SEC proposed new minimum pricing increments for NMS stock quotations and orders.
Proposal also addresses access fee caps and accelerating round/odd lot info definitions.
Regulation National market system (Reg NMS) provisions codified under 17 CFR 242.
Objective, as noted by chair Gensler in his comments, is to ensure transparency and market competition while deterring off-exchange, wholesale, and dark pool operations.
Commissioner Uyeda statement supported issuance, but not all elements, of proposal.
Issued concurrent with final insider trade rule, #123999; enhanced order competition, #156501; order execution disclosure, #156509, best execution, #156490 proposals.
Minimum Pricing Increments
Amend NMS Rule 612 to allow sub-penny bid-ask spreads on exchanges, alternative trading systems (ATS), and OTC for NMS stocks greater $1; those less $1 do not apply.
The minimum pricing increment, $0.001, $0.002, $0.005, or $0.01, is based on the time weighted average quoted spread for the NMS stock during the evaluation period.
Rule 612, Minimum pricing increment, provisions are codified under 17 CFR 242.612.
Access Fees
Amend and add new section to Rule 610 to reduce access fees and monitor rebates.
Reduce access fee caps for protected quotations in NMS stocks priced $1.00 or more to $0.0005 per share for NMS stocks that have a minimum pricing increment of $0.001.
For minimum pricing increment greater $0.001, the cap would be $0.001 per share.
For quotations in NMS stocks priced less $1.00, the cap would be 0.05% of the quote.
Also, add a subsection, Transparency of fees, to prohibit fees, rebate, or remuneration.
Should an exchange choose to use a fee or rebate based on volume thresholds, said threshold would need to be set for a specific period prior to fee/rebate assessment.
For Rule 610, Access to quotations, provisions are codified under 17 CFR 242.610.
Market Data Infrastructure
Given delays in SEC's implementation of Market data infrastructure (MDI) rules, accelerate round lot and odd-lot information definitions, to best meet investor needs.
For round lot, accelerating use of the definition would enhance and better disseminate price transparency, for stocks priced greater $250, in trade sizes less than 100 shares.
In addition, would result in quote and order pricing better than the prevailing NBBO.
Separately, amend odd-lot definition to require the identification of best odd-lot order.
Accelerating the odd-lot information definition would improve information asymmetries that currently exist between propriety and securities information processor (SIP) data.
Rules to be amended are NMS Rule 600(b)(59), Odd lot information, 17 CFR 242.600(b)(59); Rule 600(b)(78), Regulatory data requirements, 17 CFR 242.600(b)(78); Rule 603: Distribution, consolidation, display of NMS stock data, 17 CFR 242.603
Commissioner Uyeda Statement
Advocated that since Reg NMS adoption, the dominance of electronic trading, faster speeds, and processing power have necessitated review of increments, or tick sizes.
Noted the precarious nature of setting the increments for national market systems.
Where tick sizes too large may constrain liquidity and effective market competition.
The commissioner did question the proposal's extension of minimum tick sizes to order execution, where the application of the tick size may not necessarily be beneficial.
Consultation
Comments due later of Mar. 31, 2023, or 60 days after publication in federal register.
Dec. 14, 2022 SEC Peirce Remarks
On Dec. 14, 2022, SEC commissioner Peirce issued statement on the rule proposal.
Peirce supported putting the proposal out for public comment; noted she is persuaded some stocks trading on our national securities exchanges are tick-constrained.
Prefer SEC get out of rate-setting altogether, but requires significant market overhaul.
Due to ongoing existence of order protection rule, need prevent excessive access fees.
Need input whether reduction in access cap fees, tick sizes calibrated at right levels.
Said SEC could have made it easier for commenters to analyze effects on market.
Concerned with proposal to mandate uniform trading increments across market for NMS stocks; may not agree with rationale; not given equal weight in all proposals.
Dec. 29, 2022 Fed Reg Proposal
On Dec. 29, 2022, SEC published proposal in federal register, comment Mar. 31, 2023.
Mar. 2023 ICI Comment Letter
On Mar. 31, 2023, ICI submitted comment letter to SEC proposal on order competition.
Recommended SEC take incremental approach, first with dissemination of new round lot sizes and odd lot information in NMS core data before pursuing other changes.
Strongly opposed the multiple new sub-penny increments to a broad swath of stocks.
Urged SEC to apply half-penny increment only to stocks that consistently demonstrate as tick-constrained; need more modest approach to reducing quoting tick increment.
In Mar. 2023, SIFMA issued comments suggesting changes to proposal, see #168466.
Sep. 2024 SEC Final Rule
On Sep. 18, 2024, SEC adopted amendments to certain rules of Regulation NMS.
Amended the minimum pricing increments for the quoting of certain NMS stocks, reduce the access fee caps, and enhance the transparency of better priced orders.
Per fact sheet, established second minimum pricing increment, also known as tick size, of $0.005 under Rule 612 of Regulation NMS for the quoting of certain NMS stocks.
Reduced access fee caps under Rule 610 of Regulation NMS and require national securities exchanges to make amounts of all fees, rebates determinable at execution.
Accelerated implementation of the round lot and odd-lot information definitions adopted in 2020 under the Market data infrastructure rules (MDI Rules), see #71966.
Added information about the best odd-lot order to the definition of odd-lot information.
The SEC also made available, the comment letters received on the proposing release.
Effective 60 days after date of publication of the adopting release in federal register.
For Rule 612, Rule 610, round lot definition, compliance date will be first business day of Nov. 2025; for odd-lot information, date will be the first business day of May 2026.
Oct. 2024 Fed Reg Final Rule
On Oct. 8, 2024, SEC issued final rule on minimum increments, in the federal register.
Effective on Dec. 9, 2024; compliance dates include first business day of Nov. 2025 for Rules 600(b)(89)(i)(F), Rules 600(b)(89)(iv), 600(b)(93) and 603(b)(3), 610 and 612.
Compliance date first business day of May 2026 for Rules 600(b)(69) and 603(b)(3).
