Transform transparency: SEC proposes minimum pricing increments, access fee caps, and better-priced order visibility.
The Securities and Exchange Commission has made a proposal to amend certain rules that are part of Regulation NMS. The proposed changes would include the adoption of variable minimum pricing increments, also known as “tick sizes,” for the quoting and trading of NMS stocks; a reduction in access fee caps for protected quotations; and an acceleration of the transparency of the best priced orders that are currently available in the market.
The proposed changes are intended to improve trading opportunities for all investors and to assist in ensuring that orders placed in the national market system accurately reflect the best prices that are currently available to all investors.
Many people refer to the off-exchange market centers known as wholesalers and dark pools as “the dark markets,” where a significant proportion of equity trading now takes place. This proportion is increasing. However, these off-exchange market centers are able to achieve greater success by transacting in accordance with a different set of rules than those that govern national securities exchanges. According to Gary Gensler, the chair of the SEC, this could hurt competition.
As a result, I am pleased to say that I support the proposal being made today. This proposal would improve the efficiency, fairness, and competition across all of our equity markets. It would do so in a way that is in line with our mandate, would be guided by economic analysis, and would be shaped by public opinion. That gets to the heart of what we are trying to accomplish.”
To be more specific, the Commission proposed to amend Rule 612 of Regulation NMS in order to establish variable minimum pricing increments for quotations and orders in NMS stocks that are priced at or greater than $1.00 per share based on objective and measurable criteria, and to make such minimum pricing increments applicable to the trading of all NMS stocks regardless of price, subject to certain specified exceptions.
The Commission also proposed to amend Rule 612 of Regulation NMS in order to make certain exceptions to the application of such minimum pricing increments. The primary listing exchanges would be responsible for measuring and calculating the Time Weighted Average Quoted Spread for the relevant NMS stock, as well as determining the applicable minimum pricing increment, if the proposal were to be implemented.
The Commission also proposed to amend Rule 610 of Regulation NMS in order to reflect the lower variable minimum pricing increments that were proposed under Rule 612. Specifically, the Commission proposed to reduce the access fee caps for protected quotations in NMS stocks priced at $1.00 or more from $0.001 per share to $0.0005 per share for those NMS stocks that have a minimum pricing increment of $0.001, and from $0.0005 per share to $0.001 per share for those NMS stocks that have a minimum pricing increment that is greater than $0.
The proposal calls for access fees to be capped at 0.05 percent of the quotation price for protected quotations in NMS stocks with prices per share that are less than one dollar. In addition, the Commission proposed an amendment to Rule 610 that would require exchanges to make it possible to determine the total amount of all fees and rebates at the time an order is executed.
Last but not least, the Commission suggested hastening the process of putting into effect the round lot and odd-lot information definitions that had been previously adopted. This would hasten the process of these definitions providing the benefits of increased transparency by making information about better priced interest available in the market more widely available on a more expedient timetable.
In addition, the Commission proposed changing the definition of “odd-lot information” so that it would require the identification of the odd-lot orders that have the best prices currently available on the market.
The proposing release has been posted on SEC.gov, and it is going to be posted in the Federal Register as well. The window for receiving comments from the general public will remain open until March 31, 2023, or for a period of sixty days after the proposing release has been published in the Federal Register, whichever comes first.
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