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November 1, 2002

A Decimal Solution For the Big Board

By Peter Chapman

The New York Stock Exchange is launching a new system to tackle quote display problems caused by decimalization.

The "dual quote" system has two goals: Aggregate several price levels worth of orders into larger chunks of liquidity, and automate the Big Board's internal quote update process.

The first measure is intended to appeal to institutional traders frustrated by an inability to view and access large blocks of liquidity. The second is expected to introduce efficiencies into a system swamped by three million to four million quote updates per day.

That number may double in the next 12 months, Lou Pastina, the Big Board's vice president for point-of-sale technology, told the crowd at the Security Traders Association annual conference in Boca Raton, Fla. last month.

"It's virtually impossible for a human being to keep up with that," the exec said. "It's pointless as well." Three-quarters of all quote changes are made manually by a clerk at the post. Quoting has surged since last year's move to penny increments. That led to the increase in manual processing and a spreading out of quotes over many more price points. The dispersion has made it difficult for traders to assess depth in a given stock.

The new "depth" quote would include orders from the crowd as well as specialists' books. It would sit outside the New York's best bid or offer, a retail quote typically too small to be meaningful to a block trader. The specialist will be charged with actively managing the depth quote. "It will probably reflect what markets look like when trading in eighths," Pastina said.