Odd-Lot Trading on the New York Stock Exchange and Financial Decentralization

Abstract

Trading in nationally known corporate shares is largely concentrated on the New York Stock Exchange. Such trading falls into two main classifications, round-lots (Ioo shares or multiples thereof) and odd-lots (less than ioo shares). A serious threat to the continued existence of the concentrated market for odd-lot trading has arisen, however, as a result of certain policies being pursued by the Securities and Exchange Commission at the present time. It is proposed here to examine the issues involved in these policies in the light of the peculiar characteristics of odd-lot trading. In order to understand the nature and implications of the commission's policies, it is necessary first of all to secure a clear comprehension of the mechanics of odd-lot trading. Trading in oddlots, though conducted on the floor of the exchange, is not carried on directly between the agents of the buyer and the seller as is the case in round-lot transactions, and requires therefore what constitutes practically a subsidiary market.' Odd-lot transactions because of certain technical difficulties necessitate the intervention of an intermediary between brokers. These intermediaries, known as odd-lot dealers, have no direct contact with the public. They deal only with brokers, executing the orders turned over to them by the latter. For the performance of this function, the odd-lot dealer charges no commission but instead imposes a differential charge of I point or iz ? cents per share traded. Thus the