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Ending Long-Standing Tradition, NYSE Plans Trading in Decimals

By Brett D. Fromson
The Washington Post

The New York Stock Exchange announced Thursday that it will start trading stocks in dollars and cents by the year 2000.

Responding to political pressure from Congress and market pressure from other U.S. stock exchanges, the directors of the NYSE voted to scrap its 200-year old practice of quoting stocks in fractions, and instead move to pennies. Other U.S. stock markets are expected to adopt decimal prices as well.

Pricing stocks the way grocery stores price bread and cheese will make it easier for investors to understand how much they pay and receive when trading stocks.

In one transaction Thursday, for example, Microsoft Corp. stock changed hands at 120-9/16 per share. In the future, investors won't have to do the mental calculation to translate that into $120.56 1/2.

A move to pennies would also transfer money - as much as $3 billion a year, according to recent studies - from the purses of Wall Street market makers to the pockets of investors.

That's because if stocks trade in increments of pennies, competition will force Wall Street dealers to bid slightly more when buying stock from investors, and ask for slightly lower prices when selling.

Shares now trade in increments of eighths of a dollar, or 12 1/2 cents. The NYSE said that later this month it will allow stocks to trade in sixteenths, or 6-cent increments.

About 20 percent of trading on the exchange is conducted between investors and market makers known as "specialists," who stand ready to buy and sell specific stocks at quoted prices. The specialists now take at least 12 1/2 cents, from the customer on each share they trade.

The Big Board, as the New York exchange is known in financial circles, did not say Thursday 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 financial markets decide how small the price increments will be.

All major foreign stock markets use the decimal system. But the U.S. stock exchanges have followed a convention based on the 18th-century Spanish dollar, which was denominated in eighths, as in "pieces of eight," according to Robert Sobel, a historian of the exchange.