Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
Re: File No. 4-430; Release No. 34-42685 (April 13, 2000)
Dear Mr. Secretary:
It is important that the SEC consider the impact to retail customers and the market place, before any changes are made. I agree that decimal pricing is long over due, but we must do this in an orderly manner without any impact to retail customers or to the market infrastructure.
1. Dual pricing by 9/4/2000: Any of these suggestions are technically possible. Some are not practical.
First, nickels could be used until experience is gained from volume and trading in all markets. Second, pennies are a bad idea until experience is gained on the impact on option quotes and trading.
Third, what problems will be caused with dual trading of Listed securities? NASDAQ states they can handle decimals on listed, but maybe not. If not, then NASDAQ (and the ECN's) would be trading with fractions, and exchange's in decimals. Professional traders will have continuous arbitrage opportunities with dual systems.
Fourth, how will retail customers relate to different prices on listed versus OTC stocks, and possibly two different pricing systems in the OTC market?
Fifth, what is the impact to the quotation vendors and the clearing operations?
Sixth, what price do you use for pricing for NAV by mutual funds, margin valuations, and statement pricing for securities with both a fractional price and a decimal price for the same stock?
2. What system changes are needed for dual pricing: This needs to be addressed by the quotation vendors, the trading points, and the clearing organizations.
3. Dual pricing confusion: There are three areas of confusion.
First, the retail customer will be confused with multiple pricing systems. Errors and delays in order entry will happen as retail customers enter orders with the wrong type of price, and the orders are rejected.
Second, portfolio managers will make mistakes, which will have negative impacts on their portfolios for their clients.
Third, traders will make mistakes costing the firms money from these errors.
4. What date to start decimal trading?: NASDAQ has to be ready to handle their trading volume. NASDAQ, OPRA, and CTA all have to be ready for the volume. The SEC has to work with these organizations to set the date.
5. Alternative pilot program: To eliminate confusion and errors, all trading should start at the same time.
6. What alternatives: Get NASDAQ's systems ready for trading. We cannot have a loss of confidence in the US markets due to capacity issues at NASDAQ (with either quotation data dissemination or trade volume reporting), or CTA, or OPRA. The quotation vendors need to be sure they can handle the projected volumes, and they can deliver the data to the workstations. The quote vendors may not have a problem with the central ticker plant, but it problem may be to the end user. Nickel trading is needed before penny trading, to keep from having a meltdown or grid lock.
7. Decimal pricing of options: Follow the original schedule for stocks and options with a limited pilot of stocks and options.
Robert B. Sloan
Partner/Director Information Services