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6/16/00

June 16: If Y2k, Euro & FAS 133 Didn't Pose Enough Op Risks, Here Comes Decimalization

Erik Helland Washington, D.C.

Source: RiskCenter.com

After facing the operational risks associated with Y2k, the euro conversion and the Financial Accounting Standards Boards FAS 133, financial institutions are finally faced with implementing another standard designed to enhance pricing and transparency for investors: decimalization. Failure to complete this task not only renders inaccurate pricing on the securities, but such errors will threaten the reputation of the firm.

The Securities and Exchange Commission (SEC) has ordered the exchanges, including the Nasdaq, to submit a plan to phase in decimal pricing for listed stocks and certain options starting no later than September 5, 2000, and to phase in decimal pricing for Nasdaq securities beginning no later than March 12, 2001. All securities must be priced in decimals no later than April 9, 2001.

Why is this necessary? As the securities markets become more global, with many stocks traded in multiple jurisdictions, SEC officials say that the U.S. securities markets must adopt the international convention of decimal pricing on securities to remain competitive. The overall benefits of decimal pricing are likely to be significant. Investors may benefit from lower transaction costs due to narrower spreads and prices will be easier to understand.

The phase-in plan may fix the minimum quoting increment during the phase-in period, provided that the minimum increment is no greater than five cents and no less than one cent for any equity security. The implementation plan must be submitted to the Commission by July 24, 2000.

Under the leadership of Chairman Bliley, Chairman Oxley, Congressman Markey, and other members of Congress, decimalization will become a reality this year and investors will soon reap the benefits of trading in decimal increments, said SEC Chairman Arthur Levitt.

http://www.riskcenter.com/news/6_15_000.9560053.asp

-- (Dee360Degree@aol.com), June 16, 2000