Nasdaq to show trading in increments of 6.25

February 03, 1994|By Bloomberg Business News

WASHINGTON -- Nasdaq Stock Market price changes will be listed in increments as small as 1/16th of a point, or 6.25 cents, starting this spring, the National Association of Securities Dealers (NASD) said yesterday.

Dealers in the Nasdaq market will continue to quote bid and ask prices of stocks priced above $10 in increments of 1/8 of a point, or 12.5 cents, on the system's computer screens. However, "a lot of trades occur between the spread," said NASD Executive Vice President and Chief Operating Officer Richard Ketchum.

Currently, trades made in 1/16th increments are rounded up to the nearest 1/8 point for reporting to the Consolidated Tape Association, which was formed in 1973 by five exchanges and the NASD to disseminate last-sale information.

The NASD, which supervises the Nasdaq Stock Market, hopes to implement the change -- which was one of the key recommendations of the Market 2000 report issued last week by the staff of the Securities and Exchange Commission -- by early April, Mr. Ketchum said.

As a result, if the last sale of a Nasdaq stock is at an increment of a 1/16th point, it will be displayed that way on the consolidated tape, on screens and in newspaper listings.

The New York Stock Exchange had no immediate comment yesterday about whether it is considering a similar change.

Proprietary trading systems, which are privately operated screen-based trading systems, often are programmed to do midpoint executions, Mr. Ketchum said. Thus, if a market-maker is willing to buy a stock at 20 per share -- the bid price -- and sell the stock at 20 1/8 -- the ask price -- a proprietary system might execute a trade at 20 1/16 for a preferred institutional client like mutual-fund giant Fidelity Investments.

The trade report from that transaction would show the 20 1/16 price on the consolidated tape after the NASD makes the change, instead of being rounded up to 20 1/8 .

For individual investors, however, the NASD's change probably won't lead to better pricing any time soon. Small investors rarely get their orders executed between bid and ask prices, which will continue to be at least 1/8 point apart -- and in many cases much wider.

Currently, only American Stock Exchange stocks priced under $5 a share and Nasdaq stocks priced under $10 are traded in 6.25-cent increments. The minimum move for all other stocks is 12.5 cents.

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