Decimal Trading Causes Little Disruption--So Far

The penny formally debuted Monday on the New York Stock Exchange--mostly to stifled yawns.

After a five-month test period with 159 stocks, all 3,500 NYSE-listed issues began trading in dollars and cents, ending two centuries of pricing in dollars and fractions. The smaller American Stock Exchange also shifted completely to decimal pricing Monday.

Many Wall Street firms had beefed up their NYSE floor operations just in case the transition somehow went awry.

“There was a little smoke but no fire,” summed up Peter Van der May, trading chief at Arnhold & S. Bleichroeder. “It pretty much went off without a hitch.”

NYSE Chairman Richard Grasso called the conversion to trading in penny increments “smooth as silk.”

Trading volume was lighter than usual, with about 1 billion shares changing hands on the Big Board floor, but that apparently reflected investor caution ahead of the two-day Federal Reserve meeting that begins today.

Some experts predict that decimal pricing will result in greater market volatility, but it was too early to test that theory.

For professionals used to thinking in 1/8s and 1/16s, it took a bit of mental gymnastics to think the way most people think--in simple dollars and cents, said Robert H. McCooey Jr., president of Griswold Co., an NYSE floor broker.

“Every stock has its own trading characteristics. You tend to see the same patterns all the time,” McCooey said. The switch to decimals may disrupt such patterns, and it may be awhile before they reassert themselves, he said.

That kind of disruption occurred a few years ago when the minimum stock price increment dropped from 1/8 (12.5 cents) to 1/16 (6.25 cents), McCooey said.

Meanwhile, the Nasdaq market continues to trade in fractions. Its decimal trading pilot program begins March 12, and all Nasdaq stocks are supposed to trade in decimals by April 9.