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2006 | OriginalPaper | Chapter

16. Decimal trading in the U.S. stock markets

Author : Yan He

Published in: Encyclopedia of Finance

Publisher: Springer US

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Abstract

All NYSE-listed stocks were switched from a fractional to a decimal trading system on January 29, 2001 and all NASDAQ stocks followed suit on April 9, 2001. The conversion to decimal trading in the U.S. markets has significantly reduced bid-ask spreads. This decline is primarily due to the drop in market makers’ costs for supplying liquidity. In addition, rounding becomes less salient after the decimalization. The decrease in bid-ask spreads can be ascribed to the decrease in price rounding, when controlling for the changes in trading variables.

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Title: Decimal trading in the U.S. stock markets
Author: Yan He
Publisher: Springer US
Book: Encyclopedia of Finance
Print ISBN: 978-0-387-26284-0

Electronic ISBN: 978-0-387-26336-6

Copyright Year: 2006
DOI: https://doi.org/10.1007/978-0-387-26336-6_42