Stock Trading from “Pieces of Eight” to Decimals: History Lesson #1

For those of you who are under a certain age, you might wonder if stocks were always traded in prices with decimals. Stocks were traded in eighths for more than 200 years.  What do I mean? Today, for example,  you can buy a share of Microsoft at $30.29. When it went public in March of 1986, the stock began trading at $21 per share and then would have traded at prices such as $22 and 5/8 or $30 and  1/8 in later days and weeks.
This Day in Financial History, (on my Blogroll) mentioned this anniversary earlier this week and I did a little reading and remembering. In 1997,  the Common Cents Pricing Act passed; which then eliminated the pricing of stock in eighths. This led to pricing changes in the year 2000, on August 28. It used to be a slow day.

[Remember the last week of August used to be a vacation week? Or at least it used to be before so much was done by computers. Computers don’t go to the Hamptons, or the Jersey shore in August.]

From Jason Zweig’s blog-This Day in Financial History: 2000: The New York Stock Exchange begins trading in decimals, ending the two-century-old practice of pricing stocks in increments of 1/8th of a dollar. In theory, investors will benefit from lower trading costs, but cynics worry that brokers will make more money than ever. The first to adopt decimal pricing: Anadarko Petroleum, FedEx, Forest City Enterprises, Gateway, Hughes Supply, and MSC Software.
Source: The Wall Street Journal, August 28, 2000, p. C1; http://www.nyse.com/about/timeline/1047054055416.html

English: The New York Stock Exchange in 1882 b...

English: The New York Stock Exchange in 1882 by American illustrator and scenic artist Hughson Hawley (1850-1936). (Photo credit: Wikipedia)

As I recall, (Yes, Virginia, I was a stockbroker then), when prices changed, first the eighths went from 5/8 to .625, then migrated to all decimals.

Another piece of rich stock market history-gone.  For several centuries, coins [Spanish dollars mostly] were cut into 8 pieces. So to trade stocks in eighths of a dollar wasn’t a big leap. As the our stock market began with the Buttonwood Agreement of 1792, this practice of calculating prices in eighths lasted a very long time in the US stock market.

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One response to “Stock Trading from “Pieces of Eight” to Decimals: History Lesson #1

  1. You are invited to submit for the topic ” A trip in history”. Here are the guidelines http://bbookmagazine.wordpress.com/submit/

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