Nickel Urge...

Discussion in 'Order Execution' started by JMartinez, Nov 19, 2003.

    By John A. Byrne

    Traders Magazine News Services --- The influential academic whose research led to the order handling rule says it's now time to reform the U.S. equity markets again -- with a nickel minimum price increment. About ten years after Professor William Christie's research with Paul Shultz produced evidence of price collusion on Nasdaq, Christie now says the changes brought about by decimalization are not working. The penny tick, he says "has destroyed the critical roles played by price priority and limit orders." His latest campaign, he told Traders Magazine, is not about price fixing, "Our previous research was intended to restore price competition," Christie says. "The current debate concerns the costs and benefits of two tick sizes that didn't even exist in 1994."

    At a time when regulators seem preoccupied with other reforms, Christie, professor of management at Vanderbilt University, nevertheless says he wants to be part of the decimal debate. He contends that a nickel minimum increment would likely "make it far more costly to step in front of existing limit orders, potentially increasing the frequency of limit-order submission and associated depths. Trading costs for largest institutions could well decrease as their search for liquidity becomes is now easier." Christie adds: "My concern is that the pendulum has swung too far towards the smallest of investors. Moving the tick size back to $0.05 seems a reasonable tradeoff that I hope the markets and regulators will seriously discuss." Christie expands on his latest opinions in the November Issue of Traders Magazine.

    News Room: (212) 803-8366