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Extended Trading Will Not Move Pricing

Even if the Nasdaq Stock Market extends trading into the evening hours, mutual fund companies will probably continue to price their portfolios at 4 p.m., at least at the outset, predicted a spokesperson from the Investment Company Institute (ICI), the mutual fund industry's major trade organization, based in Washington, D.C.

The current practice of funds calculating their net asset values (NAVs) based on the 4 p.m. closing prices of the Nasdaq and New York Stock exchanges will probably continue because Nasdaq's proposal includes a break from 4 p.m. to 5:30 p.m., said Chris Wloszczyna, the ICI spokesperson.

NASD's board of governors on May 27 approved a staff proposal to extend the hours of the Nasdaq Stock Market with an evening session lasting from 5:30 p.m. to 9 p.m. or 10 p.m. NASD issued a statement saying it had deliberately decided to include the break "to permit mutual funds to price portfolios and Nasdaq to calculate and disseminate closing bid, ask, last sale and index values."

"If they keep the 4 p.m. breather, pricing will probably continue to be at 4 p.m.," said Wloszczyna. Besides, since NASD plans to keep its 5:50 p.m. deadline for fund accountants to report NAVs to the Nasdaq Mutual Fund Quotation Service, it makes sense for mutual funds to price their portfolios based on the 4 p.m. bell, he said.

Wloszczyna discounted the possibility of mutual funds pricing their portfolios earlier than 4 p.m. to ease the burden on fund accountants to meet the 5:50 p.m. deadline. He said quoting prices earlier than the day's close did not make sense because the market has recently been so volatile and prices can change radically in the last hour of trading.

A spokesperson for Fidelity also said the industrywide tradition of pricing portfolios at 4 p.m. will probably continue for the time being.

"For the foreseeable future, we will continue to price our portfolios at 4 p.m., especially in light of the likelihood of a trading suspense window between 4 p.m. and 5:30 p.m.," said James Griffin, the Fidelity spokesperson.

However, Griffin and spokespeople from several other mutual fund complexes declined to comment on whether extended trading hours will eventually require them to price portfolios at a second, later time in the evening. They also declined to comment on whether the comparatively illiquid evening hours could cause unusual price volatility, requiring the funds to hire additional staff to monitor the markets during these hours.

"It raises questions we can't answer until we hear the complete plans of all the exchanges and [see] what other fund companies are doing," said Griffin of Fidelity. "Obviously, we want to remain competitive."

Spokespeople from T. Rowe Price, Robertson Stephens Funds and State Street Corporation also said they would wait to respond until they knew more about the market plans and other companies' responses.

Securities and Exchange Commission chairman Arthur Levitt issued a statement May 27 warning that thin nighttime trading could lead to volatility.

"The presence of individual investors, coupled with the lack of liquidity in the after-hours markets will almost certainly increase the amount of volatility during after-hours trading sessions, making price discovery even more difficult than it already has become recently during normal market hours," said SEC commissioner Laura Unger, echoing the commissioner's views before the New York Stock Exchange on April 7.