Wall Street regulator set to vote on new ‘tick sizes’ rule

By Douglas Gillison

(Reuters) – Wall Street’s top regulator is due to vote next week on proposed new regulations to allow the pricing of stocks in increments of less than a penny, part of a pending structural overhaul of equities markets, a Thursday scheduling announcement showed.

The five-member U.S. Securities and Exchange Commission will consider adopting new rules on minimum pricing increments — known in stock markets as “tick sizes” — at a public meeting at 10:00 a.m. Eastern (1400 GMT) on Sept. 18.

The proposal was among a package of new regulations the SEC unveiled in December 2022 that together would amount to the biggest changes to equity market structure in nearly 20 years.

The SEC says both buyers and sellers could obtain better prices if price changes occurred in increments of less than a penny. Stock prices which would not benefit from more aggressive pricing in this band are considered “tick constrained”.

Under the 2022 proposal, stock prices for quotation and trading would fall into one of four minimum tick sizes: a penny, a half penny, a fifth of a penny and a tenth of a penny.

The SEC has not disclosed what changes, if any, officials have made to the proposal due to be finalized next week.

However, industry groups and Republican lawmakers have expressed concern, calling instead for a half-penny minimum.

The Securities Industry and Financial Markets Association said a half-penny tick size for stock price quotations and trading could be beneficial, but called on the SEC to do more to determine which stocks are truly “tick constrained”.

Tick sizes of $0.001 or $0.002 are “too granular,” SIFMA said, and could lower liquidity or cause “flickering”, where prices move repeatedly between two or more values.

It is unclear if or when the SEC may move to finalize the other three 2022 market structure proposals, which included requiring marketable retail stock orders to be sent to auction before they can be executed and setting a new standard for stock brokers to show they deliver the best possible order executions.