SEC Mulls Bringing Back Fractions

The SEC is reportedly considering whether stocks should once again be quoted in fractions instead of decimals. Maybe, while they're at it, they can also bring back horse-drawn carts and buggy whips.

The proposal that seems glaringly absurd at first glance, evidently has the lobbying power of the securities industry behind it; and so the agency that couldn't detect Bernie Madoff's fraudulent multi-billion enterprise even when its face was rubbed in the evidence, now wastes tax payer dollars on deliberating over whether Wall Street should be given a fresh opportunity to fleece its customers legally.

That is after all the only reason why anyone would want to quote stocks in fractions again:  bid-offer spreads would increase, to the detriment of clients, while helping to line the pockets of middlemen.

The WSJ's report on this could almost have been plucked from the Onion, so better put down the coffee (comments in square brackets are ours):

 

For some stock prices, the new math might look a lot like the old math: Regulators are thinking about bringing back the fraction.


The move would at least partly undo an 11-year-old rule that replaced fractions of a dollar in stock prices, like 1/8 and 1/16, with pennies. The idea of that change was to trim investors' trading costs: One-cent increments can lead to narrower gaps between the prices at which brokers buy and sell shares—potentially reducing their opportunity to shave off profits.

Those championing the fraction's return say it would spur securities firms to buy and sell more shares of some companies by making it more profitable for them to do so [a.k.a. the lamest excuse ever] Opponents say fractions would increase trading costs for investors with little or no benefit to companies. [duh!]

Discussions are still in the early stages and it is unclear what the Securities and Exchange Commission will ultimately decide. Furthermore, any change would affect only some smaller companies. "People are increasingly raising this idea with us directly," SEC Chairman Mary Schapiro said in an interview. "We will look at it, but there are obviously trade-offs."[you don't say!]

The idea will be discussed by the SEC's staff at a public meeting in coming weeks. That could lead to a pilot test to help the agency learn more about the idea, according to people familiar with the process.“

 

(Emphasis added)

As we so often say, you couldn't make this up. Stocks have been trading in fractions for more than two centuries – decimalization was only introduced 11 years ago after all.

So why would anyone need a 'pilot program' to 'learn more about the idea'? You mean, two centuries was not enough? What's there to 'learn', anyway, except that it's going to cost more?

It would be better for all of us if these SEC busybodies went back to what they usually do. Which reminds us, not a single one of these worthies has apparently been fired for surfing porn sites while not catching Madoff.

 


 

The 'good old times' – call options on JNPR, quoted in fractions way back in the tech bubble days.

 


 

 

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