced as online brokers try to outdo each other with glitzy ad campaigns.
The next stop for online brokers is round-the-clock and weekend trading, which will open up more opportunities for higher trading volumes and commissions. While most of E*Trade's share price pop today can probably be attributed to initial excitement over the Instinet deal, the market may already be looking ahead to what the company could look like in a few years and starting to discount the possibility of higher 24-7 cash flows in the future.