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Decimal Trading in the U.S. Stock Markets

In: Encyclopedia of Finance

Author

Listed:
  • Yan He

    (Indiana University Southeast)

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.

Suggested Citation

  • Yan He, 2022. "Decimal Trading in the U.S. Stock Markets," Springer Books, in: Cheng-Few Lee & Alice C. Lee (ed.), Encyclopedia of Finance, edition 0, chapter 17, pages 719-722, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-91231-4_17
    DOI: 10.1007/978-3-030-91231-4_17
    as

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