81620 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

1See Public Law 94–29 (S.249), June 4, 1975, 

Securities Acts Amendments of 1975 (‘‘1975 

Amendments’’). See also 15 U.S.C. 78k–1. 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Part 242 

[Release No. 34–101070; File No. S7–30– 

22] 

RIN 3235–AN23 

Regulation NMS: Minimum Pricing 

Increments, Access Fees, and 

Transparency of Better Priced Orders 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rule. 

SUMMARY: The Securities and Exchange 

Commission (‘‘Commission’’ or ‘‘SEC’’) 

is adopting amendments to certain rules 

of Regulation National Market System 

(‘‘Regulation NMS’’) under the 

Securities Exchange Act of 1934, as 

amended (‘‘Exchange Act’’) to amend 

the minimum pricing increments for the 

quoting of certain NMS stocks, reduce 

the access fee caps, and enhance the 

transparency of better priced orders. 

DATES: Effective Date: December 9, 2024. 

Compliance dates: See section VI., titled 

‘‘Compliance Dates,’’ for further 

information on transitioning to the final 

rules. 

FOR FURTHER INFORMATION CONTACT: 

Kelly Riley, Senior Special Counsel, 

Johnna Dumler, Special Counsel, Steve 

Kuan, Special Counsel, Marc McKayle, 

Special Counsel, Leigh Roth, Special 

Counsel, and Alba Baze, AttorneyAdvisor, at (202) 551–5500, Office of 

Market Supervision, Division of Trading 

and Markets, Commission, 100 F Street 

NE, Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: The 

Commission is adopting amendments to 

the following rules under Regulation 

NMS: 

Commission 

reference 

CFR citation 

(17 CFR) 

Rule 600(b)(69) ........ § 242.600(b)(69) 

Rule 600(b)(89) ........ § 242.600(b)(89) 

Rule 600(b)(93) ........ § 242.600(b)(93) 

Rule 603 ................... § 242.603 

Rule 610 ................... § 242.610 

Rule 612 ................... § 242.612 

I. Introduction 

A. Rule 612 Minimum Pricing Increments 

1. Background 

2. Proposed and Adopted Amendments 

B. Rule 610 Fees for Access to Quotations 

and Transparency of Fees 

1. Background 

2. Proposed and Adopted Amendments 

C. Transparency of Better Priced Orders 

1. Background 

2. Proposed and Adopted Amendments 

D. Overarching Comments on the 

Proposing Release 

II. Equity Market Structure Initiatives and the 

Regulation NMS Proposal 

III. Final Rule 612 of Regulation NMS— 

Minimum Pricing Increment 

A. Issues Raised in the Existing Market 

Structure Related to Tick Sizes 

B. Proposal To Amend Rule 612 

C. Final Rule—Minimum Pricing 

Increments for Orders Priced Equal to or 

Greater Than $1.00 per Share 

1. General Comments and Discussion 

2. Specific Comments on the Proposed 

Minimum Pricing Increments 

3. Comments on the Number of Proposed 

Increments 

4. Comments on Small- and Mid-Sized 

Stocks 

5. Comments on Market Resiliency 

6. Comments on Proposed Criteria for 

Assigning Minimum Pricing Increments 

7. Rule 612(a)—Definitions 

8. Rule 612(b)(1)—Semiannual Operative 

Dates 

9. Rule 612(c)—New NMS Stocks 

10. Rule 600(b)(89)—Regulatory Data 

D. Minimum Pricing Increment for Trades 

IV. Final Rule 610 of Regulation NMS—Fees 

for Access to Quotations 

A. Background 

B. Issues Raised in the Existing Market 

Structure and the Need for the 

Amendments 

1. Amendments to Rule 612 

2. Exchange Fee Models 

C. Proposal To Amend 610(c) 

D. Final Rule 610(c) 

1. Comments on Proposed Rule 610(c) 

E. Final Rule 610(d) Requiring That All 

Exchange Fees and Rebates Be 

Determinable at the Time of an 

Execution 

1. General Comments 

V. Final Rule—Transparency of Better Priced 

Orders 

A. Background 

B. Final Rule—Round Lots 

1. Round Lot Definition 

2. Proposed Acceleration of Round Lot 

Definition 

3. Comments and Response 

C. Final Rule—Odd-Lot Information 

1. Proposed Acceleration of Odd-Lot 

Information Definition 

2. Proposed Amendment to Odd-Lot 

Information Definition for Best Odd-Lot 

Orders 

D. Display of Round Lots and Odd-Lot 

Information 

1. Comments and Response 

E. MDI Rules Implementation 

VI. Compliance Dates 

A. Final Rule 612 Compliance Date 

B. Final Rule 610 Compliance Date 

C. Final Compliance Date for Round Lot 

and Odd-Lot Information 

VII. Economic Analysis 

A. Introduction 

B. Broad Economic Considerations 

1. Liquidity and Spread 

2. Economics of Minimum Pricing 

Increments 

3. Economics of Access Fees 

C. Baseline 

1. Tick Sizes 

2. Access Fees 

3. Round Lots, Odd-Lots, and Market Data 

Infrastructure 

4. Affected Entities and Markets 

5. Amendments to Rule 605 

D. Benefits, Costs, and Other Economic 

Effects 

1. Modification of Rule 612 To Create a 

Half-Penny Tick 

2. Lower Access Fee Cap 

3. Exchange Fees and Rebates 

Determinable at the Time of Execution 

4. Acceleration and Implementation of the 

MDI Rules and Addition of Information 

About Best Odd-Lot Orders 

5. Compliance Costs 

6. Interactions With Recently Adopted 

Rules 

E. Effect on Efficiency, Competition, and 

Capital Formation 

1. Efficiency 

2. Competition 

3. Capital Formation 

F. Reasonable Alternatives 

1. Tick Size Alternatives 

2. Access Fee Alternatives 

VIII. Paperwork Reduction Act 

A. Summary of Collection of Information 

B. Proposed Use of Information 

C. Respondents 

D. Total Annual Reporting and 

Recordkeeping Burden 

1. Initial Burden Hours and Costs 

2. Ongoing Burden Hours and Costs 

E. Collection of Information Is Mandatory 

F. Confidentiality 

G. Revisions to Current MDI Rules Burden 

Estimates 

IX. Regulatory Flexibility Act 

A. Amendments to Rule 612—Final 

Regulatory Flexibility Analysis 

1. Reasons for the Action 

2. Small Entities Subject to the Rule 

3. Reporting, Recordkeeping, and Other 

Compliance Requirements 

4. Significant Alternatives 

B. Amendments to Rule 610 

C. Amendments to Rule 603 and 

Definitions Odd-Lot Information and 

Regulatory Data Under Rule 600 

D. Certification 

X. Other Matters 

Statutory Authority and Text of Rule 

Amendments 

I. Introduction 

Consistent with Congress’s directive 

almost 50 years ago to facilitate the 

establishment of a national market 

system,1 the Commission is amending 

certain of its rules to respond to market 

developments since those rules were 

adopted, so that those rules continue to 

benefit investors and the markets. 

Specifically, the Commission is taking 

the following actions to continue to 

fulfill Congress’s directive and advance 

the objectives of investor protection and 

the maintenance of fair and orderly 

markets: 

• Reduce Transaction Costs for 

Investors by Reducing Minimum Pricing 

Increments. The amendments will relax 


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Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81621 

2Senate Report on Securities Act Amendments of 

1975, S. Rep. No. 94–75 at 8–9. 

