Going Decimal, NYSE Proclaims Fraction Pricing’s Days Numbered

Yielding to pressure from competing exchanges and from Congress, the New York Stock Exchange on Thursday confirmed that it will move toward quoting stocks in decimals--ending the 200-year-old practice of pricing shares in fractions.

The change will mean that U.S. stock prices, now typically quoted in increments of eighths of a dollar, will eventually be quoted simply in dollars and cents--like every other product Americans buy.

“Decimals will be a key step toward a more global NYSE and prices more easily understood by individual investors than ever-smaller fractions,” NYSE Chairman Richard Grasso said.

The shift, which may take 2 1/2 years to implement, also is expected to help narrow the “spread” between bid and asked prices of stocks as set by Wall Street dealers and NYSE traders, or specialists.

By requiring most stocks to trade in minimum one-eighth increments--12.5 cents--the NYSE guarantees at least that much profit for dealers and specialists on each trade they facilitate.

By allowing stocks to trade in narrower increments under decimal pricing, spreads could shrink, giving investors better prices--but also potentially costing brokerages and specialists some of their profit.

The NYSE said its computer systems will be able to handle decimal pricing in less than a year. However, the exchange said that it may take until 2000 before all brokerages and institutional investors revamp their computer systems to allow for decimal pricing.

In the meantime, the NYSE later this month will change the standard increment in which shares are traded to sixteenths from eighths, pending approval by the Securities and Exchange Commission.

“The exchange saw the handwriting on the wall,” said John Coffee, a securities law professor at Columbia University. “They initially resisted this, but with every other market going to sixteenths, and the Nasdaq [market] studying decimals, there was a great deal of pressure and momentum.”

The Nasdaq Stock Market, the American Stock Exchange and most regional stock exchanges announced recently a shift to trading stocks in sixteenths. And in Congress, legislation has been introduced to require exchanges to move to decimal pricing of stocks.

“If it doesn’t happen, I’ll be so disappointed,” said Jim Sullivan, 53, a retired broker in Ventura who manages his own investments. “This would be really helpful to investors because they’ll be able to understand price moves better.”

James J. Maguire Jr., a managing director at Henderson Bros. Inc., a NYSE specialist firm, said it was too soon to tell how the move to smaller price increments would affect markets or Wall Street’s bottom line. “One would hope liquidity would be improved by such a change,” by drawing more investors into the market, he said.

The NYSE did not say whether it ultimately will go to increments of a penny or a nickel. But congressional aides said they were told by representatives of the NYSE that the exchange will let competition among markets decide how small the increments will be.

The SEC said that within 30 days it will host a meeting of all U.S. markets to coordinate the move to the decimal system.