[seanmccann]

If the customer has the pennies, they can use them. Payments with debit or credit cards, or cheques, can also be to the penny. But if the customer is paying cash and doesn't have the pennies, the total will go up or down to the nearest nickel. For example, $1.02 will become $1 and $1.03 will be $1.05.

Something just feels wrong about rounding. The customer would always get screwed. They should solve this problem by using the federal sales tax to round up/down. $1.25 + 5% = 5¢ of tax instead of 6.25¢.

That said, it would make sense for merchants to round down for cash purchases. It would be a tiny incentive to use cash rather than credit cards (which cost the merchant 2-4%)

[drostie]

It's a round, not a ceiling function. If you were going to pay .98, .99, .00, .01, or .02 you will now pay .00; whereas if you were going to pay .03, .04, .05, .06, or .07 you will now pay .05 . In other words, after the very first interval of 5 cents (about $0 even) each numeral gets 5 incoming numbers associated with it.

The only people who could really try to steal pennies from everyone would be supermarkets, and they would face the problem that it's too broadly peaked -- people going to the supermarket will buy between two and twenty things, and modulo 5 that sum is not easy to predict or steer.

[quink]

> They should solve this problem by using the federal sales tax to round up/down. $1.25 + 5% = 5¢ of tax instead of 6.25¢.

I see nothing but confusion there.

$1.25 + $0.05 = $1.30. After rounding, $1.30.

$1.25 + $0.0625 = $1.3125. After rounding, $1.30.

> It would be a tiny incentive to use cash rather than credit cards (which cost the merchant 2-4%)

Dealing with cash instead of credit cards is also a similarly percentaged inconvenience - that's why they're getting rid of the penny in the first place!

[sanswork]

They don't have pennies in Australia and they just round up or down to the nearest 5c interval. I assume they will do the same in Canada.

[waqf]

To be precise, that's only true if you pay in cash. Pay with plastic in Australia and you're charged by the cent.

[msbarnett]

> They should solve this problem by using the federal sales tax to round up/down. $1.25 + 5% = 5¢ of tax instead of 6.25¢.

Wouldn't work except in Alberta, NWT, the Yukon, and Nunavut. Anywhere else, the provincial sales tax would knock it back off a multiple of 5.

[dfc]

That sounds like a nightmarish tax policy.

Moreover one of the best things for consumers was when the stock market changed quotes from fractions to cents.

[ced]

Moreover one of the best things for consumers was when the stock market changed quotes from fractions to cents.

Why?

[dfc]

Because it gave an advantage to market makers and large institutional traders. I can look for some of the research if you are interested...

This is from the SEC at the time: http://www.sec.gov/news/testimony/ts092000.htm

It should be a good starting point if you are interested. There was also a NYT article that was very succinct but I can not find the citation at the moment.

EDIT:

I'm at a loss for why this was downvoted. Decimalization is widely held to be a huge win for consumers. It's almost laughable to think otherwise.

From the NYT:

"There is a potential for investors to save hundreds of millions of dollars, but some of those savings are likely to be offset by increased commissions. Brokers have made substantial profits by pocketing the spread, and in some cases have been able to charge low commissions -- or, in extreme cases, no commissions -- on trades in stocks with large spreads, because of those profits.

It was the discovery that brokers in the Nasdaq market had been conspiring to keep spreads high on many stocks that began the inexorable move toward decimalization. The Securities and Exchange Commission imposed new rules last year that partly integrated electronic markets, like Instinet, that were previously available only to institutional investors, into Nasdaq. Suddenly, quotes with spreads of less than one-eighth were available." [1]

[1] http://www.nytimes.com/1997/06/06/business/so-long-fractions...

[JumpCrisscross]

This is correct if we replace consumers with retail traders.

Pricing in eighths guarantees a minimum bid-ask spread, what the market-makers make before adjustments, of an eighth. With pricing in cents the minimum spread is a penny spread.

Canada isn't changing pricing to twentieths - it's still priced to the cent, except cash transactions will be rounded to the twentieth unless the customer has pennies in which case they can pay in exact change. Thus I do not believe the comparison is apt.

[ced]

I still don't understand how that is a win for consumers. If anything, my limited experience with the stock market tells me that market makers and HFT have been stealing cents on most transactions made by individuals since we've made the switch.

[tcas]

Stealing is a bit of a loaded word. The HFT algos provide immense liquidity to the market by, well, executing tons of transactions every second. This means when you decide you want to purchase 100 shares of a stock, one of the automated machines will try and sell you those shares for a slightly increased price to make a profit. Now the guys doing HFT would love to increase the price by 10% to sell you those shares, but since every single HFT computer sees that buy order, they quickly scramble to try and fill it. As a result, they focus on making a penny or two per share but executing the transaction in microseconds. By lowering their per share profit they can guarantee they will get the trade since otherwise another market maker will step in and offer the shares a penny lower. By executing tons of transactions a second they can make money doing this since they focus on buying/selling a large volume every day.

Back when all trades were performed by people it would be very difficult to trade with high precision numbers, but since the market makers all work on an automated basis, penny precision increases the resolution an algorithm can decide on the price to buy/sell a share. Since the algorithms are focusing on low profit but high volume, they will lower their profit to try and win the trade against the other market makers.

Why is this good for you? Unless you're trading thousands of times a day, you will only pay a tiny premium to the HFT guys as it's a race to the bottom for them (aka the current share price). They are focusing on speed, and as a result they can't spike up the price suddenly as the other algorithms will jump and and take the trade from them. This is the liquidity they provide to the market and also why when you place your order through your broker it goes through in seconds. If the minimum resolution was fractions of a cent that would be the resolution the algorithms would work at, so instead of paying a $0.01 per share premium you're paying a $0.125 per share premium since that's the minimum they can go while still selling for a profit. Before automated trading a real person would have to go out on the trading floor and try and find you some shares to buy. I can guarantee that you would pay a higher premium per share doing that vs having computers race each other to fill the order in microseconds.

Note: I glossed over a lot of information here and tried to simplify it a lot. It should give you a good idea why HFT is good for the individual investor though.

[dfc]

Before the change to decimalization the market makers were pocketing $1/8 and for a brief time $1/16.