[Congressional Record Volume 143, Number 32 (Thursday, March 13, 1997)]
[Extensions of Remarks]
[Pages E474-E475]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       INTRODUCTION OF THE COMMON CENTS STOCK PRICING ACT OF 1997

                                 ______
                                 

                         HON. EDWARD J. MARKEY

                            of massachusetts

                    in the house of representatives

                        Thursday, March 13, 1997

  Mr. MARKEY. Mr. Speaker, I am pleased to join today with Chairman 
Oxley and Chairman Bliley in introducing the Common Cents Stock Pricing 
Act of 1997 and I appreciate the opportunity to put in my 2 cents on 
the reasons why this legislation is good for investors and good for our 
financial markets.
  For over 200 years, stocks and bonds have traded in minimum price 
increments of one-eighth of $1 or 12\1/2\ cents. The origins of this 
practice are obscure, but some historians trace it back to the 18th 
century, when the Spanish dollar was a widely used currency in America. 
Stock traders would cut up these dollars into pieces of eight or bits 
and use them to pay for stocks and bonds. As our financial markets move 
into the 21st century, it's time we eliminate the eighth, which is 
little more than a relic of the days of knee breeches and powdered 
wigs. In recent months, we have already moved to force stock 
prospectuses to be written in plain English so

[[Page E475]]

they are more understandable to investors. Why not force stock quotes 
to be made in plain dollars and cents, so that investors don't have to 
convert from fractions every time they read the stock tables in the 
newspaper?
  Four years ago, when I chaired the Finance Subcommittee, we held a 
series of hearings on the future of the stock markets. During those 
hearings, we heard many market participants raise concerns about 
certain trading practices, such as payment for order flow or 
preferencing, which they argued had the potential to compromise the 
fiduciary duty of brokers and other financial professionals to achieve 
best execution of their customer's orders. Many proposals were put 
forward to address abuses in these areas, ranging from banning such 
practices entirely, enhancing disclosures to customers, or stepping up 
regulatory oversight. While many of these proposals had merit, they 
merely address the symptoms while ignoring the underlying problem--the 
fact that the artificial requirement for stocks to trade in eighths 
establishes a fixed minimum spread between the prices quoted by buyers 
and sellers of stocks. This requirement prevents market forces from 
working to narrow the spread to 10 cents, 5 cents, or even 1 penny. As 
a result, market makers have resorted to practices such as paying for 
order flow.
  I think that our markets would function better if we moved to a more 
transparent form of quote-based competition. Let stocks trade in 
dollars and cents, and then the market can more accurately determine 
what the prices and the spreads should be. Investors will get more 
opportunities for price improvement in the most actively traded and 
liquid stocks, and the spreads in such stocks should narrow. Investors 
will also be able to more readily comprehend how much the value of a 
stock is increasing or decreasing, as they will not have to constantly 
convert fractions to dollars.
  At the time we held our hearings the stock exchanges resisted such an 
innovation. I believed then, as I believe now, that many of the 
objections raised to this proposal are ill-founded, while those which 
warrant consideration can be readily accommodated through the 
regulatory process.

  Some might ask, why are we bothering about a few pennies? The answer 
is the golden crumbs that Wall Street extracts for each trade adds up 
to billions of dollars in costs to consumers each year. Estimates of 
the resulting savings for investors range widely--from $4 to $9 billion 
a year, depending on what stocks are covered and where the minimum 
price increments are set. But even if investors only saved 1 penny per 
share, that would still mean over $1 billion in savings annually.
  The bill we are introducing today is very simple. It directs the 
Securities and Exchange Commission to use its existing rulemaking 
authority to adopt a rule, within 1 year after the date of enactment, 
that would transition the stock and options markets away from trading 
in factions to trading in dollars and cents. We give the SEC the 
flexibility to determine what the appropriate minimum price increment 
or increments should be, and how to implement it in a fashion that does 
not impose undue burdens on trading and information systems.
  The time for delay has ended. American investors want Wall Street to 
show us the money by moving away from trading in fractions to a more 
understandable stock pricing system. They also want more opportunities 
to get better prices and lower their transaction costs when they buy or 
sell stocks.
  I congratulate Chairman Oxley and Chairman Bliley for their 
leadership in undertaking this initiative, and SEC Commissioner Steve 
Wallman for his outspoken advocacy on the merits of adopting this 
reform. I look forward to working with them, as well as with SEC 
Chairman Arthur Levitt, the leaders of our Nation's stock exchanges, 
individual and institutional investors, and the securities industry as 
we move to early hearings and a markup of this bill, which I believe 
may be the most important proconsumer legislation the Congress 
considers this year.

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