Bill Proposes Making Cents of Stock Quotes

In an economy where prices are routinely given in pennies, nickels, dimes and dollars, the stock market’s practice of quoting stock prices in eighths of a dollar has seemed a puzzling oddity to many investors.

Investors must constantly convert 1/8, 3/8, 5/8 and 7/8 into decimals to figure out how much change they paid or received per share when they traded. (The answers are 12.5 cents, 37.5 cents, 62.5 cents and 87.5 cents a share, respectively.)

On Thursday, two congressmen introduced legislation to change this archaic convention that they and others say enriches Wall Street at the expense of customers.

The bill from Rep. Michael G. Oxley (R-Ohio) and Rep. Edward J. Markey (D-Mass.) will order the Securities and Exchange Commission to “require quotations in dollars and cents” for stock trades.

Meanwhile on Thursday, the American Stock Exchange approved a proposal to adopt minimum trading increments of one-sixteenth of a dollar, or 6.25 cents, for all its stocks, saying it would benefit investors. Amex is the first U.S. stock exchange to adopt the lower minimum trading increment of one-sixteenth, but spokeswoman Arda Nazerian said the move is unrelated to Thursday’s decimal push in Congress and that the timing was a coincidence.

The intent of the House bill is to narrow the prices that dealers or specialists quote. Instead of being listed at a price of $32.125, for example, a stock would be quoted at $32.10, producing a saving on trading costs for investors of 2.5 cents per share.

Academic studies have suggested that the potential annual savings to investors could be from $4 billion to $9 billion. The United States is the only major country that does not require stock trades in decimals.

When the New York Stock Exchange was founded in 1752, the Spanish dollar was the most popular currency, not the English pound, according to Robert Sobel, a historian of the stock exchange. The dollar at that time was denominated in eighths--as in “pieces of eight.”

The issue of switching to the decimal system has some support at the SEC and on Capitol Hill, but it has never reached the legislative stage. It is far from certain that it will become law.

Lobbyists for Wall Street are expected to resist the effort, which would entail spending hundreds of millions of dollars on new systems and cut into profits.