SEC Tells Markets to Start Transition to Decimal Pricing

The Securities and Exchange Commission told U.S. markets Friday to begin the move to decimal prices by July 3 and said they can begin by quoting stock and options in increments of as much as 5 cents.

The SEC’s order, long expected, tells the markets to complete the change to dollars-and-cents prices by the end of this year. While decimal quotes are being phased in, the SEC order requires the markets to conduct a pilot program that would let quotes for some securities move in 1-cent increments.

By initially permitting a system that would have prices move by 5-cent increments, the SEC’s order addresses concerns that penny price increments would create more quote traffic than existing systems can handle. The SEC said that after a phase-in period, markets are to submit a report about the impact of the change and whether a uniform pricing increment is needed.

“Decimal trading will benefit investors by allowing greater competition and making it easier to compare prices,” SEC Chairman Arthur Levitt said. “It will 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.”

The exchanges must start the move from fractions to dollars-and-cents prices by filing a plan with the agency within 45 days.

“This is doable,” said Charles J. Henry, president of the Chicago Board Options Exchange. “The commission is taking a prudent and measured approach.”

U.S. stocks traditionally have traded in prices listed in fractions of a dollar. Most stocks typically trade in increments of one-sixteenth of a dollar, or 6.25 cents, though some change hands in increments as small as sixty-fourths.

The Times and many other newspapers already convert fraction stock quotes to decimals in stories and tables.