Citing concerns about both technology and trading changes, a 7,700-member organization of stock traders this week asked the U.S. Securities and Exchange Commission (SEC) to delay by at least three months its April 9 deadline for converting the Nasdaq Stock Market Inc. to decimal-based pricing.
In a letter that was sent to acting SEC Chairman Laura Unger on Tuesday, Lee Korins, president and CEO of the Washington-based Security Traders Association (STA), said the current plan, which calls for Nasdaq to run pilot decimalization tests and then move to a full implementation all within a single month's time frame, is too tight a schedule.
"It is the sincere concern of many of our members that the current plan does not provide enough time to adequately test and assess the many technology and trading issues associated with the conversion," Korin stated in his letter. "[W]e urge the commission to consider a less demanding implementation schedule."
Korin said in an interview today that the New York Stock Exchange had a four-month period last year to make its transition from fractions to decimals. Nasdaq should be given a similar amount of time, he said. "We're not saying to stop [the conversion]," Korin said. "What we're saying is to take more time to implement it."
If another 12 weeks were added to the conversion process, Korin said, it would allow traders to be properly prepared and would "hardly be something to upset the whole world." Korin, who also asked in his letter that the number of scheduled test runs be increased from two to four, said he hopes to have an answer from the SEC by the middle of next week.
Under the current schedule, 15 Nasdaq-listed stocks are due to be converted to decimal-based pricing on March 12 as an initial test of the concept. Another 150 stocks are scheduled to switch over in a second pilot project two weeks later, and a full conversion of Nasdaq's 6,000 or so stocks is supposed to take place in early April.
Nasdaq spokesman Scott Peterson wouldn't comment directly on the STA's letter, but he said officials at the stock market "expect to operate according to the schedule" set by the SEC.
"We feel confident that everyone is going to be ready," Peterson said. Under a complex rollout plan, he added, several hundred financial services firms have been mandated to do testing to prepare for the changeover. "It's not as if these people are going to be walking into it cold," he said.
John Heine, an SEC spokesman, also declined to comment on the request for more time from the STA. Asked what would happen if some firms and traders aren't ready by the April 9 deadline, Heine said SEC officials "don't deal in hypotheticals."
Korin said more time is needed to make the switch because Nasdaq has quotation and trading data arriving simultaneously from hundreds of different market centers each day, differentiating it from the NYSE. Nasdaq has already seen large data volume increases in the last two years, and Korin said the STA is worried that the impact of converting to decimals in such a short time frame could overwhelm the market's systems.
Octavio Marenzi, an analyst at Celent Communications LLC in Boston, said it's surprising that some traders are having trouble preparing with the changeover. "It is a relatively straightforward thing to do," involving updates to software code and fields to move from fractions to decimals, he said. "That's about the extent of it."
In fact, Marenzi said, switching to decimal-based pricing should be much easier than what many companies had to do to fix year 2000 problems on their systems. Instead of true technical problems, the real issue behind the extension request appears to be fear on the part of some traders that decimalization will make the market more volatile, he said.
But Larry Tabb, an analyst at Needham, Mass.-based TowerGroup, called the conversion to decimals "a big project" and said many large trading firms still haven't tested their systems for compliance and have been voicing concerns about the change. Tabb added, though, that he's not sure whether the current deadline really is too onerous.
The NYSE completed a decimal conversion for all of the 3,525 stocks it lists on Jan. 29, following the start of a pilot program last August. The U.S. is the only major country that still uses fractions in stock pricing, and both the NYSE and Nasdaq were originally supposed to switch to decimal-based pricing by last July.
But the SEC last spring granted a request for a delay from the National Association of Securities Dealers Inc., which was concerned that Nasdaq's systems wouldn't be able to handle the extra traffic expected to be generated by the switch. The SEC later ordered Nasdaq to begin the conversion process by next month, and Nasdaq officials vowed that they would be ready.
This story, "Stock traders group asks SEC for more time to decimalize Nasdaq" was originally published by Computerworld.