Sept 18 (Askume) – Wall Street’s top regulator will adopt new rules on Wednesday to cap stock prices at 1 percent, part of a sweeping reform package that if passed could lead to the biggest drop in the U.S. stock market in 20 years.
The US Securities and Exchange Commission’s rule change will allow stock exchanges to quote in-the-money prices, leading to more competitive pricing for stocks that currently account for the majority of trading volume, the agency said.
The five SEC commissioners are scheduled to gather at 10 a.m. ET (1400 GMT) to vote on proposals that will be first presented in December 2022. While the SEC is often divided along political lines, the commissioners were unanimous in proposing the pricing changes.
They will also consider a related reform to reduce stock exchange fees for entering the market, which officials say would help prevent price distortions if price rises are lower.
SEC Chairman Gary Gensler, when announcing the proposal in 2022, said the changes would help level the playing field between exchanges and dark markets.
Gensler said that differences between on-exchange and off-exchange quotes, or “quotes,” caused about half of all trades to leave the exchange. Smaller tick units are attractive to investors because they reduce the spread, allowing for better trading.
The debate over the growth of over-the-counter trading in US markets has long been a hot topic, but the 2021 GameStop trading fiasco (GME.N)
In public comments, Citadel Securities initially denounced the SEC’s reform proposals, arguing that the quotation entity proposals would threaten market stability and efficiency by reducing liquidity and causing panic among investors during turbulent times.
Others, including Citadel and Charles Schwab (SCHW.N) and the NYSE (ICE.N) , have insisted on a minimum half-percent increment, while the SEC’s original four-tier system included increments as small as one-tenth of a split amount.
Other industry participants said in comments that too small a price increase could encourage “queue jumping,” where buyers bid only slightly higher to beat an existing order, among other potential drawbacks.
The SEC has not yet revealed the final version of the rules it will adopt on Wednesday.
Industry insiders are urging the SEC to proceed cautiously before finalizing the rest of its market structure package for December 2022, which also includes a proposal to put stock orders to auction and create a “best performance” standard for brokers and dealers in stocks and government bonds. . .
“They tend to consider the less controversial issues first,” said James Engel, a professor at Georgetown University’s McDonough School of Business.
