ICI Supports Pricing of Stocks in Pennies

The Investment Company Institute, the biggest trade group for mutual funds, told the Securities and Exchange Commission on Tuesday that it “strongly supports” continuing to price stocks in penny increments.

The ICI was responding to a comment by SEC Chairman William H. Donaldson, who said the commission’s 2001 decision to change stock quotes to decimals in increments of 1 cent from a minimum of 6.2 cents has hurt the profitability of the securities industry and might be worth reconsidering.

The SEC introduced trading in pennies to cut the wide spreads between buy and sell prices market makers used to offer when stocks were priced in fractions.

“Decimalization was implemented in order to simplify the pricing of securities for investors and to reduce spreads,” ICI President Matthew Fink wrote in a Monday letter to Donaldson.

Fink said complaints about the cost and difficulty of trading large orders in pennies could be resolved by making trades more automated on the New York Stock Exchange and other marketplaces. Specialists who coordinate trading on the floors raise costs through “unnecessary intermediation,” he wrote.

The NYSE declined to comment on the ICI letter.

From Bloomberg News