3 In particular, Congress found that it is in the 

public interest and appropriate for the protection of 

investors and maintenance of fair and orderly 

markets to assure five objectives: (1) economically 

efficient execution of transactions; (2) fair 

competition among brokers and dealers and among 

exchange markets, and between markets other than 

exchange markets; (3) the availability to brokers, 

dealers and investors of information with respect to 

quotations for and transactions in securities; (4) the 

practicability of brokers executing investors’ orders 

in the best market; and (5) an opportunity, 

consistent with items (1) and (4), for investors’ 

orders to be executed without the participation of 

a dealer. See 15 U.S.C. 78k–1(a)(1)(C). Congress also 

found that new data processing and 

communications techniques could create the 

opportunity for more efficient and effective market 

operations, and that ‘‘[t]he linking of all markets for 

qualified securities through communication and 

data processing facilities will foster efficiency, 

enhance competition, increase the information 

available to brokers, dealers, and investors, 

facilitate the offsetting of investors’ orders and 

contribute to the best execution of such orders.’’ See 

15 U.S.C. 78k–1(a)(1)(B), (D). 

4See Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496, 37497 (June 29, 2005) 

(‘‘Regulation NMS Adopting Release’’). In the 

nearly fifty years since the enactment of section 

11A, the Commission has monitored the national 

market system and its operation and has 

periodically reviewed certain of its rules to address 

issues that have arisen in the markets with the goal 

of ensuring that the regulatory framework continues 

to fulfill the goals of section 11A. In each such case, 

the Commission has been guided by the objectives 

embodied in section 11A. The Commission also 

formed the Equity Market Structure Advisory 

Committee (‘‘EMSAC’’) in 2015 to provide diverse 

perspectives on the structure and operations of the 

U.S. equities markets, as well as advice and 

recommendations on matters related to equity 

market structure. The archives of these meetings are 

available at https://www.sec.gov/spotlight/emsac/ 

emsac-archives.htm (‘‘EMSAC Archives’’). 

5See Regulation NMS Adopting Release, supra 

note 4, at 37498. ‘‘NMS stock’’ is defined under 

Regulation NMS as any NMS security other than an 

option. 17 CFR 242.600(b)(65). An ‘‘NMS security’’ 

is defined as any security or class of securities for 

which transaction reports are collected, processed, 

and made available pursuant to an effective 

transaction reporting plan, or an effective national 

market system plan for reporting transactions in 

listed options. 17 CFR 242.600(b)(64). 

6See Rule 612 of Regulation NMS; 17 CFR 

242.612. 

7See Rule 610 of Regulation NMS; 17 CFR 

242.610. 

8See Rules 601, 602, and 603 of Regulation NMS; 

17 CFR 242.601, 17 CFR 242.602, 17 CFR 242.603. 

9See Cboe, ‘‘Historical Market Volume Data,’’ 

available at https://www.cboe.com/us/equities/ 

market_statistics/historical_market_volume/. 

10The Commission has amended several aspects 

of Regulation NMS to address and reflect changes 

in the markets since its adoption. For example, in 

2018, the Commission adopted new order handling 

disclosure requirements in Rule 606 in response to 

changes in equity market structure and order 

handling and routing practices. See Securities 

Exchange Act Release No. 84528 (Nov. 2, 2018), 83 

FR 58338 (Nov. 19, 2018). In 2020, the Commission 

adopted rules to update the national market system 

for the collection, consolidation, and dissemination 

of equity market data in the national market system 

to keep pace with technological developments 

concerning the use of market data. See Securities 

Continued 

existing restrictions on market-wide 

minimum pricing increments (‘‘tick 

sizes’’), thus reducing transaction costs 

for investors and relaxing a constraint 

on price discovery for certain stocks. 

The reduced tick size will benefit 

investors and market participants by: (i) 

allowing stocks to be priced more 

efficiently and competitively, therefore 

lowering costs for investors to trade in 

those stocks; and (ii) improving 

liquidity, competition, and price 

efficiency in the markets. 

• Improve Market Quality for 

Investors by Reducing Access Fee Caps 

and Increasing Transparency. The 

amendments will reduce the maximum 

fees that trading centers (e.g., securities 

exchanges) are allowed to charge 

investors for execution against protected 

quotations (‘‘access fee caps’’). The 

amendments will also address the lack 

of transparency around the cost of a 

transaction at the time of a trade 

execution by requiring exchange fees 

and rebates to be determinable at the 

time of the execution. 

The amendments will benefit 

investors and market participants by: (i) 

providing for access fee caps that 

accommodate the change in tick sizes; 

(ii) providing quotations that are more 

accurate and reflective of market forces; 

(iii) mitigating potential conflicts of 

interest between broker-dealers and 

their customers, where a broker-dealer 

is incentivized to route to the exchange 

offering the most favorable fees or 

rebates, which can lead to potentially 

worse execution quality for customers; 

(iv) reducing the complexity associated 

with the fees and rebates models; and 

(v) increasing the transparency of 

transaction fees and rebates. 

• Improve Transparency to Investors 

about Better Priced Orders. The 

amendments will increase price 

transparency by accelerating the 

implementation of previously adopted 

definitions of ‘‘round lot’’ and ‘‘odd-lot 

information’’ and by adding a data 

element for the best odd-lot orders to 

buy and sell (‘‘BOLO’’) to the definition 

of ‘‘odd-lot information.’’ 

These amendments will improve 

information available to investors and 

other market participants about better 

priced orders in smaller sizes that are 

available in the market. 

In 1975, Congress explicitly granted 

the Commission ‘‘broad authority to 

oversee the implementation, operation, 

and regulation of the national market 

system’’ and the ‘‘clear responsibility to 

assure that the system develops and 

operates in accordance with 

Congressionally determined goals and 

objectives.’’ 2 The 1975 Amendments 

and section 11A of the Exchange Act set 

forth Congress’s findings regarding the 

nation’s securities markets and direct 

the Commission to facilitate the 

establishment of a national market 

system in accordance with specified 

Congressional findings and objectives.3

Since 1975, the Commission has 

regulated the national market system, 

adhering to the objectives of efficient, 

competitive, fair, and orderly markets 

that are in the public interest and 

protect investors, which are essential to 

meeting the investment needs of the 

public and reducing the cost of capital 

for listed companies.4 The national 

market system is premised on 

promoting fair competition among 

markets, while at the same time assuring 

that all of these markets are linked 

together, through facilities and rules, in 

a unified system that promotes 

interaction among the orders of buyers 

and sellers in a particular NMS stock.5

In 2005, the Commission adopted 

Regulation NMS to modernize and 

strengthen the regulatory structure of 

U.S. equity markets, including 

requirements pursuant to which 

quotations and orders for NMS stocks, 

and the markets on which they trade, 

can compete. These requirements 

support the public interest and the 

protection of investors and help to 

ensure fair and orderly markets for the 

execution of orders in NMS stocks. 

Among other things, Regulation NMS 

provides explicit requirements for the 

tick sizes of quotations and orders,6 the 

means for market participants to access 

quotations in the national market 

system, including a cap on the highest 

permitted level of fees a trading center 

may charge for access to the best 

quotations of a trading center,7 and how 

information about quotations and trades 

is made widely available to investors, 

among others.8

Nearly two decades later, the 

technology and economics of trading 

have evolved significantly. Transaction 

volume in listed equities doubled in the 

last five years and tripled in the last 

seventeen.9 Electronic trading now 

dominates equity markets, with latency 

measured in microseconds. These 

changes call for improvements to assure 

an efficient and transparent price 

discovery process, in order to continue 

to fulfill Congress’s directive and 

advance the objectives of investor 

protection and the maintenance of fair 

and orderly markets. However, some 

parts of Regulation NMS have not been 

revised since their 2005 adoption. Thus, 

the Commission is adopting the below 

described amendments to certain rules 

under Regulation NMS.10 The following 


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81622 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

Exchange Act Release No. 90610 (Dec. 9, 2020), 86 

FR 18596 (Apr. 9, 2021) (‘‘MDI Adopting Release’’). 

More recently, responding to changes in market 

conditions caused by technological advancements 

and the increased participation of individual 

investors in the equity markets, the Commission 

adopted amendments to Rule 605 under Regulation 

NMS to update the disclosure of order execution 

quality statistics reports. See Securities Exchange 

Act Release No. 99679 (Mar. 6, 2024), 89 FR 26428, 

26429 (Apr. 15, 2024) (‘‘Rule 605 Amendments’’) 

(adopting amendments to rule 605 under Regulation 

NMS to update reports on execution quality). 

