(June 14) – “After years of delay and industry foot-dragging, the Securities and Exchange Commission has given the major stock markets until April 9, 2001, to convert the pricing of stocks and options to decimals from fractions,” writes Michael Schroeder in today’s Wall Street Journal.

“The new quotes will replace the 200-year-old tradition of using fractions of a dollar, such as 1/8 for 12.5 cents. Under the new system, prices would be quoted down to the penny. Advocates believe decimalization will shrink bid-ask spreads, potentially leaving more money in investors’ pockets, and believe it will increase the number of stock and options quotes.”

“‘Investors may benefit from lower transaction costs due to narrower spreads and prices will be easier to understand,’ SEC Chairman Arthur Levitt said. The SEC’s order was unveiled Tuesday in conjunction with a House Commerce subcommittee hearing on decimalization.”

“The first phase of the changeover will begin Sept. 5 when a batch of New York Stock Exchange-listed stocks will trade in pennies. Within a few weeks after the pilot begins, the NYSE expects about 50 stocks to make the change. NYSE Chairman Richard Grasso said he expects decimal trading to be expanded to all 3,100 NYSE-listed stocks by early next year.”

“The SEC also ordered the Nasdaq Stock Market, which has been plagued by computer problems, to convert to decimals by March 12, with all markets expected to be trading in pennies in April.”

“In January, the SEC negotiated with U.S. stock exchanges and the National Association of Securities Dealers, which owns and operates Nasdaq, to start quoting some share prices in dollars and cents by July 3. But NASD threw in a wrench, claiming it wouldn’t be ready for so-called decimal trading until early next year because of computer capacity problems created by an unexpected doubling of its average daily volume to 1.7 billion shares.”

“The delays have infuriated Commerce Committee leaders, who had received a general commitment from the industry three years ago for the shift to pennies. Back in 1998, proponents agreed to delay the change until this year to give securities firms and markets a chance to complete massive year-2000 computer-system upgrades. Indeed, industry participants have never been enthusiastic about the changeover, believing the benefits overblown and the cost significant.”

“‘This is not a minute too soon,’ said Committee Chairman Thomas Bliley (R., Va.). ‘When we began this process, we were opposed by much of Wall Street and the SEC. Now, the continuation of trading in fractions is widely considered an embarrassment.'”