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November 1, 2001

Buyside Survey Casts Doubt on Decimals

By Staff reports

Decimal pricing on the New York Stock Exchange and Nasdaq is not good for market liquidity or transparency, according to a new survey of buyside traders.

More than 75 percent of traders polled at a cross-section of institutional firms also said they have changed trading strategies since decimal pricing was introduced in Aug. 2000 on the Big Board and last March on Nasdaq.

About 80 percent of respondents noted "a change in volatility" since decimals were implemented. Ninety percent of respondents did not see this as a benefit.

What's more, some 80 percent did not believe a minimum increment of $.01 in the bid or offer to be reflective of price improvement; 60 percent believe the minimum increment should be $.05 for specialists and market makers who want to outbid' a limit order. Some 70 percent say the minimum price improvement should be available to all market participants. The survey, conducted by Midwood Securities, an institutional broker dealer, received responses from 100 of the 600 traders polled. The traders work for firms with assets under management ranging from $500 million to $700 million.

In other findings, about 50 percent of respondents support Big Board rule changes to increase the minimum price improvement necessary to break up an agency or principal cross. Some 80 percent believe specialists have gained the most from the switch to decimals; two thirds say it is institutions that have gained the most.