- The SEC on Wednesday approved a change that will allow some stocks to be quoted in half-penny increments.
- The measure will narrow bid-ask spreads and reduce costs for investors, the SEC said.
The US Securities and Exchange Commission has revamped how stocks get priced in an effort to reduce costs on investors.
On Wednesday, the SEC voted to adjust market rules, so that some stocks will be quoted in increments of $0.005. According to Reuters, the decision to apply the change was unanimous.
"This will lower costs for investors as well as improve liquidity, competition and price efficiency in the markets," SEC Chair Gary Gensler said in a statement ahead of the vote. "The one-penny minimum has become outdated. It's too wide in many stocks."
The focus of the rule is to narrow bid-ask spreads. The tighter the spread, the more money investors save.
Prior to Wednesday's vote, stocks had been priced at a one-penny minimum since 2005. Gensler said this has become outdated, citing that around 74% of share volume is quoted at under 1.5 pennies.
In other words, stocks with a bid-ask spread of around 1 cent had no room to fall further. That includes names such as Ford Motor and Snap, according to The Wall Street Journal
Once the SEC's latest "tick size" decrease takes effect in November 2025, this will change.
Last year, the Commission informed reporters that as many as 1,700 stocks would qualify for the reduction, Reuters cited.
Ahead of the vote, the SEC proposed to introduce four separate tick sizes instead of one, so that stocks would be priced at one-tenth, two-tenths, half, and a full penny. However, the commission ultimately refrained from this approach, citing industry warnings about complexity and added costs.