11See generally Securities Exchange Act Release 

No. 96494 (Dec. 14, 2022), 87 FR 80266 (Dec. 29, 

2022) (‘‘Proposing Release’’ or ‘‘Regulation NMS 

Proposal’’). 

12Whether a limit order can be executed 

immediately depends on the limit price in relation 

to the current market price. For example, a buy 

order with a limit price of $10.00 means the 

investor would like to buy as soon as possible, but 

only when the current market price is at $10.00 or 

less. By contrast, a ‘‘market order’’ is a type of order 

by which the investor specifies that it wishes to buy 

or sell a security at the current market price, 

regardless of what the market price is. See 

generally, Securities Exchange Act Release No. 

96495 (Dec. 14, 2022), 88 FR 128, 132–33 (Jan. 3, 

2023); Regulation NMS Adopting Release, supra 

note 4, at 37505 n.53. 

13Limit orders may be ‘‘marketable’’ meaning that 

its specified price allows an immediate execution 

because it matches a contra-side order, or they may 

be ‘‘non-marketable’’ meaning that its specified 

price does not allow for an immediate execution 

and therefore it must wait until a contra-side order 

comes in to trade with it. Non-marketable limit 

orders that are submitted to an exchange are placed 

on the order book and, if displayable, the price and 

size will be displayed in the national market system 

if it is the best priced order to buy or sell for such 

exchange. The Commission has recognized 

displayed limit orders as ‘‘a critically important 

element of efficient price discovery.’’ See 

Regulation NMS Adopting Release, supra note 4, at 

37517. 

14See preexisting 17 CFR 242.612(a). For 

quotations and orders of NMS stocks priced less 

than $1.00 per share, Rule 612 required the 

minimum pricing increment to be $0.0001. See 

preexisting 17 CFR 242.612(b). However, most 

exchanges require stocks listed on their exchanges 

to maintain a price greater than $1.00 per share, and 

consequently $0.01 is the prevailing tick size for 

most quotes and orders for NMS stocks. See infra 

section VII.C.1.a. 

15See infra section VII.C.1.a. (discussing retail 

programs). 

16When Rule 612 was adopted, the Commission 

stated that ‘‘[g]reater use of limit orders will 

increase price discovery and market depth and 

liquidity’’ and that ‘‘if orders lose execution priority 

because competing orders step ahead for an 

economically insignificant amount, liquidity could 

diminish.’’ See Regulation NMS Adopting Release, 

supra note 4, at 37505, 37553. The Commission was 

concerned that stepping ahead of displayed limit 

orders by insignificant amounts would deter the 

submission and display of limit orders, which 

would negatively impact price discovery and 

market depth and liquidity. See id. at 37553. See 

also infra section VII.A (discussing the importance 

of minimum pricing increments). 

17But with the minimum pricing increment of a 

penny, that same market participant would be 

required to post a bid of $10.01 instead. 

18See infra sections VII.A, VII.B.2, and VII.D.1. 

19See infra sections VII.A, VII.B.2, and VII.D.1.b.i 

for additional analysis of pennying. 

20See infra section VII.B.2. 

21See infra section VII.B.2; see also 17 CFR 

242.600(b)(16). 

22See infra section VII.B.2 (providing a similar 

example showing how a minimum pricing 

increment could double the width of a bid-ask 

spread). 

23See infra section VII.C.1.b (discussing 

percentage of share volume likely to be tickconstrained). See also infra section VII.B.2 

(discussing the definition of ‘‘tick-constrained’’). 

24See infra section VII.B.2. 

25See infra section VII.B.2. 

26See Staff Report to Congress on Decimalization, 

Commission (July 2012) (‘‘Staff Decimalization 

Report’’), available at https://www.sec.gov/files/ 

decimalization-072012.pdf, at 4. Staff reports, 

Investor Bulletins, and other staff documents 

(included those cited herein) represent the views of 

Commission staff and are not a rule, regulation, or 

statement of the Commission. The Commission has 

neither approved nor disapproved the content of 

these staff documents, and, like all staff documents, 

they have no legal force or effect, do not alter or 

subsections provide an overview of the 

amendments and the rationales for 

each.11

A. Rule 612 Minimum Pricing 

Increments 

1. Background 

One way that investors can buy or sell 

a stock is through the use of limit 

orders, which are a type of order that 

specifies the price (‘‘limit price’’) at 

which the investor is willing to buy or 

sell a security.12 Limit orders serve a 

critical market function by helping to 

set prices at which market participants 

are willing to trade, revealing the supply 

and demand for a security, and 

providing liquidity to the market. As 

such, limit orders play a key role in 

price discovery and allow investors to 

participate in the price-setting 

process.13

Recognizing the value of limit orders, 

the Commission adopted Rule 612 

under Regulation NMS, which requires 

that the prices of quotations and orders 

in the national market system be 

reflected in a specified minimum 

pricing increment, also known as the 

‘‘tick size.’’ Rule 612 required, for 

quotations and orders of NMS stocks 

priced at or greater than $1.00 per share, 

the minimum pricing increment to be 

$0.01.14 As a result, subject to certain 

exceptions,15 the quotations and orders 

of such NMS stocks are priced in penny 

increments: $10.00, $10.01, $10.02, for 

example. 

The Commission adopted Rule 612 

and minimum pricing increments to 

address the concern that a market 

participant could gain priority over 

existing limit orders by posting an 

economically insignificant price 

improvement.16 For example, consider a 

market participant that posts a limit 

order to buy an NMS stock at $10.00 per 

share. Without minimum pricing 

increments, a second market participant 

could ‘‘step ahead’’ (also known as 

‘‘pennying’’) of the first market 

participant by posting a bid to buy at a 

price that is higher by an infinitesimally 

small amount, such as $10.000001.17

This behavior disincentivizes market 

participants from posting a limit order 

in the first place because another market 

participant could always gain priority 

over that first price by posting a limit 

order that is better by an economically 

insignificant amount.18 This may lead to 

a decline in limit orders, harm liquidity, 

and make it more costly to trade.19 This 

hypothetical scenario illustrates the 

need for a minimum pricing increment 

that is not too small. 

Too big of a minimum pricing 

increment is also problematic since it 

would reduce the quality of price 

discovery by precluding price 

competition for providing liquidity.20

More specifically, too large a tick size 

can increase transaction costs for 

investors by artificially widening the 

‘‘bid-ask spread’’—the difference 

between the bid (highest price a buyer 

is willing to pay) and the ask (the lowest 

price a seller is willing to accept) 

prices.21 For example, consider a 

hypothetical scenario where a liquidity 

provider is willing to bid $10.121 to buy 

a stock and offer $10.124 to sell the 

stock. If the tick size were $0.005, the 

resulting bid and offer from this 

liquidity provider would be $10.120 and 

$10.125, respectively, with a spread of 

$0.005. If the tick size were $0.01, the 

corresponding bid and offer would be 

$10.120 and $10.130, with a spread of 

$0.01.22 In other words, but for the 

requirement under Rule 612 that sets 

the tick size to be $0.01 for quotes and 

orders in NMS stocks priced at or above 

$1.00, a smaller tick size would have 

narrowed spreads in some instances and 

allowed prices to better reflect the 

underlying economics for certain NMS 

stocks. As explained below, up to 74.3% 

of the share volume transacted in NMS 

stocks in 2023 may have bid-ask spreads 

that are constrained by the current 

minimum pricing increments.23 These 

widened bid-ask spreads increase 

transaction costs for investors.24

Conversely, a smaller tick size that 

allows for narrower bid-ask spreads 

would benefit investors by reducing 

transaction costs.25

The minimum pricing increments in 

Rule 612 were adopted in 2005, when 

the Commission adopted Regulation 

NMS, and it was an adjustment in a long 

series of adjustments to the minimum 

pricing increments over time. For many 

decades, the U.S. equity markets used 

fractions of a dollar as minimum pricing 

increments (e.g., 1⁄8, 1⁄16, and 1⁄32 of a 

dollar).26 Prior to 1997, the minimum 


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Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81623 

amend the applicable law, and create no new or 

additional obligations for any person. 

