Lawmakers Push Plan To ‘Go Decimal’ Proposed Bill Would Require Stock Quotes In Dollars, Cents

Seeking to point U.S. stock markets toward the 21st century, House lawmakers unveiled a proposal Thursday to require dollars-and-cents pricing for shares. They said it would save investors money on trading costs.

The securities industry has resisted such a change. But lawmakers of both parties, backed by a key federal regulator, insist it’s time to scrap the traditional system of quoting prices in one-eighth increments - which they say fills brokers’ pockets at the expense of consumers.

The Toronto Stock Exchange in Canada recently converted to decimal pricing, making the United States the only country whose markets use the fractions. Proponents say adopting decimal pricing would narrow the difference between a stock’s best bid and asking prices, known as the spread. Spreads typically vary from 12-1/2 (one-eighth) to 50 cents, an amount that adds up to a sizable profit for brokers, who usually mark up stock prices before selling them to investors.

“It certainly makes common sense for us to go decimal,” Rep. Michael Oxley, R-Ohio, the bill’s primary sponsor, told a news conference. “We have a chance with this bill to give the small investor his full profit.” Oxley is chairman of the House Commerce subcommittee on finance.

The American Stock Exchange, meanwhile, approved a proposal to adopt minimum trading increments of one-sixteenth of a dollar (6.25 cents) for all its stocks, saying it would benefit investors. The AMEX was the first U.S. stock exchange to adopt the lower minimum trading increment of one-sixteenth, but spokeswoman Arda Nazerian said the move was unrelated to Thursday’s decimal push in Congress and the timing was a coincidence.

AMEX Chairman Richard Syron, in an interview on CNBC, called the proposed legislation “entirely laudable.”

But he added, “I think what they should be focusing on is what the markets do, and not necessarily how they do it. … Decimalization is something that’s going to come sooner or later probably anyway, but I think it should come through forces of competition, rather than purely (by) mandate.”

Some stock exchange and securities industry officials say the switch to a decimal system would be prohibitively expensive because of the new technology required.

Jim Spellman, a spokesman for the Securities Industry Association, said, “We don’t think Congress should be dictating the structure of the markets. … If the marketplace wants it, the industry will provide it.”

The decimal bill is supported by Securities and Exchange Commission member Steven M.H. Wallman, who attended the news conference given by Oxley and Rep. Edward Markey of Massachusetts, a senior Democrat on the Commerce Committee.

Decimal pricing “is a simpler system for people to understand,” Wallman said.

The legislation would require the SEC to adopt a rule for dollars-and-cents pricing within a year of the bill’s enactment. But it would allow the market watchdog agency to determine the new minimum price increments.

Unlike Wallman, SEC Chairman Arthur Levitt Jr. has not taken a public position on the issue. He issued a noncommittal statement saying that decimalization “raises important questions as we approach the 21st century and it requires a close study of the changes required and the benefits for our markets.”

The North American Securities Administrators Association, which represents state securities regulators, has expressed support for the proposal.

Frank Zarb, chief executive officer of the National Association of Securities Dealers, which owns the Nasdaq Stock Market, said his group “strongly believes that if decimalization is demonstrated to be in the best interest of investors, it should occur.” He said the NASD staff is studying the costs and benefits of a switch.

Nasdaq quotes some low-priced stocks in 6-1/4 cents and smaller increments.

Richard A. Grasso, chairman of the New York Stock Exchange, said in a statement, “We look forward to working with the (Commerce) committee and the SEC in determining whether decimalization would be of benefit to investors.” Spokesmen had no further comment.