Wall Street decimalisation makes cents

Will the move hit profits of professional traders?

US stock markets are moving to join the rest of the world by trading stocks in cents rather than fractions of a dollar.

The New York Stock Exchange begins trading the first seven stocks in dollars and cents on Monday, and hopes to complete the transition to full decimalisation by next spring.

Decimal timetable

June 1997: NYSE approves decimalisation

28 August 2000: first seven stocks traded in dollars and cents

25 September: further 52 stocks decimalised

12 March 2001: Nasdaq begins decimalisation

9 April 2001: full decimalisation

Until now, US stocks have been priced in fractions of 1/16 of a dollar (6.25 cents), a centuries-old tradition that dates back to colonial times and the use of the Spanish silver dollar, which was broken into "pieces of eight" to make change.

The change was approved by the New York Stock Exchange in 1997, but implementation has been delayed by fears about whether its computer systems could cope, and worries that dealers would lose their "spreads" - the difference between the price of buying and selling a stock.

For the first month, only a few well-known stocks, including computer company Gateway and delivery service FedEx will be traded in decimals.

At the end of September, stocks in another 52 companies, including market heavyweights like America Online, Colgate-Palmolive, Lockheed Martin, and Goodyear will join the list.

If all goes according to plan, full decimalisation will occur on 9 April for all 3,000 NYSE stocks. The Nasdaq stock market will begin its own roll-out on 12 March, covering 5,000 mainly smaller companies.

Effect on brokers and small investors

Opinions differ on the effect of the change of the profits of stockbrokers and small traders.

The Securities and Exchange Commission, which is pushing for the change, argues that it will lower the cost of trades for the smaller investor.

At the moment, stockbrokers often make more money from the "spread" - the difference between buying and selling stock - than the flat-rate brokerage fee.

A study for the US Congress suggested that investors could save about $3m each day.

Stockbroker Bernard Magdoff believes that after decimalisation, average spreads could be halved from about 10 cents a share to 5 to 7 cents, cutting profits.

Brokers could make more money if the change meant a higher volume of trading.

But that could pose its own dangers for small investors. They could be caught out trying to buy and sell fast-moving stocks by professional dealers who are able to beat out their orders by lowering their own prices by just one or two cents.

"If it becomes easier to step in front of the individual investor, the dealers will," said Hans Stoll of Vanderbilt University.

The greater volatility could also strain computer systems - which is one reason that the Nasdaq market asked to delay its own implementation until next March.

However, with US private exchanges moving towards decimalisation, and with the increasing integration of global stock markets, many believe the US move is now long overdue.