27See Self-Regulatory Organizations; New York 

Stock Exchange, Inc.; Order Granting Approval to 

Proposed Rule Change Relating to Trading 

Differentials for Equity Securities, 62 FR 42847, 

42848 n.5 (Aug. 8, 1997). See also Division of 

Market Regulation, Market 2000: An Examination of 

Current Equity Market Developments (1994), 

available at https://www.sec.gov/divisions/ 

marketreg/market2000.pdf, at 37–38, fn. 43 

(describing NYSE’s tick size of 1⁄8 of a dollar in 

1994). 

28See Staff Decimalization Report, supra note 26, 

at 4–5. 

29See Securities Exchange Act Release No. 42360 

(Jan. 28, 2000), 65 FR 5003 (Feb. 2, 2000). 

30See Staff Decimalization Report, supra note 26, 

at 5–6. 

31See Securities Exchange Act Release No. 49325 

(Feb. 26, 2004), 69 FR 11126, 11171 (Mar. 9, 2004) 

(‘‘2004 Regulation NMS Proposing Release’’) (‘‘the 

Commission is proposing a rule that would prohibit 

every national securities exchange, national 

securities association, ATS (including ECNs), 

vendor, broker or dealer from ranking, displaying, 

or accepting from any person a bid or offer, an 

order, or an indication of interest in any NMS stock 

in an increment less than $0.01.’’). 

32See Regulation NMS Adopting Release, supra 

note 4, at 37551–52 (citing 2004 Regulation NMS 

Proposing Release at 11165). 

33See Regulation NMS Adopting Release, supra 

note 4, at 37553 (‘‘Even assuming that quoting in 

sub-penny increments would reduce spreads, the 

Commission continues to believe, on balance, that 

the costs of sub-penny quoting are not justified by 

the benefits.’’). 

34 Id. (‘‘Nevertheless, the Commission 

acknowledges the possibility that the balance of 

costs and benefits could shift in a limited number 

of cases or as the markets continue to evolve.’’). 

35See infra section VII.D.1. 

36See infra sections VII.B.2 and VII.D.1.b. 

37See Proposing Release, supra note 11, at 80280. 

38See infra section III.C. 

39See infra section III.D. 

40 17 CFR 242.600(b)(106) (providing a definition 

of the term ‘‘trading center’’). This discussion 

focuses on exchange fees because, currently, 

exchanges are the only trading centers that have 

quotations that are subject to the access fee caps 

under Rule 610(c). See infra note 367. 

41See also infra sections VII.B.3 and VII.C.2.c, 

table 5 and table 6 (showing the predominance of 

both dollar and share exchange trading volume 

occurs on maker-taker venues). 

42 17 CFR 242.610(c). A protected quotation is 

defined in Rule 600(b)(82) as ‘‘a protected bid or 

protected offer.’’ 17 CFR 242.600(b)(82). A protected 

bid or protected offer is defined as ‘‘a quotation in 

an NMS stock that: (i) Is displayed by an automated 

trading center; (ii) Is disseminated pursuant to an 

effective national market system plan; and (iii) Is an 

automated quotation that is the best bid or best offer 

of a national securities exchange, or the best bid or 

best offer of a national securities association.’’ 17 

CFR 242.600(b)(81). 

43For purposes of this discussion, references to 

protected quotations under Rule 610(c) also include 

manual quotations that are the best bid or best offer 

of an exchange or association. 

44See Regulation NMS Adopting Release, supra 

note 4, at 37545. 

45See Regulation NMS Adopting Release, supra 

note 4, at 37544 n.406. 

pricing increment on the New York 

Stock Exchange LLC (‘‘NYSE’’) for 

stocks above $1.00 per share was 1⁄8 of 

a dollar (or 12.5 cents).27 In 1997, NYSE 

and the Nasdaq Stock Market LLC 

(‘‘Nasdaq’’) revised their rules to use the 

minimum pricing increment of 1/16 of 

a dollar (6.25 cents).28 In January 2000, 

the Commission mandated decimal 

pricing (i.e., moving from fractional 

increments to penny increments) in 

certain securities,29 and by April 2001, 

the market had fully converted to 

decimal pricing.30

Up to this point, minimum pricing 

increments for NMS stocks were set by 

the individual trading venues. But in 

2004, as part of Regulation NMS and 

pursuant to the authority under the 

1975 Amendments, the Commission 

proposed Rule 612 to implement 

market-wide uniform minimum pricing 

increments for quoting in NMS stocks.31

The Commission stated that, while the 

benefits of decimal pricing had justified 

the costs, there was a potential for costs 

to investors and the markets to surpass 

the benefits if the minimum pricing 

increment decreased beyond a certain 

level, and the proposed rule was 

designed to address the scenario where 

market participants attempt to step 

ahead of competing limit orders at the 

smallest economic increment possible.32

Thus, the Commission adopted Rule 612 

in 2005, which established the 

minimum pricing increments of $0.01 

for quotations and orders of NMS stocks 

priced at, or greater than, $1.00 per 

share, and $0.0001 for quotations and 

orders of NMS stocks priced under 

$1.00 per share. The Commission stated 

that, at the time, it did not believe that 

the potential benefits of marginally 

better prices offered by allowing subpenny quoting in securities were likely 

to justify the costs of permitting such 

quotes.33

When the Commission adopted Rule 

612 in 2005, it acknowledged that the 

markets could evolve over time and 

shift the balance of the costs and 

benefits of the adopted tick size.34 Two 

decades later, the market has evolved 

considerably, and amendments to Rule 

612 are necessary to continue to further 

the objectives of the Exchange Act. Data 

analysis shows that stocks with 

sufficiently narrow bid-ask spreads 

would trade better, namely it would be 

easier and less costly for investors to 

transact, if they were allowed to quote 

at increments smaller than one penny.35

Indeed, for these stocks, the risks of 

‘‘stepping ahead’’ are lowered while the 

benefits of greater price competition 

from relaxing the ‘‘tick constraint’’ are 

greater.36

2. Proposed and Adopted Amendments 

Accordingly, the Commission 

proposed amendments to Rule 612 to 

introduce three minimum pricing 

increments that were less than $0.01 

(i.e., $0.005, $0.002, $0.001) for quotes 

and orders priced $1.00 or more for 

certain NMS stocks based upon each 

stock’s time weighted average quoted 

spread (‘‘TWAQS’’).37 The proposed 

amendments would have assigned subpenny minimum pricing increments to 

any NMS stock that had a TWAQS of 

$0.04 or less. This proposed amendment 

was designed to address the issues 

related to tick-constrained stocks 

described above that have arisen since 

2005. The Commission also proposed to 

impose these minimum pricing 

increments for trades, subject to certain 

exceptions. 

As explained below, in response to 

commenters, the Commission is 

adopting modified amendments to Rule 

612 to introduce one minimum pricing 

increment that is less than $0.01, i.e., 

$0.005, for quotes and orders priced 

$1.00 or more for NMS stocks that have 

a TWAQS of $0.015 or less.38 The 

Commission is not adopting a minimum 

pricing increment for trades.39

B. Rule 610 Fees for Access to 

Quotations and Transparency of Fees 

1. Background 

Trading centers 40 can choose to 

charge an access fee, or pay a rebate, to 

the participants—liquidity providers 

(market participants with orders resting 

at the trading center) and liquidity 

takers (market participants who submit 

incoming orders to execute against 

orders resting at the trading center)— 

who trade at their venue. As discussed 

in section VII.C.2.b, the predominant 

exchange fee structure is maker-taker, in 

which an exchange charges a fee to 

liquidity takers and pays a rebate to 

liquidity providers, and the rebate is 

typically funded through the access 

fee.41

As adopted in 2005, Rule 610(c) set 

the access fee cap for protected 

quotations 42 priced at $1 or more at 30 

cents per 100 shares (‘‘30 mils’’ per 

share) for NMS stocks. Rule 610(c) also 

applies to any other quotation of a 

trading center that is the best bid or 

offer of an exchange or association.43

The access fee cap was based, in part, 

upon the prevailing fees that were 

charged by certain trading centers at 

that time.44 For NMS stocks priced 

below $1, the fee cap was set at 0.3% 

of the quotation price.45 Rule 610 was 

adopted at the same time as Rule 611, 

the Order Protection Rule, which 

established intermarket protection 


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46A trade-through occurs when a trading center 

executes an order at a price that is inferior to the 

price of a protected quotation that is displayed by 

another trading center. See 17 CFR 242.600(b)(105) 

for the definition of trade-through under Regulation 

NMS. 

