Big Board Opts To ‘Go Decimal’ Nyse Plans To Scrap Use Of Fractions In Stock Prices
In a stunning about-face, the New York Stock Exchange voted Thursday to scrap its 200-year-old use of fractions in stock prices and adopt dollars-and-cents share prices.
The move was hailed as “a bold and welcome step and a victory for investors” by Arthur Levitt Jr., the nation’s top securities regulator.
The Big Board said it planned to begin trading in decimals “as soon as the essential systems are in place in the securities industry,” predicting its own computer trading systems will be ready in less than a year. But it said it believes the industry should be prepared to convert to decimals by January 2000.
As an interim step, the exchange said it would begin quoting stocks later this month in minimum increments of one-sixteenth of a dollar, instead of the customary one-eighths. In decimals, a sixteenth would be 6.25 cents and an eighth would be 12.5 cents. It was not clear if prices eventually would be quoted in movements of a penny.
Levitt, the chairman of the U.S. Securities and Exchange Commission, said he would convene a meeting of securities industry officials within 30 days to coordinate the switch to decimal prices.
After Thursday’s vote, NYSE Chairman and Chief Executive Richard Grasso said decimal pricing “will be a key step toward a more global NYSE and prices more easily understood by individual investors.”
The nation’s oldest and largest stock exchange had previously opposed the change as unnecessary, but appeared to succumb to pressure to “go decimal” from competing exchanges and House lawmakers pushing a bill to mandate such a change. The voluntary move by the Big Board, which became the first major U.S. stock exchange to agree to switch to decimal pricing, appeared to knock the wind out of the congressional effort.
Levitt had said previously that although he believed dollars-and-cents pricing was a desirable goal, it would be better for the market itself to make the change rather than Congress imposing it.
Proponents of decimal pricing insist it’s time to abandon the traditional system of quoting prices in one-eighth increments, which, they say, is a throwback to the days of powdered wigs and fills brokers’ pockets at the expense of consumers.
Supporters say adopting the decimal system would narrow the difference between a stock’s best bid and asking prices, known as the spread. Spreads typically vary from 12 cents to 50 cents, an amount that adds up to a sizable profit for brokers.
A narrower spread, it is argued, would increase the competitiveness and efficiency of markets, increase trading volume and improve liquidity.
The securities industry has until now resisted the change, saying it would be prohibitively expensive to modify computer systems.
Critics also have said that the narrower spreads in decimal trading would erode profits, something that could reduce the number of market makers, the firms which form a market’s backbone.