Traders lobby SEC for decimalization delay

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Citing concerns about both technology and trading changes, a 7,700-member organization of stock traders last week asked the Securities and Exchange Commission (SEC) to delay by at least three months its April 9 deadline for converting the Nasdaq Stock Market to decimal-based pricing.

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Extension, Please

A traders’ group is seeking a three-month reprieve from the first test of decimal pricing on the Nasdaq Stock Market.
Original
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First pilot of 15 stocks on March 12; second pilot of 150 stocks on March 26
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Full conversion of 6,000 stocks on April 9
Proposed
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Pilots start in July
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Increase to four pilots

The current plan, which calls for Washington-based Nasdaq to run pilot tests next month and then move to a full implementation, all within a month's time, is too tight a schedule, said Lee Korins, president and CEO of the Security Traders Association (STA) in a letter to the SEC.

Korin said in an interview last week that the New York Stock Exchange had a four-month period last year to make its transition from fractions to decimals and that Nasdaq should be given a similar amount of time. "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, he said, it would allow traders to be properly prepared and would "hardly be something to upset the whole world." Korin said he hopes to have an answer from the SEC by midweek.

Nasdaq spokesman Scott Peterson wouldn't comment directly on the letter from the Washington-based STA, but he said that 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 STA's request for more time. When asked what would happen if some firms and traders aren't ready by April 9, Heine said that SEC officials "don't deal in hypotheticals."

Complex Issues

Korin said more time is needed to make the switch because Nasdaq has quotation and trading data arriving simultaneously from hundreds of market centers each day, differentiating it from the NYSE. Nasdaq has already seen large data-volume increases in the past 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 Cambridge, Mass., said it's surprising that some traders are having trouble preparing for 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 isn't sure whether the current deadline really is 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 in August. The U.S. is the only major country that has continued to use fractions, and both the NYSE and Nasdaq were originally supposed to switch to decimal-based pricing by last July.

This story, "Traders lobby SEC for decimalization delay" was originally published by Computerworld.

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