NYSE adjusting to switch from fractions to decimals

Published: Tuesday, Feb. 13 2001 11:52 a.m. MST

NEW YORK (AP) — Two weeks after fully converting trading to decimals, the people who work on the floor of the New York Stock Exchange are becoming accustomed to trading in pennies instead of fractions.

"I'm not hearing nearly as many people grumbling about it as I used to," said Peter Mancuso, a senior partner at Buttonwood Specialists, one of the firms that handles trading on the exchange floor. "It's a cultural shock of sorts, and it takes a little time to get used to it. But we're all professionals, and we're all adjusting."

Indeed, it's been a challenging time for many of the traders, clerks and specialists, the people responsible for executing transactions for specific stocks.

Since Jan. 29, all securities trading on the NYSE has taken place in increments of a penny, instead of increments of 1/16.

The Securities and Exchange Commission ordered the switch, saying decimals and smaller trading increments would benefit investors, who could more easily understand trading and pay less for some stocks. The Nasdaq Stock Market is expected to complete a similar conversion in April.

The NYSE's move means its stock prices are no longer in fractions, as they were for two centuries. And stocks can now be priced at 100 different prices, or points, instead of the 16 increments under fractions. A stock traded in penny increments can have prices such as $10.17, $47.43 or $52.79, instead of being limited to $10 1/16 or $52 3/16, for example.

It's too early to tell what effect decimalization will have on trading long-term. A study is due out later this year after the Nasdaq completes its decimal phase-in.

Anecdotally, market participants have a few observations.

Robert Harrington, head of listed equity trading at UBS Warburg, said he has been frustrated by the difficulty of assessing how many shares of a particular stock are available at a particular price. That makes it harder for institutions, which buy or sell tens of thousands of shares at once, to complete orders.

"It's more labor-intensive working an order because now you have 100 price points in decimals as opposed to the 16 you did with fractions," he said. "You have to do a lot more work to discover how many shares are available at what price."

Harrington's not sure if that's a short-term issue or a more serious problem that will need to later be addressed.

There are also reports that fewer limit orders are being used. A limit order instructs a broker to buy or sell stocks only at a certain price, or when the price is better.

The brokerage Charles Schwab & Co. reported a nearly 22 percent increase in the number of changes or cancellations of limit orders in the five days after the NYSE completed its decimal conversion.

"That may be because of decimals, but really it's too early to tell," said Schwab spokesman John Sommerfield.

Market watchers say that may be that 1-cent trading increments make investor more likely to buy at the market price. Before, when stocks could be traded in sixteenths, investors were looking at a minimum 6-cent difference between price points.

Message traffic on the trading systems has also not been as heavy as predicted, probably because of the newness of decimals and the fact that options aren't trading in penny increments, according to John Panchery, a Securities Industry Association vice president.

But the biggest changes involve the same challenges that occur at every workplace when a new system is introduced.

Although the NYSE and its membership have been gradually phasing in decimals since August, the full switchover has been tricky for some. A few firms have put more clerks and other staff on the floor to help out.

"It's been a little bit of a learning process," said Michael LaBranche, head of LaBranche & Co. "The technology is so advanced now that we can make a transition like this and the market will function quite normally.

"The hard part is making people feel comfortable with it. But I'm sure that will just take a little time."

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