Decimal Trading in the U.S. Stock Markets

Yan He ()
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Yan He: Indiana University Southeast

Chapter 17 in Encyclopedia of Finance, 2022, pp 719-722 from Springer

Abstract: 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.

Keywords: Bid–ask spread; Clustering; Decimalization; Decimal trading; Fractional trading; NASDAQ; NYSE; Price improvement; Rounding; Volatility (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/978-3-030-91231-4_17

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