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Decimal Pricing |
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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. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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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. 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. |
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