47See Regulation NMS Adopting Release, supra 

note 4, at 37544 and 37595. 

48See Regulation NMS Adopting Release, supra 

note 4, at 37544. 

49See infra sections IV.D.1 and VII.D.2.a. See also 

Proposing Release, supra note 11, at 80348 (stating 

‘‘the access fee cap should not be greater than 1⁄2

of the tick size in order to preserve coherence 

between net and nominal price rankings of trading 

venues.’’). 

50See infra sections VII.B.3 and VII.C.2. 

51See infra sections IV.D.1 and VII.B.3. See also 

Regulation NMS Adopting Release, supra note 4, at 

37545 (‘‘For quotations to be fair and useful, there 

must be some limit on the extent to which the true 

price for those who access quotations can vary from 

the displayed price.’’). 

52See infra sections IV.B.2, VII.D.2, and VII.E.1. 

In certain cases, the disparity between market 

quotations and actual transaction costs may be 

substantial. See, e.g., Proposing Release, supra note 

11, at 80328. 

53See infra sections IV.B.2, IV.D and VII.D.3. 

54See text accompanying infra note 1518. 

55See infra sections IV.E, VII.C.2, and VII.D.3. 

56See infra sections IV.E, VII.C.2, and VII.D.3. 

57See infra section IV.D. 

58See id. 

59NMS information is made widely available to 

investors through the national market system and 

‘‘serves an essential linkage function by helping to 

assure that the public is aware of the best displayed 

prices for a stock, no matter where they may arise 

in the national market system.’’ See Securities 

Exchange Act Release No. 61358 (Jan. 14, 2010), 75 

FR 3594 (Jan. 21, 2010) (‘‘Concept Release on Equity 

Market Structure’’) at 3600. The availability of NMS 

information also ‘‘enables investors to monitor the 

prices at which their orders are executed and assess 

whether their orders received best execution.’’ Id. 

60There are three effective national market 

system plans that govern the collection, 

consolidation, processing and dissemination of 

quotation and transaction information for NMS 

stocks: the Consolidated Tape Association Plan 

(‘‘CTA Plan’’); the Consolidated Quotation Plan 

(‘‘CQ Plan’’); and the Joint Self-Regulatory 

Organization Plan Governing the Collection, 

Consolidation, and Dissemination of Quotation and 

Transaction Information for Nasdaq-Listed 

Securities Traded on Exchanges on an Unlisted 

Trading Privileges Basis (‘‘UTP Plan’’) (together the 

‘‘Equity Data Plans’’). Currently, the Securities 

Industry Automation Corporation (‘‘SIAC,’’ an 

affiliate of the NYSE) is the exclusive SIP for the 

CTA and CQ Plans, and Nasdaq is the exclusive SIP 

against trade-throughs 46 for all NMS 

stocks. Rule 610(c) was designed to 

preclude trading centers that posted 

protected quotations from raising their 

fees in an attempt to take improper 

advantage of the trade-through 

protections adopted under Rule 611.47

The Commission designed the access fee 

caps to preserve the benefits of both the 

strengthened price protection under 

Rule 611 and the more efficient linkages 

among trading centers that were 

developed under Regulation NMS to 

access protected quotations because the 

benefits could be compromised if 

substantial fees were charged.48

Since an access fee that is too high 

when compared to the tick size can 

create pricing distortions, the access fee 

caps need to be adjusted in conjunction 

with the reduction in tick size to 

prevent such distortions.49 In addition, 

as discussed below, many exchanges 

charge the maximum fee allowed to 

access protected quotes, and primarily 

use those fees to pay rebates to market 

participants that provide liquidity.50

This practice raises a number of 

concerns and may interfere with section 

11A’s objectives of ensuring the fairness 

and usefulness of quotation 

information.51

First, the actual prices, inclusive of 

fees and rebates, for investors and other 

market participants to trade a stock are 

not fully transparent. In general, the 

higher the permitted level of access fees, 

the higher the rebates, and the greater 

the potential discrepancy between 

displayed quoted prices on the one 

hand, and actual prices on the other.52

Furthermore, exchanges’ use of fees 

and rebates creates a potential conflict 

of interest between broker-dealers and 

their customers with respect to brokerdealer order routing, by providing 

incentives for a broker-dealer to route 

customer orders to certain exchanges to 

receive higher rebates or avoid higher 

fees based on their own economic 

interest.53 This potential conflict of 

interest is exacerbated if broker-dealers 

do not fully pass on the fees and rebate 

to their customers, since rebate-seeking 

by broker-dealers may come at the cost 

of execution quality of customers.54 In 

addition, exchanges use complex fee 

schedules. Generally, the higher the 

access fee cap, the wider the range of 

possible fees and rebates, which results 

in more complex pricing schedules. 

Such complexity makes it more costly 

for market participants to design and 

implement order execution strategies. 

Finally, exchanges’ fee and rebate 

schedules are typically calculated at 

month’s end, which requires market 

participants to make trading decisions 

without the ability to determine their 

full trading costs at the time of 

execution.55 In turn, this lack of 

transparency impedes a market 

participant’s ability to evaluate fully 

where to send its orders because the 

market participant cannot calculate the 

fees and rebates that will apply to the 

order contemporaneous with 

execution.56 Concerns with such lack of 

price transparency are exacerbated 

when various exchanges have different 

fee schedules, as it is difficult for market 

participants to compare net prices 

across markets. 

2. Proposed and Adopted Amendments 

Accordingly, the Commission 

proposed to amend Rule 610 in two 

ways. First, to accommodate the 

proposed smaller minimum pricing 

increments under proposed Rule 612, as 

well as to address the distortions that 

have developed under the access fee 

caps, the Commission proposed to 

reduce Rule 610(c)’s 30 mil cap for 

executions against protected quotations 

priced $1.00 or more as follows: a 

$0.001 (or 10 mils) access fee cap for 

NMS stocks that would have been 

assigned a minimum pricing increment 

larger than $0.001; and a $0.0005 (or 5 

mils) access fee cap for NMS stocks that 

would have been assigned a $0.001 

minimum pricing increment. For 

protected quotations in NMS stocks 

priced under $1.00 per share, the 

Commission proposed to reduce the 

0.3% fee cap to 0.05% of the quotation 

price. 

As discussed in detail below, in 

response to comments, the Commission 

is adopting amendments to Rule 610(c) 

with modifications from the proposal. 

Specifically, in light of the amendments 

to Rule 612, the Commission is adopting 

only the proposed 10 mil per share 

access fee cap for all protected 

quotations priced $1.00 or more.57 For 

protected quotations priced less than 

$1.00, the Commission is adopting an 

access fee cap of 0.1% of the quotation 

price per share.58 As discussed in 

section VII.D.2.b, the adopted 

amendments to the access fee caps will 

not impede the ability of exchanges to 

fund their execution services. 

Second, to facilitate the ability of 

market participants to understand and 

calculate the total price of transactions 

at the time of execution, the 

Commission proposed an amendment to 

Rule 610 to add subpart (d) to require 

that all exchange fees charged, and 

rebates paid, for the execution of an 

order in an NMS stock be determinable 

at the time of execution. As discussed 

in detail below, the Commission is 

adopting Rule 610(d) as proposed. 

