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Securities Markets: Preliminary Observations on the Use of Subpenny Pricing

GAO-04-968T Published: Jul 22, 2004. Publicly Released: Jul 22, 2004.
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Highlights

In 2001, U.S. stock and options markets, which had previously quoted prices in fractions, began quoting in decimals. Since then, various positive and negative effects have been attributed to the transition to decimal pricing. As part of this transition, the major stock markets chose one penny ($.01) as the minimum price variation for quoting prices for orders to buy or sell. However, some electronic trading systems allowed their customers to quote in increments of less than a penny (such as $.001). The use of subpenny prices for securities trades has proved controversial and the Securities and Exchange Commission (SEC) has proposed a ban against subpenny quoting for stocks priced above one dollar across all U.S. markets. As part of ongoing work that examines a range of issues relating to decimal pricing, GAO reviewed (1) how widely subpenny prices are used and by whom, (2) the advantages and disadvantages of subpenny pricing cited by market participants, and (3) market participants' reactions to SEC's proposed ban.

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Brokerage industryCompetitive advantageElectronic data interchangePrice regulationPrices and pricingStock exchangesStocks (securities)Banned practicesStocksSecurities