[Congressional Record Volume 143, Number 76 (Thursday, June 5, 1997)]
[Senate]
[Pages S5352-S5353]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BRYAN (for himself, Mr. Bond, and Ms. Moseley-Braun):
  S. 838. A bill to amend the Securities Exchange Act of 1934 to 
eliminate legal impediments to quotation in decimals for securities 
transactions in order to protect investors and to promote efficiency, 
competition, and capital formation; to the Committee on Banking, 
Housing, and Urban Affairs.


               the common cents stock pricing act of 1997

  Mr. BRYAN. Mr. President, today Senator Bond, Senator Moseley-Braun, 
and I are introducing legislation to require stocks to be traded in a 
much more consumer-friendly fashion with the added benefit of saving 
investors billions of dollars.
  Mr. President, I send that legislation to the desk for its 
introduction.
  Let me just say parenthetically this is not the first time that I 
have had the privilege of working with the senior Senator from Missouri 
on legislation that affects vital consumer interests. He and I had the 
opportunity to work over several previous Congresses and secured in the 
last Congress significant changes to Federal law that protect consumers 
in terms of correcting information on their consumer histories, the 
largest single complaint before the Federal Trade Commission, and 
through his leadership and support and sustained efforts we were able 
to accomplish that. So I look forward to working with him on the piece 
of legislation that we introduce today, with the only caveat that I 
hope my distinguished colleague and I might be more helpful in getting 
this passed in a sooner period of time than we did on our previous 
enterprise which took three successive Congresses to work through.
  This legislation would bring to an end an antiquated pricing system 
currently used by Wall Street to buy and sell stocks that dates back to 
colonial times when the New York Stock Exchange was founded in the 18th 
century and the dollar was denominated in pieces of eight. While every 
other pricing system in our country has moved to dollars and cents, 
Wall Street continues to use this outdated eighths pricing system.
  As one article pointed out, and I quote, ``Imagine going to the 
grocery store and seeing bacon selling for $3\3/8\ and chicken potpies 
for $1\5/8\.'' Mr. President, not only has every other pricing system 
in America moved to dollars and cents, but all other major stock 
exchanges in the world--all--have abandoned the antiquated eighths 
system and now trade in decimals.
  The bill that we are introducing today is a companion piece of 
legislation to H.R. 1053 sponsored in the House of Representatives by 
Congressmen Oxley, Markey and Bliley. This legislation would direct the 
Securities and Exchange Commission to, within 1 year after the 
enactment of the legislation, adopt a rule to transition the stock and 
option markets away from their current trading practice in eighths to 
trading in dollars and cents.
  Currently, the New York Stock Exchange has a rule which mandates a 
minimum quote of an eighth for a share of stock trading in excess of 
$1. This rule is sanctioned by the Securities and Exchange Commission. 
Otherwise, it would be a blatant example of price-fixing. This 
legislation would require the SEC to revise this sanction to better 
represent the interests of consumers and investors throughout the 
country.
  I must say, Mr. President, I have been encouraged by recent newspaper 
reports which suggest that the New York Stock Exchange plans to move to 
one-sixteenth of a dollar and in 2 years to switch to decimals. If 
those reports are in fact confirmed--and I am informed that there is a 
meeting today in which formal action will be taken to that effect--then 
the members of the New York Stock Exchange are to be commended for 
moving in the right direction. I would note, however, that there are 
other stock exchanges in the United States which have not yet indicated 
that is their course of action, and so this legislation will be 
necessary to ensure that all take that step.
  There are currently 60 million Americans who participate directly in 
the stock markets who would benefit from change. Large pension funds 
and small investors alike would benefit. According to SEC Commissioner 
Steven Wallman, investors would end up saving between $5 billion to $10 
billion each year if stocks were traded in increments of dollars and 
cents rather than in the current practice of trading in eighths. It is 
not uncommon for a 500-million share day to occur on a given day, so a 
small change in the spread would mean enormous savings for investors.
  Many of us are reluctant to have Government intervene in the 
marketplace. Private sector determinations ought to be the rule, not 
the exception, here in America. In point of fact, we do not have a free 
market at work here. In fact, we have a classic example of price 
collusion. Wall Street dictates that this antiquated system be used and 
that all dealers must adhere to it. In essence, we are not interfering 
with the free market system; we are stepping in to help the stock 
market act more like a free market.
  We are not trying to dictate the spreads that could be charged in the 
buying and selling of stocks or the profits that Wall Street can make. 
In my judgment, that would be appropriate. If this legislation is 
enacted, however, stocks would be traded in dollars and cents and then 
the free market can more accurately determine what the prices and 
spreads should be. This is the essence of a free market. This is the 
essence of free enterprise. It seems appropriate as we move into the 
21st century. It is time the United States joined the rest of the world 
in using a more rational, understandable system of stock transactions.
  Mr. BOND. Mr. President, I am pleased to join Senator Bryan in 
introducing the Common Cents Stock Pricing Act of 1997. I thank Senator 
Bryan for his leadership in this measure. As he indicated in his 
comments, we worked together through three sessions of Congress to pass 
the Fair Credit Reporting Act. Numerous members of staff came and went 
while we were trying to get this commonsense consumer measure passed, 
and I only hope, as he indicated, that we will not have a similar 6-
year battle on this one, because I think the bill is very simple, very 
straightforward, and reflects common sense. It calls for the markets to 
get on in the business of trading in plain numbers, dollars and cents, 
instead of fractions.
  The Common Cents Stock Pricing Act will make stock prices easier to 
understand for the average small investor. It will also force stock 
dealers to compete in pennies, which should result in lower transaction 
costs and investor savings.
  Our Nation's stock markets use pricing methodologies which date back 
to the 18th century, when colonies used Spanish dollars as their 
currency. Traders would chisel these ancient coins into ``pieces of 
eight'' or ``bits'' and use them to purchase commodities. When 
organized stock trading began in New York in 1792, stock prices were 
quoted in bits, or eighths.
  Mr. President, 200 years later, the time has come to move beyond this 
pricing system. We don't use Spanish coins today, we don't use bits, 
and we don't need confusing price systems.
  The pricing system based on ancient coins is not only out of date, 
but it is difficult for the average investor to understand. At least 
one newspaper has recognized this fact. The San Francisco Chronical 
recently began printing its tables in dollars and cents, instead of 
fractions. Others, including the Boston Globe and USA Today have called 
on the stock exchanges to move to a penny pricing system.
  Small investors also stand to benefit financially from the move to 
pricing by the penny rather than by the bit. SEC Commissioner Steve 
Wallman estimates investors lose a minimum of $1.5 billion a year under 
the current system. Other experts put the figure in the $4 to $9 
billion range.
  Let me just explain why small investors lose in the current 
environment. Stock exchange rules effectively limit the minimum spread 
between a stock's buy-and-sell price to one-eighth of a dollar, or 12.5 
cents. This means that floor traders earn at least 12.5 cents from 
investors on every trade. Large investor institutions can get better 
deals on their trades by negotiating prices on block trades, but the 
average small investor has to pay the full fare.
  Penny stock pricing is also in step with the rest of the world. The 
U.S. is

