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Nasdaq Completes Shift to Penny Pricing

Securities: The switch from fractions is smooth as the market joins other U.S. and international bourses.

April 10, 2001|From Reuters

Nasdaq listed all its stocks in cents for the first time Monday, completing its long-awaited--and government-mandated--shift that brings U.S. markets in sync with decimal-trading bourses around the globe.

Trading went smoothly at Nasdaq, which has listed nearly 200 stocks in decimals in pilot programs in the last month.

"At 9:30 a.m. [EST], when the market opened, we all kind of held our collective breath for one second, and everything just worked fine," spokesman Scott Peterson said.

Government regulators demanded the move away from traditional fractions--in increments such as eighths and sixteenths--believing it would cut investor costs by narrowing spreads, or the difference between what a buyer is offering and what a seller is asking for a stock.

Nasdaq, which prides itself on its stable of technology stocks such as industry bellwether Microsoft Corp., completed its decimal conversion on the day the U.S. Securities and Exchange Commission had set as a deadline for all U.S. markets.

The rival New York Stock Exchange and the American Stock Exchange have been trading all their stocks in decimals since the end of January.

"So far it seems non-eventful--pretty boring, actually," said Joe Anastasio, a partner at Capco, which provides technology consulting services for financial companies. "I haven't heard anything to cause any concerns about technology glitches. It seems to be business as usual."

Nasdaq's relatively light trading volume, only about 1.4 billion shares, was giving Wall Street a big break. The real test for decimals will come on a heavy trading day, when capacity is stretched to the limit, Anastasio said.

Technology problems related to decimals can spring up anywhere, from Nasdaq's systems to the computers of financial firms that have to fill many orders on a busy day.

Early studies of Nasdaq's pilot program and of the New York Stock Exchange's show that spreads are indeed narrowing as investors have taken advantage of the additional pricing points available under decimals to improve prices.

"Decimal pricing makes our markets more understandable and matches our markets with the rest of the world," said House Financial Services Committee Chairman Michael G. Oxley (R-Ohio). "Moving from fractions to decimals narrows the spread investors pay and will save them money on every buy and every sale, adding up to billions each year."

The new decimal systems allow for 100 pricing points between each dollar versus just 16 in fractional systems.

But traders have warned that costs could rise since more manpower is required to trade stocks in cents because of the frequent price jumps. Wall Street pros say the price volatility has forced them to break up more of the larger stock orders into pieces to ensure speedy processing.

About one-third of traders surveyed by the Security Traders Assn. said penny pricing is the development in 2001 that will have the biggest effect on Wall Street's future.

The SEC initially ordered U.S. stock markets to make the switch to decimals by July 3, 2000, but backed down after Nasdaq said its computers would not be able to handle the expected surge in quote traffic volume, the trading data that filter through the computer systems of the U.S. markets every time a quote changes.

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Stock Market Barometers

Fundamental and technical indicators of the market's health

Key indexes versus their 50-day and 200-day moving averages: A stock index's moving averages indicate the basic trend, up or down. It is generally bullish if the index stays above the averages.

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Price-to-earnings ratio of Standard & Poor's 500*: 19.64

Based on estimated operating earnings per share for 2000; average since 1923: 13.5

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Dividend yield of Standard & Poor's 500: 1.39%

Average dividend yield of blue-chip stocks; average since 1923: 4.5%

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Weekly new highs versus new lows on the NYSE: 200/250

Data for the week ended Friday. More highs indicate a bullish trend.

*

Investment newsletter sentiment:

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March 30 Friday Bullish: 48.9% 48.9% Bearish: 38.0 38.3 Correction: 13.1 12.8

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Stocks' near-term trend as predicted by 135 independent investment newsletters, weekly survey by Investors Intelligence. The data are often viewed as a contrarian indicator: A rising percentage of bulls can signal a topping market.

* Now calculated based on operating earnings, which exclude one-time charges-- so P/E is lower than if actual earnings were used.

Sources: Bloomberg News, A.G. Edwards & Sons. More information can be found at www.agedwards.com.

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