The U.S. Securities and Exchange Commission is pushing the U.S. options exchanges to start quoting in pennies.

SEC chairman Christopher Cox sent a letter to the six options exchanges today urging them to begin quoting a limited number of options in pennies on Jan. 29, 2007. Options are currently quoted in increments of nickels and dimes.

“Quoting in penny increments will benefit investors by allowing options quotes and orders to be expressed at better prices, and has the potential to enhance further the already strong competition and innovation that exists in the options markets,” Cox says.

The SEC also notes that several of the options exchanges and their members recently have expressed interest in individually beginning to quote options in penny increments.

“Quoting options in pennies will increase quote message traffic, which the systems of exchanges, market data vendors and securities firms must be able to manage. For this reason, quoting options in pennies would begin in a small number of options,” it says. “Penny quoting could be expanded after the commission and others have a chance to study its impact on market quality and systems capacity.”

The Philadelphia Stock Exchange’s chairman and CEO, Meyer “Sandy” Frucher, called for an immediate response from the heads of the options exchanges. “I have asked the other exchanges to convene as soon as possible in Washington to discuss the myriad issues that quoting options in pennies will bring to the American derivatives markets,” says Frucher.

“The options exchanges stand ready to address collaboratively affiliated issues like quote mitigation and best execution standards and to ensure that the investing public continues to enjoy the benefits of a growing, liquid marketplace,” adds Frucher.