SIA: Decimalization Conversion on Target

NEW YORK--A recent study of pilot trading in decimals on listed exchanges conducted by the Securities Industry Association has found quote activity is only up 35 percent, dramatically below the estimated 100 to 130 percent expected.

The study, conducted between Aug. 28 to Oct. 20, found message traffic, trading spreads, trade sizes and market patterns coming up to speed. Pilot trading began with seven issues on the New York Stock Exchange and six on the American Stock Exchange. On Sept. 25, a total of 57 NYSE issues and 49 Amex stocks were added to the pilot, and on Dec. 4, the NYSE will add another 94 issues.

In addition to the less-than-expected pickup in quote activity, spreads were reduced by 6 percent, with the ten most active issues experiencing a 30 percent reduction. Trade sizes were lower and spread out among more price points. Donald Kittell, executive vice president of the association, says, "Conclusions of the study confirm that the industry is on track to successfully convert to decimals early in 2001."

The evaluation period was a scant eight weeks and "did not cover a complete market cycle," says Lawrence Scinto of Atomic Tangerine. He points out that the average trading volume during the pilot period was about 10 percent below volumes on the exchanges in the first quarter of 2000. Scinto says, "There was an increase in equities and options message traffic, but not at levels originally predicted."

For purists, the results are inconclusive as Nasdaq did not participate in the pilot. Nasdaq will begin a checkpoint program from March 12 involving 10 to 15 stocks and plans a full cutover to decimals on April 9. Securities Industry Association officials believe the conversion is on a tight but achievable timetable.

In trading, there was an increase in the number of executions per order and a reduction in average trade size for some decimal stock by institutional firms. Buyers and sellers in decimals seem reluctant to show the true size of their order for fear of being "picked off," thus increasing the numbers of fills it takes to execute an entire order.