The U.S. Securities and Exchange Commission (SEC) made a decision that will have a profound effect on stock trading. Moving forward, stock exchanges will have the ability to quote stock and exchange-traded fund prices in increments of half a penny.
Until now, stock exchanges have priced stocks in increments, also known as tick size, of one cent. This placed them at a disadvantage to off-exchange trading establishments, which have the ability to price securities with much lower increments.
SEC unanimously approved the change, saying it would benefit the traders by increasing transparency, reducing transaction costs, and improving market quality. The change will affect approximately 2,400 securities, including most of the S&P 500 listings and the majority of the highly-traded stocks.
The stock pricing adjustment is part of broader changes that the SEC proposed in 2022 in efforts to overhaul the market structure.
“The reforms we adopted today will help promote greater transparency, competition, fairness, and efficiency in our $55 trillion equity markets. That goes to the heart of the SEC’s mission. The reforms are pro-investors. They are pro-capital formation,” said SEC Chair Gary Gensler in a statement.
Still, don’t expect to see any difference in how the stock prices are quoted anytime soon. Due to the scope of the change, it will likely take a year or even more for it to come into effect.