On September 18, 2024, the U.S. Securities and Exchange Commission (SEC) announced significant amendments to Regulation NMS (National Market System) aimed at improving market quality, reducing transaction costs, and enhancing transparency in equity markets. These changes, which address minimum pricing increments (tick sizes), access fee caps, and the visibility of better-priced orders, mark a major shift in the regulatory landscape designed to foster competition and protect investors.
Key Changes:
- Introduction of an Additional Minimum Tick
Size:
The SEC has amended Rule 612 of Regulation NMS to establish a new $0.005 minimum pricing increment for quoting NMS stocks priced at or above $1.00 per share. This new tick size is designed to address limitations imposed by the existing $0.01 minimum, which has constrained price competition for many stocks. The tick size for each NMS stock will now be evaluated based on a three-month Time Weighted Average Quoted Spread and adjusted semi-annually. - Reduced Access Fee Caps:
To further enhance market efficiency, the SEC has lowered the access fee caps for protected quotations under Rule 610. The new cap for NMS stocks priced at $1.00 or more is reduced to $0.001 per share, while stocks priced below $1.00 will have an access fee cap set at 0.1% of the quotation price. These changes aim to eliminate distortions in fee structures, prevent potential conflicts of interest, and foster greater transparency in trading costs. - Greater Transparency for Exchange Fees and
Rebates:
The amendments also introduce new requirements for exchanges to disclose the amounts of fees, rebates, and other remuneration at the time of execution. This increased transparency will empower investors with more detailed information about the true costs of trading, improving fairness and competitiveness in the market. - Acceleration of Odd-Lot Information and Round Lot
Definitions:
The SEC has expedited the implementation of previously adopted definitions concerning round lots and odd-lot orders, providing more timely information about smaller-sized orders. Odd-lot orders, which are often priced more competitively, will now be identified, making their best-priced quotes publicly available and enhancing the transparency of market depth for investors.
SEC Chair Gary Gensler's Remarks:
In discussing the amendments, SEC Chair Gary Gensler emphasized the
importance of keeping pace with market evolution:
"A lot has changed in technology and business models since we last comprehensively reviewed national market system rules in 2005. The reforms we adopted today will promote greater transparency, competition, fairness, and efficiency in our $55 trillion equity markets. These changes are pro-investor and pro-capital formation."
Impact on Market Participants:
The amendments aim to reduce transaction costs for all market
participants, ensuring that orders in the national market system
reflect the best prices available. By introducing finer pricing
increments and improving access to data on smaller orders, these
changes provide retail and institutional investors alike with
better opportunities to engage with more competitive and
transparent markets.
Timeline for Compliance:
- The amendments will become effective 60 days after their publication in the Federal Register.
- Compliance with the new tick sizes, access fee caps, and round lot definitions is required by November 2025.
- Compliance with the enhanced odd-lot information requirements is required by May 2026.
These changes underscore the SEC's commitment to modernizing the equity markets, ensuring fairness, and maintaining the integrity of the national market system. The full adopting release will soon be available, providing detailed guidance on the implementation of these amendments.
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