	Securities Pricing: Actions Needed for Conversion to Decimals

Mr. Chairman and Members of the Subcommittee: We are pleased to be here today to provide the results of our assessment of the securities industry’s readiness to trade stocks using decimal prices. In 1997, your Subcommittee held a series of hearings on a proposed amendment to the Securities Exchange Act of 1934 that would have directed the Securities and Exchange Commission (SEC) to require, within 1 year of enactment, that securities trading be in dollars and cents instead of the fractional increments of a dollar, such as eighths and sixteenths, used today. Shortly after those hearings, various exchanges and markets indicated that they were committed to converting to decimal trading, and Congress took no further action on the legislation. Securities Industry Progress Towards Trading in Decimals Has Been Limited

with others would require less time and fewer resources than many of the other initiatives already under way in the industry, such as the work being done for the Year 2000 date change. An industrywide study done for SIA found that the level of effort required for securities market participants to ready themselves for decimal trading was less than that required for other ongoing information technology efforts. The primary reasons cited were inadequate time and resources, given the demands of the Year 2000 effort and other information technology initiatives already under way. Further, our work reviewing the Year 2000 efforts of numerous federal agencies and other entities has generally found that organizations are avoiding the simultaneous implementation and testing of multiple major systems changes to mitigate the risk of malfunctions. to focus the industry’s efforts. discuss these issues. Attempting a conversion to decimal trading before Year 2000 changes are tested and implemented increases the risks that securities industry systems would fail and adversely affect markets and investors. SEC and the securities industry have been working on several elements that are necessary to help ensure the successful implementation of decimal trading as soon as possible after January 1, 2000. Most considered Year 2000 and EMU changes their top information technology priorities. Status of effort to convert? Performed preliminary assessment, will not start until Year 2000 is complete, many systems decimal ready. (continued)
Status of effort to convert?
Why GAO Did This Study

GAO discussed the results of its assessment of the securities industry's readiness to trade stock using decimal prices.

What GAO Found

GAO noted that: (1) in 1997, the House Subcommittee on Finance and Hazardous Materials held hearings on proposed legislation that would have directed the Securities and Exchange Commission (SEC) to require that securities be traded using dollars and cents instead of the traditional fractions within 1 year of enactment of the legislation; (2) after industry representatives indicated that they were committed to converting to decimals, Congress took no further action on the legislation; (3) industry progress since the hearings has generally been limited; (4) officials of most of these organizations estimated that the cost to convert their systems for decimal trading would be much less than the cost for information technology efforts, such as the year 2000 conversion; (5) they also estimated that it would take less than 6 months to convert to decimals, but they did not expect to complete the conversion until after year 2000 changes have been tested and implemented; (6) an industry study showed that the securities industry was dedicating most of its available information technology resources and time to readying its systems for the impending date change in 2000, the introduction of a single currency in Europe in January 1999, and other information technology initiatives; (7) in particular, industry officials said the time required to test and resolve any year 2000 problems leaves little time for conducting the industrywide testing necessary for a conversion to decimal trading; (8) GAO's work reviewing the year 2000 efforts of numerous federal agencies and other entities has generally found that organizations are avoiding the simultaneous implementation and testing of multiple major systems changes to mitigate the risk of inadvertent malfunctions; (9) ensuring that securities industry systems are ready for the year 2000 is too important to the continued functioning of the industry to risk failure by attempting to implement decimal trading before the year 2000 effort is completed; and (10) however, GAO is recommending several actions that are needed to ensure that decimal trading is implemented as soon as possible after January 1, 2000.