What are the factors suggesting that decimalization will decrease the cost of trading? What are the factors suggesting that decimalization will increase the cost of trading? Which factors are likely to be most significant for mutual funds?

Factors for decreasing trading costs through decimalization:
• Smaller minimum tick size will allow competing traders to improve the best bid and offer prices by as little as a penny at a time, resulting in smaller spreads and therefore lower costs.
• The U.S. markets will resemble the rest of the world's markets in having quoted prices that are easier to understand; this will increase the willingness of investors both overseas and domestically to invest in the market, increasing liquidity and decreasing costs.
Factors for increasing trading costs through decimalization:
• The amount of stock quoted at the best bid and offer is likely to decrease as a result of decimalization, so that investors seeing only the "inside market" will observe less liquidity and therefore may be less willing to trade in larger sizes.
• Decimalization may give specialists and market makers an increased incentive to "step ahead" of large orders by raising or lowering quotes by one penny since the risk of loss will be much lower.
• Decimalization will lead to many more quotes per minute, with a very rapid rate of change. These new demands will increase the cost of the information systems supporting trading operations.
Factors of significant to mutual funds:
• Mutual funds will benefit from narrower spreads along with other investors. But fund traders were already adept at pressing for prices between the best bid and offer displayed.
• Since mutual funds tend to trade in large volumes, they will be particularly hurt by the decrease in the size of the best bid and best ask quotes that will result from decimalization.
• Mutual funds will also have to bear the costs of meeting the higher demands on information systems for trading disks.