Nasdaq Plans to Use 1-Cent Increments

The Nasdaq Stock Market said Tuesday it plans to use 1-cent increments when it introduces decimal pricing for all stocks in April, though some brokerage executives voiced doubt that the market would be ready to start then.

Nasdaq officials said previously they might begin decimals trading in 5-cent increments to avoid strains on computer capacity at the second-largest U.S. stock market.

Nasdaq President Rick Ketchum said the market’s trading systems have been performing well in decimal testing.

“We’re going to start with pennies for competitive reasons,” he said in an interview. “Our tests have been very successful, and we’re ahead of schedule.”

Nasdaq, which lists technology giants such as Microsoft (MSFT) and Intel (INTC), plans to continue decimals testing with brokerages through March, Ketchum said.

Dollars-and-cents pricing is expected to lead to narrower trading spreads--the difference between buying and selling prices--for investors. Penny increments, in turn, are likely to result in smaller spreads than would nickels, while generating higher volume.

Nasdaq is preparing to open a four-week trial March 12 with a limited number of stocks. All 5,500 of its stocks will be trading in decimals by April 9.

“The phase-in period is too short, and Nasdaq may well end up with major systems problems,” said Howard J. Schwartz, chairman of Lynch, Jones & Ryan in New York, an institutional brokerage owned by Reuters Group’s Instinet Corp.

Schwartz, a Securities Industry Assn. board member, said he expects Nasdaq to delay its April start date by several months.

Nasdaq’s main rival, the New York Stock Exchange, has been using 1-cent increments in a pilot program that began in August. The NYSE, the world’s largest stock market, plans to expand dollars-and-cents pricing to all its 3,100 stocks starting Jan. 29--two months before Nasdaq’s scheduled start date.

Narrower spreads, which mean better prices for investors, result in lower per-trade profits for brokers. Most stocks now trade in fractions, typically sixteenths, or 6.25 cents.

Securities and Exchange Commission Chairman Arthur Levitt, pushed by Congress, set an April 9 deadline for U.S. markets to begin decimals trading on all stocks. Levitt had postponed an earlier deadline when Nasdaq said its computers lacked the capacity to handle increased volume.