C. Transparency of Better Priced Orders 

1. Background 

The widespread availability of timely 

information with respect to quotations 

for and transactions in NMS stocks 

(‘‘NMS information’’) is critical to the 

ability of market participants to 

participate effectively in the U.S. 

securities markets.59 NMS information 

is currently disseminated within the 

national market system by the exclusive 

plan processors (‘‘exclusive securities 

information processors’’ or ‘‘SIPs’’).60


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for the UTP Plan. See MDI Adopting Release, supra 

note 10, at 18728. Each exclusive SIP is the plan 

processor for one of the Equity Data Plans. 

61See MDI Adopting Release, supra note 10. 

62 ‘‘Better priced orders’’ refers to orders that are 

priced superior to the national best bid and national 

best offer but are not included in NMS information 

because they consist of too few shares. See infra 

notes 66–68 and accompanying text. The MDI 

Rules’ round lot and odd-lot information definitions 

will allow better priced orders to be included in 

NMS information so that market participants that 

subscribe to the exclusive SIP feeds (that otherwise 

would not be able to view these orders without 

purchasing exchange proprietary feeds) will be able 

to view and access these orders. 

63See infra sections V.C.1.a and VII.D.4. 

64Odd-lot is defined in Rule 600(b)(68) as an 

order for the purchase or sale of an NMS stock in 

an amount less than a round lot. 17 CFR 

242.600(b)(68). 

65See Proposing Release, supra note 11, at 80294. 

Under the decentralized consolidation model 

established by the MDI Rules, NMS information 

will consist of ‘‘consolidated market data,’’ as 

defined in the MDI Rules. 17 CFR 242.600(b)(24). 

66See Proposing Release, supra note 11, at 80294 

n.328. A ‘‘round lot’’ is not defined in the Exchange 

Act and, prior to the MDI Rules, it was not defined 

in Regulation NMS. Exchange rules typically define 

a round lot as 100 shares, but they also allow the 

exchange, or the primary listing exchange for the 

stock, discretion to define it otherwise. See, e.g., 

NYSE Rule 7.5 (‘‘A ‘round lot’ is 100 shares, unless 

specified by the primary listing market to be fewer 

than 100 shares.’’). 

67According to NYSE Trade and Quote (‘‘TAQ’’) 

Data, as of Nov. 28, 2023, 11 NMS stocks have a 

round lot size other than 100. Nine NMS stocks 

have a round lot size of 10 and two NMS stocks 

have a round lot size of one share. 

68See Proposing Release, supra note 11, at 80294; 

MDI Adopting Release, supra note 10, at 18599. 

69See Proposing Release, supra note 11, at 80270. 

70 17 CFR 242.600(b)(93). In the MDI Adopting 

Release, the Commission stated that ‘‘[d]efining 

smaller-sized orders in higher-priced stocks as 

round lots, in addition to providing transparency 

into such quotations, ensures that these smallersized orders can establish the [national best bid and 

national best offer], receive order protection, and 

invoke the applicability of several other rules under 

Regulation NMS.’’ See MDI Adopting Release, 

supra note 10, at 18613. 

71Preexisting 17 CFR 242.600(b)(69). ‘‘Odd-lot 

information’’ is defined as (1) odd-lot transactions, 

and (2) 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. Id. 

72The Commission stated that the inclusion of 

this odd-lot quotation information would allow 

market participants ‘‘to trade in a more informed 

and effective manner,’’ and that ‘‘the new definition 

of round lot and the increased availability of better 

priced odd-lot information will provide investors 

with valuable information about the best prices 

available and help to facilitate more informed order 

routing decisions and the best execution of investor 

orders.’’ See MDI Adopting Release, supra note 10, 

at 18602 and 18613. Unlike orders in the round lot 

sizes adopted pursuant to the MDI Rules, odd-lots 

are not ‘‘protected quotations.’’ See 17 CFR 

242.600(b)(16), (81), (82). 

73See MDI Adopting Release, supra note 10, at 

18698. Pursuant to the implementation schedule of 

the MDI Rules, the round lot definition was set to 

be implemented as part of the last phase and oddlot quotation information was set to be 

implemented during a ‘‘parallel operation period.’’ 

See id. at 18700–01. As originally adopted, during 

the parallel operation period, the exclusive SIPs 

would have continued to disseminate the data that 

they currently disseminate and competing 

consolidators would have been permitted to offer 

consolidated market data products, including oddlot information. Because the round lot definition 

would have been implemented during a later phase, 

the exclusive SIPs and competing consolidators 

would have collected, consolidated and 

disseminated NMS information based on then 

current exchange definitions of round lot. Id. at 

18699–18701. 

74 17 CFR 242.614(e). The Commission’s approval 

of amendments to the effective national market 

system plan(s) filed pursuant to rule 614(e) will be 

the starting point for the rest of the MDI Rules 

implementation schedule, which includes a 180- 

day development period, during which competing 

consolidators can register with the Commission, 

and ends with the cessation of the operations of the 

exclusive SIPs and testing and implementation of 

the changes necessary to implement the round lot 

definition. See MDI Adopting Release, supra note 

10, at 18699–701; Proposing Release, supra note 11, 

at 80295. 

75See supra note 60. 

76See Securities Exchange Act Release Nos. 

93615 (Nov. 19, 2021), 86 FR 67800 (Nov. 29, 2021); 

93625 (Nov. 19, 2021), 86 FR 67517 (Nov. 26, 2021); 

93620 (Nov. 19, 2021), 86 FR 67541 (Nov. 26, 2021); 

93618 (Nov. 19, 2021), 86 FR 67562 (Nov. 26, 2021). 

77See Securities Exchange Act Release Nos. 

95848 (Sept. 21, 2022), 87 FR 58544 (Sept. 27, 

2022); 95849 (Sept. 21, 2022), 87 FR 58592 (Sept. 

27, 2022); 95850 (Sept. 21, 2022), 87 FR 58560 

(Sept. 27, 2022); 95851 (Sept. 21, 2022), 87 FR 

58613 (Sept. 27, 2022). 

78On Sept. 1, 2023, the Commission ordered the 

exchanges and the Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) to file a new single 

national market system plan regarding consolidated 

equity market data. See Securities Exchange Act 

Release No. 98271, 88 FR 61630 (Sept. 7, 2023). On 

Jan. 19, 2024, the Commission published notice of 

filing of a National Market System Plan for 

Continued 

In 2020, the Commission adopted 

amendments to Regulation NMS to 

modernize the NMS information 

provided within the national market 

system for the benefit of market 

participants and to better achieve 

section 11A’s goals of assuring ‘‘the 

availability to brokers, dealers, and 

investors of information with respect to 

quotations for and transactions in 

securities that is prompt, accurate, 

reliable, and fair’’ (‘‘MDI Rules’’).61 In 

light of delays in the implementation of 

the MDI Rules, the Commission is 

accelerating the implementation of the 

round lot and odd-lot information 

definitions adopted as part of the MDI 

Rules so that investors will benefit 

sooner from greater transparency and 

accessibility of better priced orders 62

and improved ability to assess the 

execution quality of their orders, as 

explained below.63

Until the full implementation of the 

MDI Rules, NMS information 

disseminated within the national market 

system by the exclusive SIPs includes, 

for each NMS stock, the price, size, and 

exchange of each last sale, each 

exchange’s current highest bid and 

lowest offer and the shares available at 

those prices (the best bid and best offer 

or ‘‘BBO’’), the national best bid and 

national best offer (‘‘NBBO’’), odd-lot 64

transaction information, and certain 

regulatory and administrative data (‘‘SIP 

data’’).65 Information on NMS stock 

quotations is provided in round lots, 

and, until the round lot definition 

adopted in the MDI Rules is 

implemented, round lots are defined in 

rules of the exchanges.66 For most NMS 

stocks, exchange rules define a round 

lot as 100 shares.67 Market participants 

interested in quotation data for orders 

that have a size less than a round lot, 

i.e., odd-lots, must purchase individual 

exchange proprietary feeds.68 This oddlot order information is highly relevant 

to market participants, including for 

investors who trade small numbers of 

shares. 

