Saturday, August 12, 2000

Stock exchange moves moving to decimals

NYSE is first to leave sixteenths behind

By Amy Higgins
The Cincinnati Enquirer

        Are you ready for the revolution? W.L. Barringer is looking forward to it.

        Starting Aug. 28 — for the first time ever — stock quotes on the New York Stock Exchange will be listed as decimals, as in real dollars and cents. No more of this 1/2, , or 13/16 nonsense.

        “I've given it a lot of thought,” said Mr. Barringer, a Villa Hills retiree and investor. “I think it's a step forward.”

        But the change hasn't been as easy as grade school math, nor will it be as cosmetic as a numbers rearrangement. Decimal quotations could leave thousands in investors' pockets — and will change one of the lasting traditions of Wall Street.

        “But it will be worth it,” said Dan Seiver, economics professor at Miami University in Oxford. “Investors will shed a tear — then they will save some money.”

        The savings will come because stock prices will no longer move in 6-cent increments but by as little as one penny. And that ensures that both buyers and sellers get the best prices possible for their shares.

        Today, when you see a stock price quoted as, say, $25.13 or $65.31, you are still seeing a fraction quoted: The publication has simply converted the to 12.5 cents or 5/16 to 31.25 cents, then rounded.

        So, when you buy a stock, you generally place the order in those 6.25 increments. Say you want to buy AT&T for $31, but not more than $31 1/16, or $31.06 1/4. This way you could place an order for as little as $31.01. You have have only saved a nickel — but wait until that adds up. On a 1,000 share order, You've suddenly saved $50.

        The savings become even more serious for the large institutions trading millions of shares at once. And those savings in turn are reflected in mutual and pension fund returns.

        “American investors could save billions of dollars a year,” Mr. Seiver said.

        Later this month, only a handful of companies on American exchanges will begin trading in decimals. Among the NYSE test-stocks are FedEx Corp. and Gateway Inc. Government regulators have said all stocks must trade in decimals by April 9, 2001.

        At the cusp of the new millennium, the move to decimals changes a centuries-old tradition. Stocks have been quoted in fractions since the New York Stock Exchange was in 1792 — but the practice has roots in the 17th century.

        During the 1600s and 1700s, many currencies with fluctuating values circulated the American colonies. One of the more stable and widely available was the Spanish milled dollar, or piece of eight. It was so dubbed because it could actually be cut with a hammer and chisel into as many as eight pieces.

        The piece of eight was used as standard currency as early as 1650. Because many stock traders were also overseas merchants, it was natural for them to trade stocks in eighths. That lasted until as late as 1997, when NYSE began pricing in 1/16ths as a step toward decimalization.

        Still, actually getting decimalization into practice has been a long time coming. The new pricing system was supposed to have started this summer but was delayed. The exchanges — particularly the Nasdaq — sought the extension because the explosion in trading volumes has made the conversion difficult to keep up with.

        “If our volumes would have remained relatively static, then it wouldn't have been so much of a problem to add on decimalization,” said Nasdaq spokesman Scott Peterson.

        Mr. Peterson said the Nasdaq has already spent about $100 million on converting to decimals — mostly for additional computing power — and probably will spend another $30 million before it's ready. The NYSE has spent $30 million.

        A security industries study said North American brokerage firms will have spent about $907 million between October 1999 and mid-2001 to prepare for the change. Another industry study projects that decimal pricing will result in an 81 percent increase in equity transaction on American exchanges.

        “It's all worth it,” Mr. Seiver said. “Without a doubt, it's good.”

        The Wall Street Journal, Gannett News Service and the Associated Press contributed to this report.


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