Stock prices on Wednesday continued a broad advance in heavy volume, led by technology stocks. Nasdaq and small-company stocks rose to record highs.
Telecommunications stocks were especially buoyant, but analysts noted another day of positive breadth–winning stocks outnumbering losers–on the New York and Nasdaq exchanges.
In addition to the persistent tech rally, investors cheered gains by more traditional blue chips. Coca Cola, one of the Dow’s biggest laggards, rose $2.37, or nearly 5 percent, to $51. An analyst at Deutsche Alex. Brown, sensing the worst might be over for the giant, issued a “strong buy” rating.
This week’s market rally continued despite another spurt in oil futures prices, which closed up $1.34 a barrel, to $31.77, a fresh post-Persian Gulf War high.
The cluster of telecom stocks posting gains included SBC Communications, which may merge its wireless operations with BellSouth, according to market rumors; fiber-optic systems developers Uniphase and Ciena; and Tellabs, the Lisle-based telecom equipment-maker, which received a “strong buy” recommendation by Josephthal & Co.
Computer networking developer 3Com jumped to a record-high close ahead of Thursday’s planned initial public offering by its Palm electronic organizer unit.
Message overload: Wall Street, as well as the rest of the world, got through the New Year’s computer rollover to 2000 almost without a hitch. Despite some wacky predictions, Leap Year Day presented no problems.
But beware Independence Day.
The Securities and Exchange Commission has ordered the nation’s stock and stock options markets on July 3 to begin quoting prices in decimals, instead of fractions of a dollar based on eighths and sixteenths. Decimal pricing is more investor-friendly and conforms to international standards.
The change also promises to reduce price spreads between market offers to sell and bids to buy, saving investors millions of dollars a year.
The SEC has ordered the initial phase of decimal pricing to be based on a minimum increment of a nickel. Currently, most stocks trade at intervals of one-sixteenth of a dollar, or 6.25 cents.
Eventually, the SEC wants to move to increments of a penny or less. The problem, say traders and exchange officials, is that lower price increments dramatically magnify the number of price messages that will flood exchanges for each quantity of shares traded.
A spokeswoman for the Chicago Board Options Exchange said U.S. options exchanges currently have the capacity to handle 3,000 messages per second. Price increments of a nickel will create 19,000 messages per second, she said. Penny increments would generate 40,000 messages per second.
The CBOE spent $4 million on Y2K remediation and will spend $9 million on decimal pricing.
“This is like hooking up a garden hose to a straw,” said an official of the General Accounting Office, the congressional watchdog that issued a report Thursday questioning whether the Nasdaq market and the nation’s options exchanges can handle the change.
Leo Korins, chief executive officer of the Security Traders Association, said the SEC should not rush to impose penny increments.
This year, share volume is exploding on U.S. exchanges and the size of the Nasdaq average trade is down more than 50 percent, to 600 shares, reflecting increased participation by individual investors.
These trends will complicate a move to decimals, Korins said. “There is no question that we are going to decimals,” he said. “It’s just, do we want to get there in an orderly way or do we want to put the whole system at risk?”
The CBOE spokeswoman said the options industry will be ready. A Nasdaq spokesman declined to say whether Nasdaq would be ready for decimal pricing on July 3, according to Reuters.
In addition to trading system overload, Korins said that lowering the minimum increment for trading likely will reduce liquidity on exchanges. Traders will be reluctant to announce offers to sell or bids to buy when a competitor can stand in front of their price for just an additional nickel or penny.
“A lot of people are going to be reluctant to show their hands” and may take their business from the traditional exchanges to so-called electronic communication networks that simply match buy and sell orders, Korins said.
