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NYSE Panel to Hear Concerns About Decimal Pricing Policy

Securities: Some say trading in penny increments puts them at a disadvantage, but it could be April before any changes are made.

February 17, 2001|From Associated Press

NEW YORK — Nearly three weeks after shifting all of its trading to decimals, the New York Stock Exchange is setting up a committee to address complaints and concerns about its new policy.

But it could be April before any changes might be made to the way the NYSE trading floor operates, Chairman Richard Grasso said Friday.

"One doesn't make structural changes based on three weeks' experience, however challenging that experience might have been," Grasso told a news conference.

Grasso spoke after a private meeting with about 30 representatives of the NYSE's various constituencies, including traders, institutional investors and specialists. Grasso declined to be specific about the meeting, other than to say several ideas are being discussed about the best ways to identify problems and arrive at solutions.

Some of the exchange's biggest customers have complained that trading stocks in penny increments, which began for all NYSE issues Jan. 29, is putting them at a disadvantage because of some professional traders' actions.

Trading in decimals means that a stock can be priced at 100 different points per dollar. Before the switch to decimals, the minimum price increment for an NYSE stock was one-sixteenth of a dollar, or 6.25 cents.

The problem, some institutional investors maintain, is that their efforts to buy large amounts of stock are being blocked by trading pros--including NYSE floor specialists--who "step in" at the last minute and bid a penny higher to buy shares that institutional investors otherwise would have gotten. The specialists then try to resell the same shares at a higher price, profiting on the trade.

Specialists, who are the exchange's equivalent of auctioneers, routinely buy and sell stocks to keep the market orderly. They have denied any wrongdoing in the decimal switch.

But institutional investors, who represent billions of dollars in assets for mutual funds, pensions and other plans that make up many Americans' portfolios, have made it clear to Grasso that they believe the system is hurting their efforts to quickly buy and sell shares at favorable prices.

Some institutions want to make the minimum price increment a nickel instead of a penny. That would, in theory, make it more expensive for professional traders to step ahead of institutions' orders.

Grasso said it's too early to know whether the issues are structural or just part of the adjustment period, but he said he takes the complaints seriously.

The shift to decimals was part of an industrywide change ordered by the Securities and Exchange Commission. The agency mandated the change, saying penny pricing would make trading easier for investors to understand and make stock prices more competitive.

The Nasdaq market is expected to convert its trading to decimals by April 9, the SEC deadline.

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