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June 30, 2000

Exchanges Pledge to Keep Decimal Deadlines

By William Hoffman

Is Nasdaq ready for the new Securities and Exchange Commission deadline for implementing decimal pricing? Some members of Congress are not sure.

An earlier deadline was abandoned in the face of a Nasdaq network strained by unprecedented volume.

"Given [Nasdaq's] track record, our members have some concerns" about the new deadline, on Sept. 5, 2000, a spokesperson for Rep. Edward J. Markey (D-Mass.) told Traders Magazine.

Members of Congress have requested that the General Accounting Office investigate why Nasdaq was unprepared to meet the SEC's original July 3 deadline for converting stock and options pricing from fractions to decimals. Markey's spokesperson said there was no target date for completion or release of the GAO study.

Recently, leaders of the New York Stock Exchange and the National Association of Securities Dealers, said they backed the new decimalization deadline.

"They seemed like they were ready to do it," said House Commerce Committee spokesman Eric Wohlschagel.

The SEC on June 13 ordered all exchanges to submit, no later than July 24, 2000, their plans to phase-in decimalization. Self-regulatory organizations, such as the NASD and the NYSE, had until Aug. 7 to submit proposed rule changes they deem necessary for implementing decimalization.

Listed stocks and certain options are scheduled to begin trading in increments of between 1 and 5 cents starting Sept. 7, under the SEC order.

Nasdaq securities must phase-in decimal pricing by March 12, 2001, and all securities must have converted no later than April 9, 2001. "We are completely in line with those dates," said Nasdaq spokesman Scott Peterson.

Nasdaq Spending

Peterson said the NASD estimates it has spent $100 million so far on new hardware, software, and infrastructure improvements to help prepare for decimalization, and will spend another $10 million to $30 million by next March.

Peterson said the exchange has always been committed to the principle of trading stocks in decimal increments. He said the dilemma faced by Nasdaq boiled down to this: It could keep pace with the huge surge in trading volume, or with the demands of introducing decimal pricing on schedule. But it could not do both. (Nasdaq quote updates jumped 136 percent last year while in the month of April this share volume spiked a whopping 41 percent.)

Rep. Markey's spokesperson said Congress will keep a weather-eye on the exchanges as it awaits results of the GAO's investigation. "We don't want to see this delayed further," the spokesperson said.