Decimal pricing

Decimal Pricing

The listing of a security's price in decimals instead of fractions. For example, decimal pricing means that a security would be listed as, say, $25.25, instead of $25 1/4. Decimal pricing makes prices and the market more understandable for investors and laypeople.

Decimal pricing.

US stocks, derivatives linked to stocks, and some bonds trade in decimals, or dollars and cents. That means that the spread between the bid and ask prices can be as small as one cent.

The switch to decimal stock trading, which was completed in 2001, was the final stage of a conversion from trading in eighths, or increments of 12.5 cents.

Trading in eighths originated in the 16th century, when North American settlers cut European coins into eight pieces to use as currency. In an intermediary phase during the 1990s, trading was handled in sixteenths, or increments of 6.25 cents.

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Over the past 50 years, with the development of a privately managed pension system, the deregulation of trading commissions and a move to decimal pricing, assets flowed away from bank deposits to investment accounts controlled by a growing asset-management industry.
The odds will be displayed in decimals as decimal pricing gives the Coral traders greater fl exibility to offer you a better price.
Although many believe that decimal pricing has benefited small individual (retail) investors, concerns have been raised that the smaller tick sizes have made trading more challenging and costly for large institutional investors, including mutual funds and pension plans.
Trading costs, a key measure of market quality, have declined significantly for retail and institutional investors since the implementation of decimal pricing in 2001.
Although decimal pricing led to lower order preferencing on NASDAQ, the proportion of preferenced trades after decimalization is much higher than what some prior studies had predicted.
Last year's implementation of decimal pricing was a factor in creating this new opportunity.
Beyond the convenience of executing trades in dollars and cents, the conversion to decimal pricing is expected to bring savings for investors.
But the National Association of Securities Dealers, the parent of the Nasdaq, formally asked SEC Chairman Arthur Levitt to delay the implementation of decimal pricing till 2001.
The order required (1) the markets to submit a decimals pricing implementation plan by March 13, 2000 and (2) the options and equities markets to phase in decimal pricing by year-end.
The order, as issued in January and modified in March, requires the markets to submit a decimals-pricing implementation plan by mid-April and requires the options and equities markets to phase in decimal pricing by year-end.
Since then, various positive and negative effects have been attributed to the transition to decimal pricing. As part of this transition, the major stock markets chose one penny ($.01) as the minimum price variation for quoting prices for orders to buy or sell.