TheCorporateCounsel.net

Earlier this fall, the SEC adopted a rule change that will (among other things) amend the minimum pricing increments for the quoting and trading of exchange-listed stocks. As Meredith wrote at the time, the rule is intended to address “tick-constrained stocks” – which have narrow bid-ask spreads. You may wonder, “How many stocks suffer from ‘tick constraints?'” A recent Sidley memo points out that the answer is “most of them.” Here’s an excerpt:

Once implemented, the changes to minimum tick size will cause a majority of stocks — approximately 74.3%, based on the SEC’s estimate using 2023 data — to be quoted in more granular half-penny (i.e., $0.005) increments, rather than the $0.01 minimum tick most prevalent today.

This will likely necessitate systems changes for a large number of market participants, including broker-dealers and exchanges, to allow for the submission, ranking and display of orders at more granular pricing increments.

Moreover, the applicable minimum tick sizes will vary by stock and may change for each stock on a biannual basis, which will require broker-dealer systems be able to accommodate such changes, and inform their customers.

The Sidley memo also notes that the amendments have been challenged by a retail investor advocacy group. This Bloomberg article reports that Nasdaq and Cboe have also filed a joint petition focused on challenging the “access fee” portions of the rule change.

– Liz Dunshee