[[Page S5353]]

the only major market that trades in eighths; every other country uses 
decimal pricing. If we are going to maintain our role as the dominant 
player in world markets, the U.S. must keep pace and move to a system 
of decimal pricing.
  The bill we are introducing today is straightforward. It simply calls 
on the Securities and Exchange Commission to promulgate a rule, within 
1 year after the enactment date of the legislation, to transition the 
stock and option markets away from fractionalized trading, bits 
trading, into dollars and cents pricing.
  I think the bill is an appropriate way for the Government to regulate 
financial markets. The Common Cents Stock Pricing Act does not 
micromanage the markets by dictating what the spread will be. The 
competition and the markets will determine the spread. The 
implementation of the SEC will allow competitive forces to decide what 
the spread will be.
  Let me close by saying I also noted the New York Stock Exchange 
announcement has been made that it will begin trading in sixteenths and 
eventually in decimals. I commend Senator Bryan and the sponsors of the 
companion House legislation, because their bill was cited as one of the 
reasons that the New York Stock Exchange was moving forward. I plan to 
review the language to ensure that their efforts clearly commit them to 
move to decimals, and that other exchanges will move to decimals. We 
need to do so in a reasonable timeframe and not wait until the 
forecasted computer crisis of the year 2000, when all of the computers 
go back to 1900.
  Big investors get good deals every day in negotiating stock trade 
prices. I think it is time for the average investor to get a good deal 
too. I encourage my colleagues to join me in making sure average 
investors are treated equitably. I thank my colleague from Nevada for 
his work on this issue, and I encourage and invite other Members of the 
Senate to join us in supporting this bill.
                                 ______