The MDI Rules expanded the NMS 

information that will be made available 

for dissemination within the national 

market system in order to increase 

transparency about better prices 

available in the market.69 The 

Commission, in the MDI Rules, 

amended Regulation NMS to include a 

definition of ‘‘round lot’’ that assigns 

each NMS stock to a round lot size 

based on the stock’s average closing 

price. The round lot definition, once 

implemented, will increase 

transparency about smaller sized orders 

in higher priced stocks by assigning 

NMS stocks priced over $250 to round 

lot sizes that are less than the 

predominant 100 shares.70 The 

Commission also adopted a definition of 

odd-lot information as part of the MDI 

Rules.71 Once implemented, 

information regarding the prices and 

sizes of odd-lot orders priced better than 

the NBBO will be made available within 

the national market system and is 

expected to be made widely available to 

investors.72

For the reasons explained in the MDI 

Adopting Release, the MDI Rules 

sequenced the implementation of these 

definitions in the later stages of the 

implementation schedule.73 The 

implementation of the MDI Rules began 

with the filing of amendments to the 

effective national market system plan(s) 

as required under Rule 614(e) (‘‘MDI 

Plan Amendments’’).74 The Operating 

Committees of the CTA/CQ Plan and 

UTP Plan 75 filed the proposed MDI Plan 

Amendments on November 5, 2021,76

which the Commission disapproved.77

As a result, the participants to the 

effective national market system plan(s) 

will need to develop and file new 

proposed amendments pursuant to Rule 

608.78


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81626 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

Consolidated Equity Market Data. See Securities 

Exchange Act Release No. 99403, 89 FR 5002 (Jan. 

25, 2024). On April 23, 2024, the Commission 

instituted proceedings pursuant to Rule 608(b)(2)(i) 

of Regulation NMS to determine whether to 

approve or disapprove the proposed plan or to 

approve the proposed plan with any changes or 

subject to any conditions the Commission deems 

necessary or appropriate after considering public 

comment. See Securities Exchange Act Release No. 

100017, 89 FR 33412 (Apr. 29, 2024). On July 11, 

2024, the Commission extended the period within 

which to conclude proceedings regarding the 

proposed plan to 240 days from the date of 

publication of the notice. See Securities Exchange 

Act Release No. 100500 (Jul. 11, 2024), 89 FR 58235 

(Jul. 17, 2024). 

79See Proposing Release, supra note 11, at 80299; 

see also infra sections V.B.2. and V.C.1. In addition, 

as discussed below, the Commission is amending 

the definition of round lot so that the frequency of 

round lot changes will be consistent with the 

frequency of minimum pricing increment changes 

under amended Rule 612. See infra section V.B.3.b. 

The Commission is not changing the calculation 

used to assign round lots or the round lot tiers in 

the round lot definition adopted in the MDI Rules. 

80See infra sections V.B.3, V.C.1, and VI.C. 

81See infra section V.C.2. 

82The comment letters on the Proposing Release 

(File No. 7–30–33) are available at https://

www.sec.gov/comments/s7-30-22/s73022.htm. 

83See, e.g., Letters from Mark Rogers dated Mar. 

30, 2023 (‘‘I approve of the proposed changes to 

Regulation NMS’’); Omar Fakhro dated Mar. 28, 

2023 (‘‘I as a household investor strongly support 

this rule for a better and fair market for 

EVERYONE’’); Danielle Ball dated Mar. 27, 2023 

(‘‘The proposed tick size regime, variable minimum 

pricing increment model, and revised round lot 

definition are important steps towards promoting 

fair and transparent pricing across trading 

venues.’’); Keith Noble dated Apr. 1, 2023; Chris 

Miller dated Apr. 1, 2023; Kristen Palmer dated 

Apr. 1, 2023; Amanda Kappes dated Apr. 1, 2023; 

Ian Rohel, dated Apr. 1, 2023; Riley Hume dated 

Apr. 1, 2023; Matt Kelleher dated Apr. 1, 2023; 

Keagan Wethington dated Mar. 31, 2023; J.W. 

Verret, Associate Professor, George Mason 

University Antonin Scalia Law School, dated Jan. 

12, 2024 (‘‘Verret Letter III’’) at 26 (‘‘. . . the 

proposed amendments to Reg NMS rules regarding 

minimum pricing increments and the proposed 

reforms to volume/access fees both support the core 

principles of free market economics and will lead 

to a more competitive, transparent, and efficient 

market landscape.’’); Eric Budish, Paul G. 

McDermott Professor of Economics and 

Entrepreneurship, The University of Chicago Booth 

School of Business, dated Jan. 18, 2024 (‘‘Budish 

Letter’’) at 1 (‘‘. . . this set of rules changes— 

primarily, a finer tick-size for tick-constrained 

stocks, a lower access fee cap, and harmonization 

of pricing increments for on-exchange and offexchange trading—will reduce both investors’ costs 

and the overall complexity of U.S. equity 

markets.’’); Stephen W. Hall, Legal Director and 

Securities Specialist, and Brady Williams, Legal 

Counsel, Better Markets, Inc., dated Mar. 31, 2023 

(‘‘Better Markets Letter I’’) at 8–17; Joseph Saluzzi, 

Partner, Themis Trading LLC, dated Mar. 31, 2023 

(‘‘Themis Letter’’) at 2–8; John Ramsay, Chief 

Market Policy Officer, Investors Exchange LLC, 

dated Mar. 20, 2023 (‘‘IEX Letter I’’); Letter Type A, 

of which 22 comments were received; Letter Type 

C, of which 5 comments were received; Letter Type 

D, of which 255 comments were received; Letter 

Type E, of which 14 comments were received; 

Letter Type G, of which 652 comments were 

received; Letter Type H, of which 853 comments 

were received; Letter Type I, of which 22 comments 

were received; Letter Type J, of which 15 comments 

were received; Letter Type K, of which 22 

comments were received; and Letter Type L, of 

which 4 comments were received; available at 

https://www.sec.gov/comments/s7-30-22/ 

s73022.htm. 

84See, e.g., Letters from Tyler Gellasch, President 

& CEO, Healthy Markets Association, dated Mar. 31, 

2023 (‘‘Healthy Markets Letter I’’) at 28, 31; J. W. 

Verret, Associate Professor, George Mason 

University Antonin Scalia Law School, dated Sept. 

20, 2023 (‘‘Verret Letter I’’) at 1–2, 4, 5. 

85See Healthy Markets Letter I at 28, 31. 

86See Verret Letter I at 1. 

87 Verret Letter I at 1–2. 

88See Verret Letter I at 2 (stating that the 

Regulation NMS Proposal is supported by ‘‘a wealth 

of prior work by the Commission in the form of a 

pilot tick size study, comments submitted to the 

SEC regarding the transaction fee pilot, and 

numerous roundtables and proceedings of the SEC’s 

Investor Advisory Committee and SEC’s Equity 

Market Structure Advisory Committee.’’). 

89See, e.g., infra note 92. 

90See, e.g., EMSAC Archives, supra note 4 (Rule 

610 was considered at the EMSAC), see also supra 

note 4 (discussing the EMSAC); infra note 362 and 

accompanying text for a discussion of previous 

considerations of Rule 610. For a discussion of 

previous considerations of Rule 612, see Proposing 

Release, supra note 11, at 80272. 

91See infra sections V.B.1; V.B.3.b.iv and VII.D. 

