I partially agree with those statements. Since we're talking daytrading here, the 1000 number as a lot size impacts the potential profit of a trade. In the rest of the brokerage world, 1000 shares is a crumb, of course.
The fractional system is inhibiting liquidity two-fold: one cited by the SEC, and one cited by LPS5: the SEC claims that more people would get involved in the market if we weren't still using the "pieces of eight (or sixteen)" increments. I believe that, but don't feel that those peoples' volume will be noticeable either in the short or long haul.
I say, the natural widening of spreads as stocks get lower in price or gap due to news, etc., will narrow - maybe not exactly to $.01 or $.05 - but smaller nonetheless, and subsequently will attract more activity due to the lower risk if it moves against you AND the number of "new levels" in between them, to get out at.
For years mutual funds, pension funds, and other institutions wouldn't invest in lower priced stocks (and I'm not talking about OTCBB issues), even those on the NYSE or Nasdaq NM, because of the spreads and the resulting market impact (slippage, or as a verb "goosing") involved in getting in and getting out. With more narrowly quoted spreads, the risk of holding such a position is lowered as well.
LPS5 |
