文档介绍：Trading In Pennies: A Survey of the Issues
Lawrence Harris
Marshall School of Business
University of Southern California
Prepared for the
“Trading in Pennies?” Session of the
NYSE Conference “. Equity Markets in Transition”
Scottsdale, Arizona
December 10, 1999
Lawrence E. Harris
Fred V. Keenan Chair in Finance
Marshall School of Business
University of Southern California
Los Angeles, CA 90089-1421
Voice: (213) 740-6496
FAX: (213) 740-6650
E-Mail: ******@
Version: November 15, 1999
1. Introduction
In the second half of year 2,000, the . equity and options markets will switch to
decimal pricing. Following the switch, and barring regulatory intervention, competition will
likely drive the minimum price increment (tick size) down to a penny. This paper surveys the
effects that trading on pennies will have on investors, dealers, brokers, exchanges, and data
vendors.
Investors must consider how the switch to trading on pennies will affect their transaction
costs, their order submission strategies, and ultimately the profitability of their trading. Dealers
must consider how to remain profitable as their clients petitors respond to the new
environment. Brokers must understand how trading on pennies affects the markets so that they
can better serve their clients. Exchanges must consider how the switch will affect their system
utilization, how they regulate their markets, and petitiveness. Data vendors must
consider how trading on pennies will increase demands on their ability to move and present data.
Finally, regulators must consider what minimum price increments markets should use.
This survey starts with short briefs about minimum price increments and about why the
US markets are switching to decimal pricing. It then considers the theoretical effects of trading
on pennies on trader strategies. A very brief survey of the empirical evidence concerning these
effects is then presented. The implications of trading on penni