An exchange launched last year by a group of Wall Street firms would like the Securities and Exchange Commission to allow certain stocks to be priced at half-cent increments in order to reduce transaction costs paid by investors.
Members Exchange, or MEMX, filed a proposal Monday with the SEC.
A current regulation, known as the sub-penny rule, imposes a minimum increment of one cent on thousands of equity securities priced over $1 per share, MEMX noted in its proposal. That has led to "artificially wide quotes in a number of actively traded, often low-priced, securities," MEMX stated. "Quoting in these securities is limited not by supply and demand, but rather by outdated regulatory constraints, harming public price discovery and increasing transaction costs paid by investors."
The requested exemption would apply to stocks that traded with average quoted spreads of 1.1 cents or less during the prior calendar month, which includes "thousands of stocks," according to the MEMX proposal.
"Today, the Sub-Penny Rule itself imposes significant costs on investors by keeping spreads artificially wide," MEMX said in its proposal. "Allowing these securities to instead trade with a $0.005 increment would reduce transaction costs and facilitate more robust price discovery by enabling liquidity providers to post more aggressive quotations within the current penny spread seen in these" stocks.
MEMX's investors include large asset managers, retail broker-dealers, global banks and financial-services and proprietary trading firms such as BlackRock, Bank of America Merrill Lynch, Charles Schwab, Citadel Securities, E-Trade Financial, Fidelity Investments, Morgan Stanley, TD Ameritrade, UBS and Virtu Financial.
