"Stock Prices to Display Third Decimal Place" US SEC Changes After 23 Years

Stock Pricing Unit Revised from 1 Cent to 0.5 Cent

The U.S. securities regulators have approved a rule allowing listed companies to display stock price increments more precisely. Until now, stock prices of U.S.-listed companies were shown only up to the second decimal place, but going forward, the third decimal place will also be visible. This is expected to reduce price discrepancies between buyers and sellers, ultimately lowering costs for investors.

The U.S. Securities and Exchange Commission (SEC) announced on the 18th (local time) that it has approved a market rule revising the minimum price increment from 1 cent (0.01 USD) to 0.5 cents (0.005 USD). An SEC official explained the purpose of this rule change as "to reduce investor costs and promote competitive pricing by narrowing the price difference between stock buyers and sellers."

Under the existing rule, the minimum price fluctuation (tick) for listed stocks is set at 1 cent. Many small-cap stocks with low par value move in 1-cent increments, but there have been ongoing calls for smaller tick sizes.

This rule is more relaxed compared to the initial proposal by the SEC in 2022. At that time, the SEC envisioned a rule allowing stock ticks to move in four increments: 0.1 cent, 0.2 cent, 0.5 cent, and 1 cent. In response, securities firms and listed companies expressed concerns that "stocks flickering constantly by 0.001 USD increments would be excessively inefficient," and the SEC partially accepted these concerns.

The new rule is scheduled to take effect in November next year. The SEC estimates that about 1,788 stocks will be affected by this change. This is the first change in stock price trading increments in the U.S. stock market in 23 years since 2001. At that time, the SEC implemented a decimal pricing system showing stock prices up to the second decimal place. Exchanges had been using a system showing prices up to the fourth decimal place, which was deemed inconvenient for investors, prompting the reform. The Wall Street Journal (WSJ) explained that since then, many modern stocks such as Ford Motors and Snap have had their ticks fixed at 1 cent due to this outdated rule.

There is also interest in how this new reform will affect the institutional investment industry landscape, as professional traders have varying technical know-how depending on tick size.

Meanwhile, the WSJ forecasted that this rule could shake up the major U.S. stock exchanges. On the same day, the SEC also lowered the cap on fees that exchanges can charge for executing trades from 30 cents per 100 shares to 10 cents per 100 shares. This was intended to curb abusive trading practices by institutions expected to increase as tick sizes shrink, thereby reducing exchange profitability.

Nasdaq, a leading Wall Street exchange, stated in a release that "in our assessment, this rule does not take into account the complex dynamics of the stock market." The New York Stock Exchange did not issue a separate statement.