DJ NYSE'S Grasso Sees Rapid Move To 1c Stk-Price Increments
By Judith Burns
WHITE SULPHUR SPRINGS, West Va. (Dow Jones)--When U.S. markets begin
pricing stocks in decimals rather than fractions, a 1-cent increment - not a
nickel - will be standard, New York Stock Exchange chairman Richard Grasso
said Friday.
"This is going to be a penny denominated market." Grasso said in a speech
here to the American Society of Corporate Secretaries.
The difference between penny and nickel increments amounts to a huge
difference in savings for investors. But securities industry professionals
have warned that Wall Street's computers may not be able to handle a rapid
move from pricing in sixteenths to 1-cent price increments.
A recent Securities Industry Association study forecast huge spikes in
computer message traffic as the industry moves to decimal prices. The
increase would be less severe if price quotes reflect 5-cent increments,
rather than 1-cent increments, the study noted. It also suggested that
options trading would be hardest hit by a rapid move to decimal pricing in
penny increments.
"Right now, the industry is looking long and hard, particularly at the
derivatives business, and whether it is capable of the vast volume flows
that I suspect will be present as a result of decimalization," Grasso told
the audience.
Ready or not, Grasso predicts penny increments will come with the
introduction of decimal pricing, set to debut in mid-2000.
"I don't see anything stopping it, short of the SEC," Grasso told Dow Jones
at the conclusion of his remarks.
Grasso didn't rule out the possibility that the Securities and Exchange
Commission might permit a brief transition period where stocks and options
are priced in decimals, with 5-cent increments. But, such a move "would have
to come from regulators, and my guess is, it would only be for some period
of time," to give the industry time to beef up its computer system capacity,
he said.
A moratorium on penny increments probably would need approval from the
Justice Department as well as the SEC, Grasso indicated.
Since the Justice Department is currently examining U.S. options markets
for possible antitrust violations, industry professionals are leery of
pushing for limits on decimal pricing, and Grasso indicated that regulators
would have to take the lead.
"Our inclination is not to try and form an alliance on pricing. That would
be clearly out of the bounds of law," he said.
The NYSE's computer systems won't have any problems handing the switch to
decimals, Grasso said. He suggested other markets gear up quickly for a
penny-denominated market.
Sees Extended Trading Hours In 2000
Turning to another hot topic, Grasso said "the question of extended trading
hours is not a question of whether, but when" to begin.
Extended trading hours will be discussed in an SEC industry summit next
Wednesday, and Grasso said he'll participate in the talks.
Several screen-based trading systems have promised to begin evening trading
this summer, but the NYSE chairman said the Big Board doesn't plan to extend
its session until the third quarter of 2000.
"To introduce late trading, or early trading in the year 1999 would be a
terrible mistake. In the year 2000, third quarter, I can't wait to do it,"
Grasso told the corporate secretaries.
If upstart trading systems offer evening trading this year, Grasso said
investors may be unpleasantly surprised by pitfalls such as light volume,
wild price swings and poor execution.
"I think you need a massive campaign of consumer education, because trading
AOL at ten o'clock at night is very different from trading at ten o'clock in
the morning," he told Dow Jones. "You're going to see price differentials
nothing like what you see in the normal session."
Discussing competition from computer-based trading systems, Grasso noted
there are about a dozen such alternative systems now, and predicted that
might balloon to as many as three dozen shortly. But, just as quickly, he
expects the number to collapse to "two or three" alternative, computer-based
rivals.
For its part, the NYSE plans to extend its trading day, introducing an
early-morning session, aimed at European markets, and a late session
targeting the west coast of the U.S. and Asia, but only after year 2000
compliance questions, and adoption of decimal prices are behind it.
On the subject of the industry's preparations for the century-date change,
Grasso said "we're very confident" that U.S. computer systems won't have any
difficulties in recognizing the year 2000. An early close of U.S. markets on
Dec. 31 is intended to ensure that processing is completed by midnight, and
doesn't reflect any concerns about computer-system readiness, he added.
-By Judith Burns; 202-862-6692;
judith.burns@dowjones.com
(END) DOW JONES NEWS 06-25-99
04:24 PM
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