ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, October 20, 1996 TAG: 9610180015
SECTION: BUSINESS PAGE: 1 EDITION: METRO
COLUMN: Stocks
SOURCE: MAG POFF
Suppose that Revco had sold its shrieking ghost Halloween costume last week for 7 7/8 instead of the advertised $7.99. That would be - after taking a minute to translate fractions into pennies - a price of $7.87 1/2.
What kind of crazy pricing would that be?
Yet, that is what investors face every day when they buy stocks on one of the major U.S. exchanges. From time out of mind, stock traders have quoted dollars and then added the cents in terms of fractions: 1/8, 1/4, 3/8 and so on. On some markets, the fractions shrink as fine as 1/132nd, which would challenge most people on the translation to pennies.
But now, Steven Wallman, a commissioner of the Securities and Exchange Commission, is leading a crusade for quoting stocks in terms of dollars and cents like a head of lettuce or any other commodity.
Why should such a drive for decimals succeed now when similar proposals have withered in the past? he was asked during a telephone press conference sponsored recently by the American Stock Exchange.
"Because no commissioner has ever been pushing it before," Wallman responded.
Wallman, one of four commissioners of the federal agency that regulates the investment markets, said his proposal is mere common sense. It is designed to make trading far easier for the average person. Institutional investors, such as pension and mutual funds, already trade in far finer increments than individuals can.
He wants the commission or Congress to force the change to decimals if the markets fail to act voluntarily.
The industry opposes the idea, Wallman said, because it would stiffen competition. That's because trading would be done in 100 pennies rather than in eight eighths. The finer increments would give some brokers more leeway for tightening profits in the hope of luring more customers, perhaps kicking off a commission war.
United States markets, alone in the world, quote fractions, Wallman added. European and Asian markets quote in decimals.
He's pushing the concept now because one of the hang-ups has been the high cost of converting computers to the new system.
However, stock markets, like other industries, must reprogram their software over the next three years to recognize "00" as the year 2000 instead of 1900, Wallman said. While the programmers are at work, he said, they could switch fractions to decimals.
The SEC hasn't taken up the question, but Wallman said he has talked to people in the industry, in government and elsewhere.
The industry, he said, is of two minds. One side believes the change will occur and "it's the right thing to do." On the other hand, he said, some brokerage houses want to keep the current one-eighth spread as a way of bolstering profits.
As to the latter argument, Wallman noted, trading exploded just as discount brokers came on the scene.
Even though it sponsored the press conference, the American Stock Exchange has no official position on the conversion. "It's something we're studying," said spokeswoman Arda Nazerian.
Managers at Roanoke area offices of three major brokers - Dean Witter Reynolds, A.G. Edwards & Sons, and Merrill Lynch - said they had not studied the matter and had no comment.
Tyler Pugh, senior vice president and resident manager at the Roanoke office of Wheat First Butcher Singer, said he had not followed the issue closely but could see the issue both ways.
On one hand, Pugh said, the fractions must always be converted to dollars for billing and other purposes so it makes sense to trade in decimals. On the other hand, he said, fractions can be a simpler method of quoting.
But he said it seems to him that quoting in some fractions is confusing because, for instance, 5/8 comes out as 62 1/2 cents.
Bill Nash, manager of the Roanoke office of Scott & Stringfellow, said his opinion is that the change would be logical. Quoting a share of stock with dollars followed by 62 1/2 cents "doesn't make a whole lot of sense."
Wallman, who was a specialist in corporate, securities and business law for a Washington law firm before joining the commission in 1994, said the fraction system hurts individual investors. He maintained that it is a hidden cost to the average person investing in stocks.
"I think this [change to decimals] will get done - and done fast," Wallman said. "I think it's inevitable."
LENGTH: Medium: 82 linesby CNB