Markets Pushed To Cut Trade Costs


Washington wants Wall Street to move without delay from fractions to decimals in pricing stocks.

Regulators are "no longer in the position to deny investors the billions of dollars of savings" from such a change, says Steven Wallman, a member of the Securities and Exchange Commission, which monitors the securities business.

Share prices quoted in decimals could move in smaller increments than fractions allow. This would, in effect, cut stock prices.

Under the old rules, for example, you might buy shares in XYZ Corp. for 10-5/8 or sell them for 10-4/8. Much of the "spread" between the buy and sell prices goes to the brokerage firm executing the transaction.

Mr. Wallman equates fractional pricing to price-fixing. It requires one-eighth of a dollar, 12.5 cents, as the minimum between a share's selling and purchase price. Decimalization would eliminate that minimum and allow smaller spreads, to the benefit of individual investors.

Institutional investors have sometimes been been able to narrow that spread because they trade in such huge quantities.

Mr. Wallman's statement implies that if the nation's stock markets do not drop their tradition of pricing shares in eights of a dollar (16ths since June 24) in favor of dollars and cents, the SEC will force the issue.

Congress also plans to keep the heat on.

Rep. Michael Oxley, chairman of the House Commerce subcommittee on finance, expects to hold a hearing in late September or October on the issue. The Ohio Republican is the prime sponsor of a bill aimed at introducing "decimalization."

But Oxley wants the stock exchanges to make the switch voluntarily, says his legislative director, Robert Foster.

The New York Stock Exchange pledged June 5 to switch by Jan. 1, 2000. The smaller American Stock Exchange says it will follow the Big Board. The Nasdaq Stock Market has a study under way, expected out this week, according to a spokesman. The Pacific Stock Exchange says it's "decimal ready."

The point of a congressional hearing, says SEC Commissioner Wallman, would be to "solidify" all such commitments.

Though recognizing that going decimal will cost time and money, Mr. Foster says that if the institutions do not move "with alacrity," legislation may become necessary.

"Investors would rather buy and sell in decimals," he says. "It is a little easier to understand the stock tables." Using decimals will be good for the markets, Wallman says, cutting spreads, lowering transaction costs, and stimulating competition.

Critics say reducing the spread between buy and sell quotes with decimalization will increase volatility of share prices.

Wallman calls this argument "hogwash." He likens the critics to those who fought the end of fixed commissions in the early 1970s. They said negotiable commissions would take money out of Wall Street, reduce brokerage services, and increase volatility.

Rather, the change brought discount brokerages, more trading volume, and made Wall Street firms "stronger than they have ever been," Wallman says.

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