Securities Pricing

Although the securities markets have made progress in preparing for decimal trading, some key challenges must still be overcome if decimal trading is to be implemented successfully. The capacity study commissioned by the Securities Industry Association projected that decimal trading is likely to significantly increase trade and quotation message traffic, so a primary challenge will be to ensure that the industry's communications and processing systems have enough capacity. The options markets and the Nasdaq face the greatest difficulty in preparing for the increased message traffic arising from decimal trading. Other steps that must be taken in preparation for decimal trading include developing market standards and implementation procedures, ensuring that market participants' systems are ready to process decimal prices, and revising all the rules that govern trading. These steps are still incomplete, however, and, in some cases, progress has been hampered by other issues, including an ongoing antitrust investigation of the options markets.

GAO noted that: (1) although securities market participants have made progress in preparing for decimal trading, some key challenges remain for the industry to successfully implement decimal trade; (2) because the capacity study commissioned by the Securities Industry Association projected that decimal trading is likely to significantly increase trade and quotation message traffic, a primary challenge will be to ensure that the industry's communication and processing systems have adequate capacity; (3) the options markets and the Nasdaq Stock Market, Inc. face the greatest difficulty in preparing for the increased message traffic from decimal trading; (4) other steps that must be completed before decimal trading can be implemented include developing market standards and implementation procedures, ensuring that market participants' systems are ready to process decimal prices, and revising all rules necessary to govern trading; and (5) however, these steps are not yet complete and, in some cases, progress has been hampered by other impediments, including an ongoing antitrust investigation of other options markets.