SEC to Vote on Reducing Minimum Stock Pricing Increments, Potentially Lowering Trading Costs

The U.S. Securities and Exchange Commission (SEC) is poised to vote on a rule change that could significantly impact how stocks are priced and traded. The proposed rule, which has been under consideration since late 2022, would allow for the minimum pricing increment, also known as the tick size, for many stocks to be reduced to half a cent.

Currently, most stocks trade in increments of one cent. However, as trading volumes have surged in recent years, particularly for large-cap stocks, there has been debate within the trading community about whether smaller tick sizes would benefit investors.

Proponents of reducing the tick size argue that it would:

• Reduce Trading Costs: Smaller increments allow for tighter bid-ask spreads, reducing the cost of executing trades for investors.
• Improve Market Liquidity: More price points could encourage more trading activity, enhancing market liquidity and making it easier for investors to buy and sell shares.

The SEC is likely to focus on a half-cent increment, as trading in even smaller increments, such as a tenth or a fifth of a cent, could create an unwieldy number of price points.

However, implementing this change will require significant adjustments to trading systems and market data platforms. Most market participants anticipate that it could take a year or more to fully implement the new pricing increments.

Key Takeaways:

• The SEC is set to vote on a rule change that could reduce the minimum pricing increment for many stocks to half a cent.
• The proposed change aims to reduce trading costs and improve market liquidity.
• Implementing the new tick size is expected to take a year or more due to the need for system upgrades.

This potential change in stock pricing increments highlights the ongoing evolution of financial markets and the SEC’s efforts to adapt regulations to reflect changing trading dynamics and investor needs. The outcome of the SEC vote will be closely watched by market participants, as it could have significant implications for trading costs, market liquidity, and the overall efficiency of the U.S. stock market.