(January 29) – “Starting Monday, fractions will be out of action on the New York Stock Exchange,” wrties Jeff Opdyke in today’s Wall Street Journal.

“After more than two centuries of trading stocks in fractions, the NYSE Monday morning will begin pricing all of its 3,525 stock issues in decimals. The much-smaller American Stock Exchange is making the switch Monday morning as well.”

“The pricing revolution has been several years in the making. But for investors who pay more attention to the companies they buy than where those shares trade, the next few months could be a mind-numbing challenge.”

“That’s because while NYSE- and Amex-listed stocks are now fully decimalized, the Nasdaq Stock Market — home to some of the most heavily traded names on Wall Street, including Intel and Microsoft — won’t fully convert its nearly 5,200 issues until early April. Thus, investors will be trading some of their holdings in pennies while others still will require them to think in fractions.”

“Nasdaq is taking longer because amid a surge in volume last year, it decided to focus more on handling increasing investor demand for trading and price quotations than on working to decimalize its stocks. That’s not to imply the Nasdaq is completely behind the curve. On any given day, the Nasdaq handles about 10% of the trading volume in Big Board shares, ‘so we’ve been gaining experience as [the NYSE] has,’ says Scott Peterson, a Nasdaq spokesman.”

“Proponents of decimalization contend that the conversion to a quote system that is more akin to counting pocket change than deciphering middle-school math will be a boon to investors. Not only does the shift do away with often knotty fractions — quick, what’s 13/256? — but it is also expected to narrow the spread between a stock’s bid and asked price. The bid is the highest price a buyer is willing to pay; the ask is the lowest price a seller is willing to accept.”

“Stocks now will trade in increments as small as a penny. Prior to the change, stocks on the NYSE typically traded in increments of 1/16 at a time, or 6.25 cents. The argument in support of decimalization is that because investors now have 100 price points instead of 16 between each dollar, they can ‘save themselves potentially significant amounts of money,’ says Robert Britz, an executive vice president with the NYSE. For instance, drug company Merck spent part of Friday bid at 83 3/16, asked at 83 1/4, a spread of 6.25 cents.”

“This morning, investors will instead be able to meet somewhere in the middle, say, at $83.20. At that price, a buyer would save money by not having to spend $83.25 to meet the fractional asked price for Merck, and the seller would save money by not having to step down to 83.1875 to hit the bid price. The NYSE began testing decimalization in August in a pilot program that started with seven stocks but ultimately included 159 issues.”

As a result of the NYSE’s move to decimal pricing, the Toronto Stock Exchange will
will implement trading in penny increments for all securities selling above $5 commencing today.

Securities selling at 50¢ and under $5 presently trade on the TSE in penny
increments. Securities trading under 50¢ will continue to trade in half-penny ($0.005)
increments.