Decimalization -- the conversion of archaic fraction-based stock prices to decimals -- has become one of the hottest consumer issues for Wall Street since the debut of the $5 online trade.
And in the name of consumers, politicians are using their influence-peddling tactics to try to move up the decimalization start date where they want it and implement a change they say can shave $1 billion off investors' bottom line.
The most recent pressure came Thursday, when the
House Commerce Committee
General Accounting Office
to investigate why the
Securities and Exchange Commission
decimal deadline and if the SEC's oversight of decimalization has been adequate. The committee ordered the General Accounting Office to report back in June.
The Washingtonians are pushing the decimal issue despite very public concerns voiced by the Nasdaq and the SEC. At this point, it seems congressional elbow grease and industry competition will make decimalization a reality sooner than some participants would like.
In the latest bit of sparring, Congress kept up its very public push for all electronic markets, including
Datek Online Holdings'
electronic communications network, to quote stock prices in decimals as soon as possible.
Congress wants the Nasdaq to pay more attention to decimals, and for the SEC -- over which the
has oversight -- to take a harder line with the Nasdaq, which says it's not prepared for the increased trading volume decimalization will bring. The
New York Stock Exchange
, on the other hand, says it's ready to go and may start a pilot program with the SEC before 2001.
In recent weeks, according to one person, the decimal-change chatter between Congress and the ECNs has increased. Just days after SEC Chairman
called off the decimalization deadline, Doug Atkin, the president of
electronic trading system, wrote committee chairman Thomas Bliley, R-Va., to say trading systems could "work around" the Nasdaq's inability to meet the decimalization deadline.
Island, the second-largest ECN, says it talked to members of Congress and staff frequently in the weeks before it announced on April 19 that it intends to go to decimals by this summer.
The next-largest ECNs,
, say they have the technology to go to decimal, but think their customers will realize little benefit until the entire market is quoted in that manner. When stocks are quoted in decimals, experts anticipate that trading volume will increase and that the difference between the prices at which stocks are bought and sold will narrow.
The point, says Redibook's acting Chief Executive Larry Leibowitz, isn't for just one market to go to decimals, it's for the industry to go to decimals.
"There are a lot of important market implications from seemingly apple-pie changes," Leibowitz said recently. Redibook is owned by a consortium of major securities companies including, among others,
Spear Leeds & Kellogg
Donaldson Lufkin & Jenrette
It's becoming clear that the competitive pressure from Island -- and Congress -- is changing some minds.
-- an ECN that's about the same size as Tradebook -- counsel Kevin O'Hara says the company is considering going to decimals and that he hopes other trading systems that do so will want to link up. Such a deal would be similar to the arrangement made last fall when the ECNs got the after-hours market going before the Nasdaq.
Congress wants the ball in its court because of, well, money. Using decimals would supposedly make stocks cheaper by decreasing the difference between the prices at which stocks are sold and bought. It's also a point of national pride -- overseas markets are largely quoted in decimals, not fractions.
With a wave of recent hearings on everything from daytrading to market structure, Congress is taking an active role in financial market restructuring for the first time since 1975. On April 26,
Group President Kenneth Pasternak and NYSE Chairman Richard Grasso
trekked to Capitol Hill to share their thoughts.
That may make some industry insiders nervous because they question how well some on the Hill understand financial markets, as evidenced by the questions posed by some during the recent hearings. Still, according to one Washingtonian, they're picking it up quickly.
"They don't have the same experience," says Washington attorney and former SEC commissioner Richard Roberts. "But their knowledge is increasing from what it was a few months ago."
The decimal divide wasn't carved over whether to use them or not; all market players want decimals. The big question is when to start using them.
Congress, naturally, was
irked two weeks ago when Levitt postponed the July 3 decimalization start date, and turned up the volume. Representatives Michael Oxley, R-Ohio, and Bliley crowed about how important Island's move is. Edward Markey, D-Mass., has also been a strong proponent of the move.
Still, some say Island's move is too narrow to make any difference. Right now, Island occasionally executes trades in 256ths and will essentially convert those quotes to six-figure decimals. Similar to now -- when Island orders interact with orders sent through the Nasdaq or other ECNs that are only in sixteenths -- those prices will be rounded to the closest "teenie" or sixteenth.
"We would do it if we thought it had value to our clients, says Tradebook president Kevin Foley, who adds that the firm "decimalized" one insistent client more than a year ago. The client didn't like it.
"Decimalized fractions are OK when the decimal is 0.5," Foley says. "But when it gets to too many decimal places people hate it."