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Kandel on decimalization
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April 19, 2000: 7:16 p.m. ET
Decimal trading debuts July 3. Are the exchanges getting their act together?
By CNN Financial Editor Myron Kandel
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NEW YORK (CNNfn) - Decimalization.
Does that word send the investment juices flowing through your body? I guess not, especially during these turbulent market days. But you will be hearing more about it in the weeks and months to come.
That's because Wall Street's chief regulator, the Securities and Exchange Commission, wants the nation's exchanges to quote the shares they trade in dollars and cents, instead of the eighths, sixteenths and thirty-seconds of a dollar they now use. The SEC and some Congressional leaders favor decimal pricing because that will narrow the spread between bid and offer prices and give investors better prices.
In January, the SEC ordered the exchanges to switch to decimals for at least some stocks by July 3 and all of them by the end of this year. The New York Stock Exchange moved quickly to prepare to do so, but the National Association of Securities Dealers, which runs the NASDAQ market, said last month it would be unable to meet those deadlines and asked the commission to delay the start of decimalization until the first quarter of next year. The NASD said the move would put undue strain on its trading systems, which have handled sharply increased volume in recent years.
Three weeks ago SEC chairman Arthur Levitt said he was "dismayed" by that request for a postponement. But last week the agency backed down and said it was considering two alternatives. Under one plan the Big Board and other exchanges would start a pilot decimal program with a limited number of stocks by Sept. 4, with everyone - including NASDAQ - going to full decimal trading by next March 31. Under the other, all NYSE stocks would go decimal by Sept. 4.
That's where it stood until Wednesday, when an upstart electronic communications network said it would start offering decimal prices on July 3 no matter what the established markets and its electronic competitors did. Island ECN, Inc., a unit of the on-line brokerage company Datek Online, said it was doing so to give its customers better service and gain additional business.
The exchanges and the NASD are officially keeping mum so far, but Big Board chairman Richard Grasso has made it clear that his exchange is ready to go and isn't about to stand by and let a competitor gain an advantage. A spokesman said the NYSE is "decimal-ready."
Some Wall Street observers caution that going to decimals in a piecemeal fashion could create investor confusion, as well as technical problems. The SEC has expressed that view, but an Island official said the company had consulted with the commission on its plans and no effort was made to stop it.
The agency could still do so, but considering its unwillingness to block ad-hoc moves to after-hours stock trading, it's considered unlikely to take such action. And that means, the big guy on the Street - the NYSE - will be trading in decimals pretty soon as well.
So, Wall Street, ready or not, the fractions you've been trading in for more than two centuries are on their way out, and nickels and pennies are on their way in.
(Myron Kandel is CNN's Financial Editor. His column appears every Wednesday on CNNfn.com.) 
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