In a move that basically no one asked for and many probably don’t even understand, the SEC just voted to let thousands of stocks and ETFs be quoted in half-penny increments. You know, because when it comes to trading stocks, apparently full-on pennies are just way too big.

(Source: Giphy) 

This, my friends, is what happens when you let bureaucrats with too much time on their hands “modernize” a $63 trillion stock market. It’s been over 20 years since the SEC last messed with tick sizes, back when they ditched fractions (RIP one-eighth dollar) and switched to pennies. Now, they’re back at it again—because clearly, the only thing standing between investors and financial nirvana is the ability to trade in 0.005-dollar increments.

(Source: Reuters) 

So what’s the deal here? Well, simply put, by shrinking the bid-ask spread (that’s the gap between what buyers are willing to pay and what sellers want), this genius move is supposedly going to save investors money. And logically, they aren’t wrong. According to SEC Chairman Gary Gensler (aka, the most controversial man in American finance and professional Crypto hater), this is all about “driving greater efficiency and competition in our equity markets.”

(Source: Giphy) 

Now on the surface, that’s very cutesy and demure, but let’s be real - the ones really cheering for this are the big exchanges, like the New York Stock Exchange, who’ve been whining that off-exchange trading venues (the Wild West of stock trading) have smaller tick sizes. So now, with the new change, they can finally get in on the half-cent action and stop feeling like such losers.

(Source: Waters Technology) 

In result, this will impact about 2,400 securities which will now qualify for half-penny quoting. That’s 2,400 ways for people to overthink their trades in even smaller increments. And just in case you were wondering, no, this won’t be confusing or annoying at all. I mean, who wouldn’t want to trade at 10.005 instead of 10.01? 

(Source: Giphy) 

Oh and before you start thinking the SEC has completely lost it, keep in mind they did “soften” their original proposal. Apparently, they wanted to go full-on with four pricing tiers, including quarter-penny increments. But then brokers and high-speed trading firms freaked out, saying that would destroy liquidity and turn the market into a volatile dumpster fire. 

(Source: Barrons) 

So, due to the backlash, the SEC backed off a bit, and we’re now stuck with a two-tier system: penny and half-penny pricing. Of course, this change won’t be immediate though. The November 2025 compliance deadline is looming, which means exchanges, brokers, and market makers have about a year to update their systems to deal with this half-penny nonsense. But still, guess who’s already crying about it? Nasdaq Inc.

Why? Well they’re threatening to sue because, apparently, the SEC’s fee caps are a direct assault on their profits. Meaning, they are throwing a fit because they can’t make money the old-fashioned way without nickel-and-diming (or should we say half-pennying?) everyone to death.

(Source: Giphy)

Additionally (while pissing more people off), the SEC didn’t stop at just tick sizes. They’re also putting a lid on the fees that exchanges can charge for accessing their quotes. This is a straight-up attack on the likes of Nasdaq and Cboe Global Markets, who’ve been making fat stacks off transaction fees for years. But now, with the SEC capping those fees, the exchanges are going to have to find new ways to bleed traders dry. 

(Source: SEC.gov)

As expected, the reaction to this mess is all over the place. Some big brokers and high-frequency trading firms are still scratching their heads, trying to figure out how this is going to impact their bottom line. But don’t be surprised if the lawsuits start piling up. The SEC loves to play market referee, and Wall Street loves to sue. It’s the circle of life.

Meanwhile, smaller exchanges and groups like the Managed Funds Association are throwing their support behind the SEC’s pricing changes, mostly because they’re just thrilled to see the big guys squirm. Which let’s be honest, who doesn’t love watching the fat cats and puppeteers on Wall Street get a roundhouse kick to the greed glands? 

(Source: Giphy) 

However, with that said, even though it’s satisfying to some extent… It also has an impact on regular guys like you and I. For instance, Scott Purcell, CEO of Tradition Securities & Derivatives, thinks this could actually increase price volatility, especially in less-liquid stocks. So basically, instead of saving investors money, this could just end up making the stock market even more of a clusterf**k than it already is. Great.

But hey, at least this is just another reminder that as time goes on… change will never stop changing. With half-penny pricing on the way, we’re getting rid of yet another relic from the good ol’ days of stock trading. Back in the pre-2001 dark ages, stocks were priced in cute little fractions, like one-eighth of a dollar. Then decimalization came along, and now we’re down to splitting pennies. So much for the days when you could just trade in nice round numbers. 

(Source: Giphy) 

But, but, but… at least algorithmic traders will have even tinier price differences to exploit and rake in billions from (cough Citadel and Jane Street cough). So good for them I guess.

In the end though, what’s the takeaway from all of this? Well, the SEC is clearly banking on tighter tick sizes to lower trading costs, improve market competition, and make everyone’s life a bit more confusing better. But if you think a rule change like this is going to go off without a hitch, I definitely have some garbage penny stocks to sell you.  

(Source: Giphy) 

There’s a reason why Larry Tabb, head of market structure research at Bloomberg Intelligence, said the proof will be in the pudding. Because, let’s face it, the pudding is probably going to be an atrocious wreck. Will spreads actually tighten? Will trading costs go down? Will Nasdaq and the rest of Wall Street just roll over and accept their fate? (Spoiler: no.)

All we know is that the SEC is playing with fire here. And as anyone who’s ever watched a regulatory body try to “fix” the market knows, they’re more likely to burn the whole thing down before they actually fix it.

(Source: Giphy) 

In the meantime though, rejoice in the fact that you’ll now be able to trade in something you probably never asked for: half-pennies. And as always, stay safe and stay frosty, friends! Until next time… 

Stocks.News does not hold positiosn in companies mentioned in the article.