SEC Amends Reg. NMS, Changing Minimum Pricing Increments, Access Fee Caps, and Round Lot/Odd Lot Dissemination
The Securities and Exchange Commission adopted amendments to Reg. NMS on September 18, 2024, covering a broad range of market structure and regulatory issues facing the equities market. The amendments cover:
- Minimum Pricing Increments for NMS stocks priced at or greater than $1.00 per share.
- Access Fee Caps for protected quotations and other best bids and offers in NMS stocks.
- Acceleration of certain changes associated with the Market Data Infrastructure Rules ("MDI Rules").
The amendments did not relate to the three other proposals put forth initially: (1) amendments to Rule 605 regarding the disclosure of order execution information; (2) Rule 615 to require the submission of certain orders to qualified auctions prior to execution; and (3) the Best Execution proposal to enhance requirements concerning the duty of best execution.
Minimum Pricing Increments
The commission amended the minimum pricing increment such that, for NMS stocks priced at or greater than $1.00 per share, the minimum pricing increment would be based on the "Time Weighted Average Quoted Spread" ("TWAQS") during an "Evaluation Period." Where the TWAQS was $0.015 or less, the minimum pricing increment would be $0.005. Where the TWAQS was greater than $0.015, the minimum pricing increment would remain $0.01. TWAQS is defined as the average dollar value difference between the NBB and NBO during regular trading hours where each instance of a unique NBB and NBO is weighted by the length of time that the quote prevailed as the NBB or NBO. The minimum pricing increment will be updated twice a year. The calculation of the TWAQS is assigned to the primary listing exchange with the evaluation period occurring three months from January through March and then again from July through September. The calculation related to January through March will govern the minimum pricing increments from May through October, and the calculation related to July through September will govern the minimum pricing increments from November to April. For any security that becomes an NMS stock during an operative period, such security will be assigned a minimum pricing increment of $0.01 if priced equal to or greater than $1.00 per share.
The minimum pricing increment will be disclosed to the market through a "minimum pricing increment indicator." The indicator will be included in Consolidated Tape (SIP) data to inform market participants of the applicable minimum pricing increment following the evaluation period and subsequent implementation.
In contrast to the commission's original proposal, the amendments do not prevent trades being executed at increments smaller than those set forth in Rule 612. As a result, Rule 612 maintains the distinction between orders and trades.
The compliance date for the Rule 612 changes is November 2025.
Access Fees
The SEC amended Rule 610 to reduce the level of access fee caps for protections quotations and other best bids and offers in NMS stocks. For NMS stocks priced at $1.00 or greater, the access fee cap will be reduced from $0.003 per share to $0.001 per share. Additionally, for NMS stocks priced less than $1.00, the access fee cap will be reduced from 0.3% of the quotation price per share to 0.1% of the quotation price per share.
Further, in line with the proposing release, amended Rule 610 prohibits a national securities exchange from imposing any fee or providing any rebate for an execution unless such fee or rebate can be determined at the time of the execution. Consequently, any volume thresholds or tiers based on volume would need to be based on a period prior to assessment of the fee/rebate rather than based on volume during a current period.
The compliance date for the access fee changes is November 2025.
Acceleration of MDI Rule Changes
As part of the MDI Rules, the SEC amended the definition of round lot that assigned a round lot size based on the stock's share price. Specifically, for NMS stocks priced $250.00 or less per share, a round lot will be 100 shares; for NMS stocks priced $250.01 to $1,000.00 per share, a round lot will be 40 shares; for NMS stocks priced $1,000.01 to $10,000.00 per share, a round lot will be 10 shares; and for NMS stocks priced $10,000.01 or more per share, a round lot will be 1 share. The amendments accelerate the implementation of these round lot changes to November 2025.
The bucketing of an NMS stock will be based on the average closing price on the primary listing exchange during the prior Evaluation Period. Similar to the minimum pricing increment changes, the round lot calculations will be done twice each year. The first Evaluation Period will be all trading days in March for the round lot assigned on the first business day of May through the last business day of October, and the second Evaluation Period will be all trading days in September for the round lot assigned on the first business day of November through the last business day of April. Consequently, the implementation dates of any round lot changes will correspond with the implementation dates of any minimum pricing increment changes. For any security that becomes an NMS stock during an operative period, such security will be assigned a round lot of 100 shares.
The applicable round lot size will be disclosed to the market through a "round lot indicator." The round lot indicator will be included in SIP data to inform market participants of the applicable round lot following the evaluation period and subsequent implementation.
Finally, as part of the MDI Rules, the SEC also required certain information on odd lot orders priced better than the NBBO to be included in the information disseminated in the public data stream, specifically odd lots at a price greater than or equal to the national best bid and less than or equal to the national best offer, aggregated at each price level at each national securities exchange and national securities association. Additionally, the commission would require the identification and dissemination of the best available odd lot price on both the buy and sell side and where such liquidity is available. The amendment accelerates the implementation of these odd lot changes to May 2026.