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Vote Yes for Nickels?

Traders Magazine, March 2003

John A. Byrne Editor

When the dust has finally settled the question will not go away: Did the regulators go too far on decimal pricing? Did the introduction of decimal pricing -despite warnings it would lead to disaster unless the minimum increment was a nickel - destroy thousands of trading jobs? Fortunately, it does not require a Nobel Prize in Economics to find the answer. Dealers and other institutional pros are hurting because of government price controls. Decimal pricing eliminated jobs at dozens of market makers, including Knight Securities, Schwab Capital Markets, Merrill Lynch and other trading shops. But that is not what the government wants the public to know. True, the bear market has slashed payrolls on Wall Street. And there is no disputing that decimals have brought some benefits. In July 1996, for instance, prior to the government's investigation of Nasdaq stock trading practices, the average Nasdaq spread was 30.78 cents. That compared with its chief rival, the NYSE, where the average spread was 16.14 cents. In recent months, both markets have recorded average spreads that are anorexic: 2.09 cents on Nasdaq versus 3.35 cents on the NYSE. But these rosy statistics, trotted out as propaganda to defend the government's botched handling of the decimal project, disguise a shocking reality: The continuing monkey business by penny jumpers, shenanigans on electronic trading systems, and a deplorable lack of institutional liquidity because of a 100 price points.

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