Decimalization to be delayed:
March 22, 2000
SEC Says Decimalization Rollout
May Be Delayed Past July 3 Deadline
By GASTON F. CERON
Dow Jones Newswires
NEW YORK -- The Securities and Exchange Commission may be leaning
toward postponing the July 3 target date for implementation of trading in
decimals, an SEC official said Wednesday.
"My guess would be that the July 3 date has to
be pushed back," Robert Colby, deputy
director of the SEC's Division of Market
Regulation, said at a decimalization
implementation conference held here by the
Securities Industry Association.
At the conference, there was speculation
about what the SEC would do about the July 3 deadline in light of the
Nasdaq's recent announcement that it will not be ready to convert to
decimal-based trading by then, although the New York Stock Exchange
stands ready to go.
The SEC has already extended the deadline for stock markets to submit
their decimalization plans back to April 14, but it has not yet said whether
it will push back the July 3 date when decimalization would actually begin
being phased in.
SEC Chairman Arthur Levitt has said that a decision on this is expected
within weeks. With Nasdaq saying it won't meet the July 3 decimalization
deadline while the NYSE says it will, major market participants have told
the SEC that it would not be advisable to have stocks trading
simultaneously in decimals and fractions.
Mr. Levitt had asked stock exchanges and other market participants
whether it would be feasible or advisable to trade listed securities in
decimals and Nasdaq Stock Market securities in fractions, and whether it
would be feasible or advisable for the same listed securities to be traded in
decimals on some markets and in fractions on Nasdaq. Mr. Levitt's query,
one of several questions he asked on the subject of decimalization, was
motivated by Nasdaq's assertion that it won't be able to meet the deadline.
But the first batch of responses to Mr. Levitt's letter, dated March 10,
indicate a lack of support for such a split, SEC's Mr. Colby said. Mr.
Colby said that while the SEC has not yet heard back from all markets,
those who have responded have said that it would not be advisable to split
trading.
Numerous Mixed-Trading Problems Feared
For instance, the Security Industry Association has advised Mr. Levitt
against segregating trading. In a letter dated Tuesday, SIA President Marc
Lackritz told the chairman that Nasdaq's inability to meet the July 3
deadline for converting from fraction-based trading to decimals "can not be
so easily isolated."
Mr. Lackritz noted that Nasdaq supports all third-market trading in listed
securities. He also said that if the same stocks were to be traded in
fractions on Nasdaq and in decimals on other markets, there would be
problems such as irregular arbitrage trading, as traders sought to take
advantage of artificial variations in quotes and prices.
Mr. Lackritz also said that quotation and trade information could not be
aggregated; order-routing systems would have to be reprogrammed;
quotation and trade message traffic would increase; there would be
problems with the Intermarket Trading System; and confusion among
investors, market-makers and operations staff would ensue.
U.S. Congressman Vito Fossella (R., N.Y.) told the SIA conference
participants that his guess is that the July 3 deadline could be pushed back
to late summer or early fall. While Mr. Fossella views the conversion to
decimal trading as inevitable, he said that "it doesn't make sense to do it on
some arbitrary date." He also said that he personally does not think that the
securities industry needs to be prodded by congressional legislation to
make decimalization a reality.
SIA Will Continue Industrywide Tests
Meanwhile, the Securities Industry Association said it continues to plan
industrywide tests this spring for the conversion to trading stocks in
decimals.
Thomas Quinn, a vice president at Merrill Lynch who also chairs the SIA's
decimalization testing and implementation subcommittee, said the group still
plans to hold extensive point-to-point tests in April, May and June.
Earlier there had been speculation that the tests would be pushed back
because the Nasdaq Stock Market was having trouble meeting a July 3
deadline to phase-in decimalization.
Mr. Quinn said the tests will go on as scheduled despite the speculation of
the new deadline because there are a number of other market participants
who will be ready to test their systems.
The industrywide tests will be done on three Saturdays: April 8, May 13
and June 10. Participation on the first test date will be limited, and Nasdaq
will only join testing on the third and last date, and then will only test
decimal-based trading on listed stocks, said MaryDoreen DiGiacomo, a
PayneWebber Group executive who is also a member of the SIA's
decimalization testing and implementation subcommittee. Listed stocks are
those that are primarily traded on exchanges such as the New York Stock
Exchange and the American Stock Exchange and exclude stocks traded
on the Nasdaq Stock Market.
Thomas McConnell, an executive at A.G. Edwards, said that his firm is still
working under the July 3 deadline, despite the speculation of a new
deadline. "We're proceeding as if the July 3 date is the valid date until we
officially hear otherwise," he said.
Write to Gaston F. Ceron at gaston.ceron@dowjones.com. |
