"The SEC staff has done an excellent report on the expansion of after-hours trading systems as well as certain significant trading patterns," Dingell said. "While I fully recognize and support the benefits that these systems offer to investors, I remain concerned about the nature of some of the trading, and about the ability of the SEC to ensure that investor protections are maintained. Since these systems operate under no-action letters and orders rather than consistent rules, a thorough review of the systems and the adequacy of their regulation is called for."

The report identifies and reviews prominent instances of after-hours trading in shares of Motorola Inc., Hewlett-Packard Co., Intel Corp., and Microsoft Corp. in reaction to late-day news announcements, and provides an analysis of recent proposals to restrict the manner in which such news is disseminated. It also provides an overview of the types of trading systems available in the U.S. after regular trading hours, as well as the systems' barriers to entry for individual investors.

The SEC staff report's principle findings were:

 The lack of liquidity in this market and the degree to which after-hours trading is concentrated in periods immediately following significant late-day news announcements pose a number of practical difficulties and a great deal of risk for individual investors who might attempt to trade in this market in hopes of capturing favorable short-term price movement.

 While only two systems expressly restrict trading access to broker-dealers and institutions, the credit criteria for all of the systems are sufficiently stringent to make individual participation impractical. The credit criteria are necessary to ensure that participants can handle the "substantial risks" inherent in after-hours trading and fulfill their payment and delivery obligations.

 Individuals reap the benefits of after-hours markets indirectly through institutions, such as mutual funds, pension funds, and other professionally managed investment vehicles, that are eligible to trade on many of these systems.

 The recommendations set forth in the Business Week article pose "substantial drawbacks," and could even result in investors being worse off than under current SEC and SRO rules.

 With respect to the four securities under SEC review,

• the volumes of after-hours trading were only small fractions of the daily trading volumes on, while price swings often were much wider than in, the next days' regular trading sessions;

• the after-hours trading prior to the regular market opening was significantly heavier than the after-hours trading after the regular market close, with pre-opening trading accounting for 3/5 to 4/5 of the total after-hours volume in the stocks;

• in three of the four instances under review, there were significant concentrations of post-close trading immediately following late-day news announcements; and

• while many off-exchange systems operate almost on a 24-hour basis, most after-hours trading is concentrated during periods immediately before and after normal U.S. business hours.

Note: Copies of the 3-page cover letter, 30-page staff memorandum, and 28-page attachment (graphs and charts on trading data) available at 2322 Rayburn.

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