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SEC approves exchange’s move to trading in sixteenths of dollar

May 5, 1997

WASHINGTON (AP) _ The Securities and Exchange Commission approved a move by the American Stock Exchange to allow minimum trading increments of one-sixteenth of a dollar, saying Monday it would benefit investors and the market.

The AMEX is the first major U.S. stock exchange to adopt the lower minimum trading increment of 6.25 cents. Some observers believe the action is a step toward scrapping the traditional system of quoting share prices in one-eighth increments and adopting straight dollars-and-cents pricing.

The nation’s third-largest stock exchange made the proposal in March.

Other exchanges have announced similar plans.

Proponents say adopting decimal pricing would narrow the difference between a stock’s best bid and asking prices, known as the spread. Spreads typically vary from 12 1/2 cents (one-eighth of a dollar) to 50 cents, an amount that adds up to a sizable profit for brokers, who usually mark up stock prices before selling them to investors.

In a statement, the SEC said the smaller one-sixteenth increment should benefit investors and the market by allowing a better display of the spread. That could narrow spreads and reduce investors’ trading costs.

AMEX Chairman Richard Syron said in a statement, ``Smaller trading increments mean greater opportunity for improved prices when buying and selling stocks. We’re pleased to be leading the way in an effort that directly benefits all investors and our listed companies.″

Under the new system, which takes effect on Wednesday, all stocks traded on the AMEX priced at 25 cents a share or higher could trade in sixteenths. Previously, all AMEX stocks priced at $10 a share or higher could only trade in eighths, while those between 25 cents and $10 could trade in sixteenths and those less than 25 cents could trade in thirty-seconds.

Several House lawmakers of both parties recently unveiled a proposal to require decimal pricing for stocks, but such a mandatory change has been resisted by the securities industry.

SEC Chairman Arthur Levitt Jr. has expressed reservations about the measure, saying dollars-and-cents pricing was a desirable goal but questioning whether it should be achieved by government mandate.

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