In Nasdaq Pricing, What You See May Not Be What You Get

Readers of newspaper stock tables have reason to be confused about the cost of trading in Nasdaq stocks.

On April 4, Nasdaq stock tables began listing daily closing prices in increments as small as 32nds and 64ths of a point. Investors may have gotten the impression that spreads suddenly had narrowed to such small fractions.

In fact, on Nasdaq stocks that sell for $10 or more per share, the smallest possible spread remains an eighth. Nasdaq’s trading computers are programmed so that they won’t even allow market makers to enter bid and asked prices in smaller increments, although there are plans to change this, NASD President Joseph Hardiman says

The fractions in the stock tables instead reflect actual trades at the end of the day--not the prices market makers quote and most small investors pay.

Big customers, such as mutual funds and other institutions, long have been able to negotiate better prices inside the quoted spreads. But until April, if an institution bought a stock at, say, 20 1/32, Nasdaq computers rounded the price to the nearest eighth for reporting in newspaper stock tables.

Now, Nasdaq no longer rounds off those numbers. So while the reporting of actual trades on Nasdaq is more accurate, the change has had no effect on the spreads or on the prices most small investors pay to buy Nasdaq stocks.