SEC Updates Rules for $55T Equity Markets
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The Securities and Exchange Commission has approved updates to rules governing the $55 trillion equity markets, SEC Chair Gary Gensler announced in a statement on Wednesday.
These changes are designed to “enhance competition, efficiency, and fairness, benefitting investors and capital formation alike,” Powell said.
The updates come nearly two decades after the last comprehensive review of national market system rules in 2005, the statement noted. The changes come as transaction volume in listed equities has doubled in the last five years and tripled in the last 17 years, data in the statement showed.
"There's been a significant increase in everyday investor participation in the markets," Gensler said in a statement, adding that 58% of American households own stocks.
Key changes include relaxing the one-penny minimum quotation increment to half a penny for many stocks.
This reduction in “tick size” will allow stocks to be priced more efficiently and competitively, potentially lowering costs for investors and improving liquidity, the SEC explained.
Lowering Exchanges' Maximum Fees
The new rules also lower the maximum fee that exchanges can charge for accessing the best bid or offer from three-tenths of a penny to one-tenth of a penny.
This change addresses concerns raised by market participants about price transparency, market complexity and potential conflicts of interest, Gensler’s statement said.
Additionally, the updated rules implement a new definition of a round lot, replacing the 120-year-old standard of 100 shares.
The new definition introduces a tiered system (100, 40, 10, or 1 share) based on share price, which could lead to better pricing for investors, according to the announcement.
The reforms also aim to provide greater transparency on quotes for orders smaller than a round lot, known as “odd lots,” the SEC disclosed.
The SEC chair highlighted that approximately 74% of share volume is currently being quoted at less than 1.5 pennies, up from 54% in 2005.
Gensler said that these reforms “will help promote greater transparency, competition, fairness, and efficiency in our $55 trillion equity markets.”