Institutional Investors Irked by Penny Pricing

Bloomberg News

Institutional investors are complaining that stock trading has grown more difficult since last month, when the penny became the minimum price increment at the New York Stock Exchange.

The Big Board’s smallest price change went to 1 cent from a sixteenth of a dollar (6.25 cents) Jan. 29.

Some investors, the intended beneficiaries of the pricing move, say penny prices have made their NYSE orders more vulnerable to rival bids from professional traders, which can get priority by offering a mere penny more.


Pennies so far have caused “headaches for institutions,” said Mike Rothberg, head of Cantor Fitzgerald’s portfolio trading group. “The market is less transparent, and it winds up taking longer to fill a large order.”

A 5-cent minimum price change, Rothberg and others said, would help maintain institutional investors’ faith that their orders to buy and sell shares at specific prices (known as “limit” orders) will get fair treatment at the NYSE.

Daniel Weaver, a finance professor at Baruch College’s Zicklin School of Business, is among those who think the penny may ultimately be rejected as the minimum price increment, or “tick” size, for U.S. stocks.

Of 130 institutional investors informally polled by SG Cowen Securities Corp. since the NYSE’s pricing change last month, most supported 5-cent price increments, said Kenneth Sheinberg, head of exchange-listed stock trading. “The number of complaints and the intensity of the complaints is going to have to effect some kind of change,” he said.

NYSE Chairman Richard Grasso is slated to meet with institutional traders this week to address their complaints about the new pricing approach.

The Securities and Exchange Commission mandated the use of decimal prices for all stocks by April 9, but it left the minimum price increment up to individual markets.