On September 18, 2024, the SEC unanimously adopted new rules modifying key aspects of the National Market System (NMS). These amendments affect minimum pricing increments, access fee caps, and order transparency for NMS stocks. The changes, effective in 2025 and 2026, aim to reduce trading costs, enhance market transparency, and better align pricing structures across different stock categories. Notably, the updates will influence trading strategies, compliance measures, and market behaviors, potentially triggering challenges from stock exchanges and other market participants.
Key Amendments and Changes
1. Minimum Tick Sizes for Quoting and Trading: The new rules reduce the minimum tick size for most NMS stocks. Once implemented, about 74.3% of stocks will be quoted in half-penny ($0.005) increments instead of the traditional $0.01 minimum. The tick sizes will now be based on the time-weighted average quoted spread (TWAQS) over a designated evaluation period. This means stocks with tighter spreads will be quoted in smaller tick increments, allowing more precise pricing and improved market efficiency. However, tick sizes will be reassessed every six months based on stock liquidity, requiring firms to adapt to these periodic changes.
2. Reduced Access Fee Caps: The Final Rules set a uniform access fee cap of $0.001 per share for all stocks priced above $1.00, significantly lowering the cap from the existing $0.003 per share. This reduction is intended to align the costs associated with trading these stocks and is expected to impact the pricing structure of exchanges, particularly those using maker-taker models. Given the reduced access fee cap, exchanges may have to adjust their rebate structures, which could influence how liquidity is provided in the market.
3. Order Price Transparency – Round Lots and Odd Lot Information: To enhance transparency, the SEC accelerated the inclusion of odd-lot order information into consolidated market data and amended the definition of odd-lot information to identify the "best odd-lot orders." This means investors will have greater visibility into the true liquidity available at various price points, particularly for higher-priced stocks where traditional round lots are often too large to reflect the trading interest accurately.
Compliance Dates and Implementation
The Final Rules will become effective 60 days after publication in the Federal Register, with different compliance dates depending on the specific rule changes. For example, changes to minimum tick sizes and access fee caps will take effect on November 3, 2025, while the inclusion of best odd-lot orders in market data will begin on May 4, 2026.
Anticipated Market Impact
The SEC's changes aim to improve market efficiency by reducing trading costs, narrowing spreads, and providing greater transparency. However, these benefits come with significant operational and compliance challenges for exchanges, broker-dealers, and other market participants. Systems upgrades will be necessary to accommodate new tick sizes and evaluate liquidity changes. Furthermore, stock exchanges are expected to challenge the reduced access fee caps, which may result in judicial reviews and additional scrutiny.
Conclusion
The SEC's adoption of these Final Rules reflects its ongoing commitment to modernizing market structure and improving the overall trading environment for investors. Market participants should prepare for these changes by reviewing their trading systems, compliance measures, and fee structures to ensure they are positioned to navigate the evolving regulatory landscape effectively.
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