The Securities and Exchange Commission on Sept. 18 unanimously approved a rule to allow most stocks to be priced at half-penny increments.
The SEC in 2005 established Regulation National Market System, or Reg NMS, to modernize the U.S. equity system. In part, Reg NMS established minimum pricing increments of 1 cent for stocks priced over $1. The minimum pricing increments, or tick sizes, are the smallest increment in which a stock’s price can be quoted or move up or down.
Over the past two decades, SEC officials on Sept. 18 said, there has been a marked increase in trading volume related to NMS stocks that are constrained by the minimum pricing increment under the rule.
“Many NMS stocks would likely be priced more competitively if not constrained by a marketwide minimum pricing increment of $0.01,” the agency said in a news release.
Easing constraints on ticks for these NMS stocks “would allow for narrower spreads, reduce transaction costs for market participants, including investors, and allow prices to be determined in a more competitive manner,” the SEC said in a fact sheet.
As part of the package approved Sept. 18, the SEC also reduced the access fee caps for protected quotations of trading centers, increased the transparency of exchange fees and rebates, and accelerated the implementation of rules that will make information about the market’s best priced, smaller-sized orders publicly available, the agency said.
“A lot has changed — in technology and business models — since we last took a comprehensive review of the national market system rules in 2005,” SEC Chair Gary Gensler said in a statement. “Thus, it is incumbent upon us to update our national market system rules. The reforms we adopted today will help promote greater transparency, competition, fairness and efficiency in our $55 trillion equity markets.”
The amendments were initially proposed as part of a December 2022 equity markets reform package.
Stakeholders broadly supported the SEC’s decision.
“The market structure amendments will enhance U.S. capital markets and all investors will benefit from the move to half-penny tick sizes,” said Bryan Corbett, president and CEO of the Managed Funds Association. “It will improve market liquidity, efficiency and resiliency and lower costs for market participants. The adopted transparency amendments will increase access to useful market information that will benefit the SEC, markets and investors, including alternative asset managers and their beneficiaries like pensions, foundations and endowments.”
Added Brad Katsuyama, founder and CEO of IEX Group, which operates the IEX Exchange, in a statement: “We congratulate the numerous institutional asset managers representing trillions in assets under management and the dozens of brokers and market makers who advocated for these changes. Today's decision was a long-awaited result, which will benefit investors of all sizes."
Similarly, Benjamin Schiffrin, director of securities policy at nonprofit Better Markets, said in a statement that lowering the minimum tick size “will allow investors to better determine the prices at which they would bid or offer without being impeded by a fixed minimum tick size that is too large and that prevents stocks from reaching a natural price that would be within a penny spread.”
