JANUARY 28, 17:59 EST

SEC Orders Markets To Use Decimals

By MARCY GORDON
AP Business Writer

WASHINGTON (AP) З Federal regulators on Friday ordered the nation's stock
exchanges to begin quoting at least some share prices in dollars and cents by July 3,
requiring them to fully abandon the 200-year-old use of fractions by year's end.

The New York Stock Exchange, the Nasdaq Stock Market and other U.S. securities
exchanges will be required to submit a decimal pricing plan within 45 days and to
have decimal prices fully phased in by year's end, the Securities and Exchange
Commission said in announcing its order.

The exchanges have been putting together plans for phasing in decimal prices this
year, now that the securities industry has cleared the Year 2000 technological hurdle.

The SEC normally refrains from intervening in the markets' operation.

SEC spokesman Chris Ullman explained that the agency was seeking to promote ``a
greater level of coordination within the industry and with'' the SEC. The move was
intended ``to reaffirm how important we think this is,'' he said.

The Securities Industry Association said the SEC's action ``clears the way for the
securities industry to proceed with its effort to convert'' to decimal pricing.

``This will make securities trading more understandable for investors as well as
increasing the competitiveness of U.S. markets,'' the SIA said in a statement.

``Decimal trading will benefit investors by allowing greater competition and making it
easier to compare prices,'' SEC Chairman Arthur Levitt said in a statement. ``It will
also bring about consistency with foreign markets, which now trade in decimals. We
look forward to working with the industry to ensure that the transition to decimals
goes smoothly.''

As an interim step, the nation's two biggest exchanges З the NYSE and the
all-electronic Nasdaq З and some regional exchanges have been quoting stocks in
minimum increments of one-sixteenth of a dollar, instead of the customary
one-eighths. In decimals, a sixteenth is 6.25 cents and an eighth is 12.5 cents.

The NYSE ``is decimal-ready. We will continue to work with the SEC and the industry
toward a smooth conversion to decimal pricing,'' exchange spokesman Rich
Adamonis said.

Nasdaq spokesman Scott Peterson said his exchange will be ready to trade in 5-cent
increments on July 3 ``and looks forward to discussing the implications of quoting
securities in 1-cent increments with the SEC.''

Supporters say adopting the decimal system would narrow the difference between a
stock's best bid and asking prices, known as the spread. Spreads typically vary from
12 1/2 cents to 50 cents, an amount that adds up to a sizable profit for brokers, who
take in a percentage based on the size of the spread.

Some stocks will begin trading in nickel increments, though many could be trading in
penny increments by the end of the year.

Proponents of the decimalization argue that a narrower spread will increase the
competitiveness and efficiency of markets, increase trading volume and improve
liquidity.

By contrast, critics have said the narrower spreads in decimal trading would erode
profits, something that could reduce the number of market makers, the firms which
form a market's backbone.

Market makers trade for their own accounts and agree to process customers' orders
for particular stocks. A sharp drop in market makers could hurt an exchange's ability
to handle high-volume trading sessions.