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SEC orders decimal pricing
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January 28, 2000: 4:41 p.m. ET
Regulators say markets must phase in dollars-and-cents pricing by July 3
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NEW YORK (CNNfn) - The Securities and Exchange Commission ordered U.S. stock markets Friday to begin phasing in a decimal-based stock pricing system by July 3, a requirement the stock exchanges say they are ready to implement.
U.S. exchanges, the only major world markets to quote stock prices in fractions, already have been planning to convert to "dollar-and-cents" pricing, a changeover that will require computers, tickers and Web sites all to conform to the new system. The current fraction system is rooted in early American history, when colonists traded in Spanish coins that could be divided into halves, quarters and eighths.
The SEC said it issued its order in part to be sure that the changeover takes place on time. Under the order, securities markets will be required to begin quoting prices in decimals in July, and for options and equities markets to phase in decimal pricing by year's end.
"Prior to this there was the pledge that it would happen; this brings about a measure of sureness," said SEC spokesman Chris Ullman.
Under the new system, a stock currently priced at 50-1/2, for example, would be priced at $50.50. The idea behind the switch is that a decimal-based system could lead to narrower spreads between the bid and ask price, since decimal pricing is more precise. Brokerages long opposed the changeover, fearing lower profit.
The system also will make pricing more compatible with other global markets.
"Decimal trading will benefit investors by allowing greater competition and making it easier to compare prices," SEC Chairman Arthur Levitt said in a statement. "It will also bring about consistency with foreign markets, which now trade in decimals. We look forward to working with the industry to ensure that the transition to decimals goes smoothly."
The order requires securities markets to submit a decimals pricing plan within 45 days. While the system is being phased in over the second half of the year, the SEC said, markets can quote stock prices in increments of up to 5 cents.
In addition, the markets will be required to test a system in which some stocks are quoted in penny increments. There are some industry concerns that shrinking spreads to as little as a penny could drastically increase quotes and trading. The NYSE currently trades in increments of sixteenths, so there are 16 different prices at which a stock can trade per dollar. A switch to trading in nickels would result in 20 different price points, and a switch to pennies, 100 different price points.
The Securities Industry Association, which has been working on the decimal changeover plan for about a year, said the SEC order was generally in line with its targets for implementing the changeover and for pricing in increments of up to 5 cents. The SIA has not made stipulations about penny-increment pricing, but is in favor of a pilot program that would cover a selected group of stocks.
"We are very happy with the order; it gives our member firms and exchanges some guidance ... and an actual target data now," said
John Panchery, the association's vice president and managing director.
Nasdaq spokesman Scott Peterson added that the exchange "will be ready to trade in nickel increments on July 3, and looks forward to discussing the implications of quoting securities in one-cent increments with the SEC."
The New York Stock Exchange has previously said it is well prepared for the changeover, but did not respond to a request for comment Friday. 
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