No more fractions:
January 29, 2000
SEC Sets July 3 Deadline for Trading
Stocks in Decimals, Ending Fractions
An INTERACTIVE JOURNAL News Roundup
WASHINGTON -- The Securities and Exchange Commission Friday
ordered exchanges to begin quoting securities prices in decimals by July 3.
"Decimal trading will benefit investors by allowing greater competition and
making it easier to compare prices," said SEC Chairman Arthur Levitt in a
statement.
The historic change in the U.S. stock market will bring it into line with
markets in other parts of the world. Quotations for stocks and other
securities in the U.S. long have been expressed in fractions -- such as 1/8
of a dollar, which is then converted into 12.5 cents.
Decimalization would make it easier to express stock prices in varying
increments. In the new system, investors will see prices such as $15.05 a
share. The stock tables in newspapers would likely look different once the
change takes place.
However, decimal quotations also will result in a huge increase in the
number of stock quotes that market-data computers will have to process,
particularly when stock options are included.
The SEC's order requires markets to submit a plan for using decimals
within the next 45 days, and requires options and equities markets to phase
in decimal pricing by year end. During this phase-in period, markets can
quote equity securities in price increments of as many as five cents, the
SEC said, and the markets must create and conduct a pilot program for a
sample of securities that will be quoted in one-cent increments
At the end of the six-month phase-in period, markets must submit a study
to the SEC regarding the impact of decimal pricing on trading and
capacity.
The study also should address whether a uniform pricing increment is
needed, and if so, what that increment should be. After the study, baring
further SEC action, each market is to submit for SEC consideration any
rule changes necessary to implement their choice of pricing increment.
"We look forward to working with the industry to ensure that the
transaction to decimals goes smoothly," the SEC chairman said.
The securities industry has expressed concern that spreads on stocks --
the difference between buying and selling prices -- would shrink too much
as a result of decimalization, which could cause stock dealers to avoid
certain stocks. |
