The rule that replaced fractions in stock prices with pennies may be scrapped. The idea in changing the rule was that consumers would save money in transaction fees. Price increments of one cent can lead to narrower gaps in bid and ask prices, possibly trimming the profits traders reap from the transaction.
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Discussions are still in the early stages and will be part of SEC meetings over the coming weeks. The discussions could lead to a pilot test that may apply to companies falling below a certain market value or trading volume.
Those companies may have the choice to revert to fractional pricing, the system that was in place before the mandate to trade in pennies.
Former SEC chair Arthur Levitt says the change to pennies put what formerly were traders’ profits into the pockets of investors.
He does not, however, object to testing alternative stock price trading increments. The incentive for going back to fractions comes from an argument over whether decimalization has made it more difficult for smaller companies to attract investors for their initial public offerings.
SEC officials are trying to decide whether to impose the new rule themselves or to ask the exchanges to propose a rule. Some officials point to the differences in tick sizes overseas as evidence that a one-size-fits-all approach isn’t the only way.
The JOBS Act (Jumpstart Our Business Startups) requires the SEC conduct a study of decimalization. But small cap companies say there is no need for further study
and are preparing to submit their own proposal to the SEC.