Reed Smith Client Alerts

On June 8, SEC Chair Gary Gensler delivered remarks at the Piper Sandler Global Exchange Conference to address certain challenges posed by the ongoing technological transformation of the equity markets, including (1) market segmentation, (2) concentration, and (3) potential inefficiencies, and their impact on maintaining a fair and competitive national market system for investors. Chair Gensler focused his remarks on the six areas summarized below in which the Commission is working to update its rules to “drive greater efficiencies in our equity markets, particularly for retail investors.”

Authors: Kiran Somashekara John O. Lukanski Pawel Maziarz, Jordon DeGroote

Minimum Pricing Increment

Chair Gensler suggested that the market today lacks an even playing field between investors in lit markets and wholesalers, based on the disparity in minimum pricing increments available to each. While investors in lit markets see prices in one-penny increments, wholesalers are able to fill orders at sub-penny prices with virtually no competition, placing lit market investors at a competitive disadvantage. The Chair noted that to address this asymmetry, and to make lit exchanges more competitive, the SEC Staff (the “Staff”) is preparing recommendations to address (1) possibly harmonizing the tick size – or minimum increments at which securities are traded – across different market centers to enable all trading to occur in the minimum increment, and (2) potentially shrinking the minimum tick size to better align with off-exchange activity.

National Best Bid and Offer (NBBO)

The National Best Bid and Offer (NBBO) quote reflects an aggregation of information across exchanges. Chair Gensler noted that today, NBBO includes only quotes for “round lots,” or orders of 100 shares or more, failing to capture and provide to retail investors quotes for “odd lot” trades, which accounted for more than 55 percent of trades in March 2022. To address this information disparity, the Chair has asked the Staff to consider (1) accelerated implementation of a new “round lot” definition adopted as part of the 2020 Market Infrastructure Rule, which, depending on price, could include trades for a single share, (2) accelerate implementation of the portion of the Infrastructure Rule that enhances transparency of quotation information for remaining odd lots, and (3) whether there should be an odd-lot best bid and offer so that investors would know the best price available in the market regardless of share quantity.