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SEC Chief Reconsiders Decimalization

May 14, 2003|From Reuters

Securities and Exchange Commission Chairman William Donaldson on Tuesday said decimalization -- the shift made in 2001 to trade U.S. stocks in decimals instead of fractions -- needs to be reexamined.

"Generally speaking, I think the whole issue of decimalization needs to be looked at again," Donaldson said in an interview on cable TV business news channel CNBC.

Two years ago, the New York Stock Exchange, Nasdaq and the American Stock Exchange decided to join the rest of the world in expressing stock prices to the penny instead of in minimum fractions of one-eighth of a dollar.

Decimalization has cut into Wall Street's profits by shaving the spread between stock bid and asked prices. That has caused loud complaints from many traders.

"Clearly, the spreads have narrowed, but the total cost of transactions, I suspect, has increased," Donaldson said, referring to nondirect trading costs.

"And I suspect the liquidity that used to be in the market has been severely dampened by these very narrow spreads. I think that the whole issue really needs to be looked at."

From Reuters

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