The US Securities and Exchange Commission has approved rules that will allow thousands of stocks and ETFs traded on exchanges to be quoted in half-penny increments.
The agency’s move Wednesday, which came with a unanimous vote from the five commissioners, might help trading venues such as the New York Stock Exchange and Nasdaq Inc., among others, better compete with wholesalers that can quote in finer increments outside of an exchange.
For years, market participants have complained that requiring exchanges to quote stocks at increments of at least 1 cent restricts liquidity and competition for order flow. Currently, a significant chunk of retail trades are handled by wholesale brokerages like Virtu Financial Inc. and Citadel Securities, which pay to process customer trades from firms such as Robinhood Markets Inc.
“The system was so complex that most investors didn’t know the rebates and fees resulting from their trading for days or weeks after the trades,” Tyler Gellasch, president and chief executive officer of the Healthy Markets Association, said in an email. “By making that information known at the time of the trade, brokers can make better routing decisions, and investors can negotiate to have those costs and profits passed through.
Nasdaq hinted in a recent comment letter that it might sue the SEC, depending on how low it sets the fee caps. Nasdaq likened the agency’s moves over pricing to an attempt to regulate exchanges “like public utilities” and said the SEC would likely lose if the rule is challenged in court.
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