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News and Press Releases |
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HEADLINE:
Nasdaq Pushes On Split-Penny Issue
By: Gaston F. Ceron - Dow Jones Newswires
The Wall Street Journal. December 3, 2003
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EXCERPT: For Nasdaq Stock Market Inc., splitting the penny has turned into a splitting headache. Tired of competing against trading venues that allow traders to buy and sell stock in increments smaller than one cent, the New York market is asking U.S. securities regulators to either stop the practice or let Nasdaq take part in it. Meanwhile, trading-system operator Instinet Group Inc. is running a pilot program that, if implemented on a larger scale, could limit this "subpenny" trading. In subpenny trading, which is available on some trade-matching services, the price for a stock can be displayed beyond just two places after the decimal point: $10.161 instead of $10.16, for example. Such trading isn't a new phenomenon, but Nasdaq officials say its use is on the rise, and some trading executives see it as harmful. Nasdaq representatives point out that subpenny trading isn't generally available to small investors and that it can easily lead to professional traders stepping in front of investors' orders. Nasdaq's professional stock dealers typically haven't been fond of small increments in stock trading, since they can thin trading profits. "We are generally not in favor of subpennies," said Larry Leibowitz, executive vice president of the capital-markets unit of Charles Schwab Corp. "We would prefer that they not be legal." Subpenny trading followed, in part, from the 2001 switch away from fraction- based stock prices, such as 10 1/4, in favor of "decimalized" prices such as $10.25. A byproduct of decimalization was that the smallest increment in which stock prices move was narrowed to a penny at Nasdaq and at the New York Stock Exchange. But some trading systems, seeking an edge, continued to allow their customers to trade in increments smaller than one cent. Between 1999 and 2001, trading in increments below the Minimum Price Variation, or MPV, made up about 5% "of all trades and shares executed on or reported to Nasdaq," according to Edward Knight, Nasdaq's general counsel. But the pace seems to have picked up since then: Subpenny trading recently climbed to include 16% of all trades in Nasdaq securities, Mr. Knight said in an Aug. 4 letter to the Securities and Exchange Commission. That's a problem for Nasdaq, whose stock-trading system doesn't use subpennies and thus is at a competitive disadvantage to those that do. To solve it, the market has been playing "a game of chicken with the SEC," said Steve Swanson, chief executive of Automated Trading Desk, a stock-trading concern in Mount Pleasant, S.C. Trying to bring the issue to a head, Nasdaq in August asked the SEC to allow it to use subpennies. The request, which the agency said is pending, was made "in order to remain competitive," Mr. Knight said.
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