There was a time when the individual stock investor could only buy and sell stocks during the regular trading hours at the major stock exchanges. In the United States, these hours are typically from 9:30 a.m. to 4:00 p.m. However, online trading began to rapidly gain popularity in the 1990s, leading to a greater demand for stocks in general, and particularly a demand for the ability to trade stocks after the traditional business hours. A Form T is a form that brokers are required to use to report transactions that occur after the market’s usual hours. Trades that occur outside of regular market hours are thus referred to as Form T trades.
After-hours trading had been available for some time to institutional investors and high net worth individuals, but became more widely available in the late 1990s to individual traders with the rise of Electronic Communications Networks (ECNs). If an investor or trader is a customer of a brokerage that has access to an ECN, then they can engage in Form T trades in the after-hours marketplace, which is open an additional two and a half hours after the traditional markets close in the U.S. An ECN acts as the go-between for buyers and sellers in the after-hours market.
ECN
An electronic communication network, or ECN, is a computer-operated system that makes it possible to conduct trades outside of a stock exchange. The Securities and Exchange Commission first authorized networks of this type for use in the United States in the late 1990’s. Today, electronic communication networks are used extensively by traders all over the world.
The Securities and Exchange Commission classifies the electronic communication network as what is known as an alternative trading system or ATS. As part of this family of trading systems, the ECN does not allow access by the internal crossing networks operated by some brokers and dealer, since these systems process orders without actually sending the orders to a public venue. The focus of an electronic communication network is to allow direct access trading, not any type of automatic matching of orders with the prices currently on an exchange, as is the case with a crossing network.
For the most part, trading on an electronic communication network is focused on buying and selling stocks and currencies. Because of the fast pace that is common with currency trades as well as with trading stocks, the ECN is capable of initiating real time transaction activity that will execute the order with the same speed it would be executed by trading directly on the exchange using more traditional methods. This effectively makes it possible for investors all over the world to trade without regard to their local time zone. As long as the exchange is open and accepting transactions, it is possible to use the ECN to make investment trades.
Not everyone can trade on an electronic communication network. The investor must either be a subscriber to the ECN, or have an established account with a dealer or broker who is registered with the network. At one point, executing orders required a customized terminal access, but today the network can be accessed using proprietary network protocols as long as a secure Internet connection is established.
