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Decimal Trading in the U.S. Stock Markets

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Encyclopedia of Finance

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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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Author information

Authors and Affiliations

  1. Indiana University Southeast, New Albany, IN, USA

    Yan He

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  1. Yan He
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Correspondence to Yan He .

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Editors and Affiliations

  1. Dept. Finance, Rutgers University, Rockafeller Road 94, New Brunswick, 08854-8054, New Jersey, USA

    Cheng-Few Lee

  2. College of Business, San Francisco State University, Holloway Ave. 1600, San Fransisco, 94132, California, USA

    Alice C. Lee

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© 2013 Springer Science+Business Media New York

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He, Y. (2013). Decimal Trading in the U.S. Stock Markets. In: Lee, CF., Lee, A. (eds) Encyclopedia of Finance. Springer, Boston, MA. https://doi.org/10.1007/978-1-4614-5360-4_17

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  • DOI: https://doi.org/10.1007/978-1-4614-5360-4_17

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  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-1-4614-5359-8

  • Online ISBN: 978-1-4614-5360-4

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