WASHINGTON — WASHINGTON -- The quaint practice of pricing stocks by halves, quarters, eighths or sixteenths is likely to disappear soon, Wall Street movers and shakers told Congress last week.
But the heads of major U.S. stock and security corporations said they don't want Washington telling them when to make a switch to decimal pricing -- a move proposed in pending legislation.
"Given the unparalleled success of our market, we ask that Congress not mandate changes without clear evidence," William Johnston, president of the New York Stock Exchange, told a House Commerce subcommittee. "If decimal pricing proves to be beneficial to investors, the market will respond."
The truth is, there are only a few things that Americans can still buy in fractions -- most prominently, shoes, shirts, hats and stocks. And it's amazing that the tradition has prevailed over precision for so long.
Sponsors of the legislation, Reps. Michael Oxley, an Ohio Republican, and Tom Markey, a Massachusetts Democrat, argue that requiring the Securities and Exchange Commission to make the switch to decimals could save investors billions of dollars and make markets more efficient.
"Decimals are easier," Oxley said. "They make sense."
They also might make as much as $9 billion each year for purchasers of stock, according to some studies.
The crude fractional system pushes stocks higher than they might otherwise move. For example, a stock purchased at 32 1/8 is a representation of $32 and 12 1/2 cents, or $32.125. Under a decimal system, investors might purchase the stock at $32.10 at a savings of 2.5 cents per share.
But Johnston noted that 80 percent of trading takes place between investors, so, while one trader will make a few pennies, another will lose them.
He also said that the more precise stock quotations are likely to be more helpful to the professionals who watch markets closely than to the larger numbers of small investors.
Other opponents, including several on the Commerce subcommittee, said the change would cause great expense in computer alterations and produce only negligible savings.
"The Dewey Decimal system was changed without a congressional mandate," said Rep. Bart Stupak, a Michigan Democrat. "Why are we pushing this change when we have the best system in the world?"
Proponents of the bill insisted that decimals would make prices easier for people to understand and make U.S. stock trading compatible with transactions on stock exchanges elsewhere around the globe.
Canada's Toronto Stock Exchange made the switch last year with little difficulty and $150 million in savings to investors, they noted.
"The conversion to decimal trading in the Canadian marketplace went more smoothly than anticipated," Laura Droughan, vice president of Ontario's Nesbitt Burns trading systems, told the committee.
"Not all the participants were happy, but people adjusted to it fairly quickly."
The current measurement dates to 1752, when America's leading currency was the Spanish gold coin, which would be chopped into fractions to facilitate transactions.
Now, everyone agrees that change is coming.
Calling the system "quaint but antiquated," Mark Griffin, president of North American Securities Administrators, said the only problem in changing the system would arise if exchanges quoted minute prices at less than one-tenth of a dollar. This could cause inaccurate readings of true stock prices.
Robert Greber, chief executive officer of the Pacific Stock Exchange in San Francisco, went a step further than the other exchange leaders when he said the change would take place "in three years whether we pass it or let the market pass it."
The reason for the three-year timetable lies in the year 2000 computer problem. Like the IRS and the Social Security Administration, the exchange corporations are racing to make their computer systems work in the next century.
Pub Date: 4/20/97