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The move of US exchanges into penny pricing in the 1990s is sometimes given credit for lessening something called a "spread," and thus to a degree the price of purchased securities. Let's pause on this point.

The spread is the difference between the bid and ask prices at any moment: that is, the highest price that a would-be buyer has offered (that no one yet has accepted) on the one hand, and the lowest process that a would-be seller has asked for (with the same qualification, which I will hereafter drop) on the other.

Books and articles and even blog posts that purport to teach you how to trade -- and this is emphatically not one of them -- will talk a good deal about which one of you should be the one to "cross the spread." It can all sound a bit like the musings of the wallflowers at a junior high school dance.

As prices came to be quoted in smaller and smaller increments, there were (as the SEC expected there would be) greater opportunities for traders or dealers to improve their spread. Thus, the spreads sank under competitive pressure.

That sounds like a good thing. Indeed, Arthur Levitt, the chairman of the SEC in March 2000, said that that was the point, "As more competitive bidding ensues, naturally the spread become smaller. And this means better, more efficient prices for investors."

The only possible flaw in that logic would be if those higher spreads paid for something valuable, and if that something valuable, no longer priced-for, is no longer available., to the loss of those who would happily have made the purchase.

What might that something be?


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