FRAMINGHAM (04/07/2000) - The Nasdaq Stock Market Inc.'s warning that it won't make the July 3 decimalization deadline may prompt the Securities and Exchange Commission to set a later date.
SEC Chairman Arthur Levitt said he was "dismayed and disappointed" by Nasdaq's request to delay the switch from fraction to decimal stock pricing but added that the SEC is likely to extend the deadline by one or two months.
The SEC is "working to accomplish decimalization as expeditiously and as safely as possible," said John Heine, a spokesman for the agency.
Nasdaq, which has already been struggling with increased trading volumes as a result of the jump in the number of technology stocks, said it won't be adequately ready for decimalization until the first quarter of next year.
The exchange's major concern is the increase in trading and quote traffic that decimalization is expected to cause, since decimal prices can be quoted in increments as low as 1 cent. Fraction-based reporting permits prices only as low as one-sixteenth of a dollar, or 6.25 cents.
The exchange was ready to release the first version of its new trading software last year, but testing showed the software wouldn't be able to handle the expected high volume of traffic, said Nasdaq CIO Gregor Bailar.
If the decimalization deadline isn't extended, Nasdaq will be forced to release that version, which could cause the system to crash, say analysts.
The first version of Nasdaq's Integrated Quotation Management System (IQMS) was built based on the expectation that trading would peak at 2 billion shares per day, but the exchange is already averaging that amount. IQMS now needs to be able to handle as many 2.5 billion to 3 billion shares daily, said Bailar.
To deal with the problem, Nasdaq began working on Release 2.0, which will support 3 billion to 4 billion shares by splitting the work among different machines, he explained. Its targeted release date, though, isn't until the first quarter of next year.