92See also Proposing Release, supra note 11, at 

80272 (discussing considerations of minimum 

pricing increments since Rule 612 was adopted) 

and 80287 (discussing considerations of access fee 

caps since Rule 610 was adopted). See also IEX 

Letter I at 5 (describing steps taken by the 

Commission since the adoption of Regulation NMS 

in 2005 to review the impact of Regulation NMS, 

including the solicitation of input from 

stakeholders, further stating, ‘‘[t]he history shows 

that the Commission’s current Proposals do not 

arise in a vacuum. In fact, the Commission has 

deliberately considered the views of multiple 

stakeholders over years of review, and its current 

Proposals grow out of and build on that ongoing 

review.’’). 

2. Proposed and Adopted Amendments 

In light of the delays in the 

implementation of the MDI Rules, the 

Commission proposed to accelerate the 

implementation of the round lot and 

odd-lot information definitions, to allow 

investors to benefit sooner from greater 

transparency and accessibility of better 

priced orders and improved execution 

quality.79 As discussed further below, 

the Commission is accelerating the 

implementation of the round lot and 

odd-lot information definitions but is 

providing the industry with more time 

to make the necessary systems changes 

to implement these definitions than 

what was proposed.80

Additionally, the Commission 

proposed to amend the definition of 

odd-lot information to include a new 

data element for the best odd-lot orders 

available in the market, which would be 

made available to investors broadly. The 

Commission is adopting the best odd-lot 

order to buy and the best odd-lot order 

to sell as part of odd-lot information as 

proposed.81

D. Overarching Comments on the 

Proposing Release 

The Commission received comments 

from a variety of market participants on 

the Proposing Release.82

Many commenters broadly supported 

the Regulation NMS Proposal.83 Two 

commenters urged the Commission to 

promptly adopt the Regulation NMS 

Proposal.84 One commenter urged the 

Commission to revise and adopt the 

Rule 605 Proposal as well as the 

Regulation NMS Proposal without 

delay.85 Another commenter suggested 

that the Commission prioritize the 

adoption of the Regulation NMS 

Proposal 86 stating that, of the four EMS 

Proposals related to equity market 

structure, the Regulation NMS Proposal 

‘‘is the least controversial and the least 

interdependent on the other three, and 

so is the easiest one for the Commission 

to move forward’’ 87 and ‘‘has garnered 

the most consensus and support from 

various market participants.’’ 88

Some commenters agreed that Rules 

610 and 612 should be amended but 

recommended that the proposed 

amendments be modified and that the 

Commission consider more modest, 

incremental changes to minimize the 

possibility of unintended consequences 

and to enable the Commission and 

market participants to evaluate the 

impact of the changes on trading and 

execution quality.89

The issues related to the amended 

rules have been considered by the 

Commission and market participants for 

several years.90 Further, the 

Commission has analyzed data provided 

by market participants and conducted 

its own data analysis to inform the 

amendments that were included in the 

Proposing Release and in this release.91

The Commission has evaluated the 

national market system and its 

operation in light of changes in the 

market and has sought input from 

market participants throughout this 

process.92 After considering the 

comments, which are discussed in 

context below, the Commission is 

adopting amendments to these rules 

with certain modifications from the 

Proposing Release. 

The Commission received several 

comments that addressed the interaction 

between the different individual 

proposed rule amendments that made 

up the Regulation NMS Proposal. One 

commenter stated that adopting the 

proposed changes to the minimum 

pricing increments in proposed Rule 

612 along with the proposed 

acceleration of the round lot definition 

and the proposed access fee caps in 

Rule 610 ‘‘would impact the value of 

providing liquidity on public markets 

and consequently would raise costs for 


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93See Letter from Naureen Hassan, President, 

UBS Americas, Robert Karofsky, President, UBS 

Investment Bank, and Suni Harford, President, UBS 

Asset Management, dated Mar. 31, 2023 (‘‘UBS 

Letter’’) at 10. See infra section V.B.3.b.i and section 

VII.D.4.a for discussions of the interaction between 

the round lot definition and the proposed changes 

to the minimum pricing increments. 

94See infra section VII.D.4.a (explaining that the 

interaction of the reduction in tick size and the MDI 

Rules’ round lot definition would not have a 

material impact on the NBBO for affected stocks as 

such stocks would be exceptionally liquid, which 

should protect their NBBO from material 

deterioration). 

95See Letter from Derrick Chan, Head of Equities, 

Fidelity Capital Markets, dated Mar. 31, 2023 

(‘‘Fidelity Letter’’) at 17. The commenter described 

‘‘market data costs’’ as those related to systems 

changes necessary to implement the new minimum 

pricing increments, round lot definition, and oddlot information definition. 

96See infra section III.C. 

97See infra section III.C.7.a; section III.C.8; 

section VII.D.1.d and section VII.F.1.c. 

98See infra section VII.A; section VII.D.1.c 

(responding to comments raising concerns about 

increased message traffic increasing costs and 

stating: ‘‘[t]he Commission recognizes the potential 

for these costs articulated by the commenters but, 

considering additional information provided by 

commenters, expects these effects to be mild— 

including the effect on CAT costs.’’). 

99See infra notes 1594–1595 and accompanying 

text. 

100See Proposing Release, supra note 11, at 

80334. 

101See infra section VII.D.5. 

102See Letter from Rich Steiner, Head of Global 

Market Structure, RBC Capital Markets, dated Mar. 

31, 2023 (‘‘RBC Letter’’) at 2. See also Letter from 

Nathaniel N. Evarts, Managing Director, Head of 

Trading, Americas, and Kimberly Russell, Market 

Structure Specialist, Global SPDR Business, State 

Street Global Advisors, dated Mar. 30, 2023 (‘‘State 

Street Letter’’) at 5 (suggesting that the amendments 

to reduce the access fee caps should be 

implemented before the minimum pricing 

increments to isolate the impact of the effects) and 

infra section VII.D.2.c (responding to the State 

Street Letter). 

103See infra note 801 for analysis identifying only 

two stocks that would have qualified for both the 

tick reduction and a reduction in the round lot as 

of Nov. 30, 2023. See also infra section VII.D.4.a for 

a discussion of the small overlap of the round lot 

definition and the tick size change. 

104See, infra, section II. The Commission 

recognizes that delaying the rule would likewise 

delay costs to affected parties. 

105See, e.g., Letters from Jennifer W. Han, 

Executive Vice President, Chief Counsel & Head of 

Global Regulatory Affairs, Managed Funds 

Association, dated Mar. 30, 2023 (‘‘MFA Letter’’) at 

14; Sarah A. Bessin, Deputy General Counsel, and 

Nhan Nguyen, Assistant General Counsel, 

Investment Company Institute, dated Mar. 31, 2023 

(‘‘ICI Letter I’’) at 2, 7; Gerald O’Reilly, Co-CEO and 

Chief Investment Officer, and Ryan Wiley, Global 

Head of Equity Trading, Dimensional Fund 

Advisors LP, dated Mar. 31, 2023 (‘‘Dimensional 

Letter’’) at 2. 

106See Letter from Hubert De Jesus, Managing 

Director, Global Head of Market Structure and 

Electronic Trading, and Samantha DeZur, Managing 

Director, Global Public Policy Group, BlackRock, 

Inc., dated Mar. 31, 2023 (‘‘BlackRock Letter’’) at 17; 

Dimensional Letter at 2. 

investors,’’ and urged the Commission 

to review how these changes would 

together impact liquidity.93 The 

Commission has considered the impact 

of the amendments on liquidity and 

does not believe that they will raise 

costs for investors.94 On the contrary, as 

discussed further below, the 

amendments will enhance the ability of 

market participants to price their orders 

in a competitive manner, reduce the 

amount of fees for accessing protected 

quotations, help to ensure that exchange 

fees are knowable when an order is 

placed and provide transparency about 

orders in the market that are priced 

better than the NBBO. These changes 

will enhance the operation of the 

national market system and provide 

significant benefits to investors. 

Another commenter stated that the 

Regulation NMS Proposal would 

increase ‘‘market data costs’’ because 

retail brokers would have to take in and 

store an increased amount of market 

data to comply with the changing 

minimum pricing increments, the MDI 

Rules’ round lot definition, and the oddlot information requirements and to 

update their systems accordingly, and 

because the exclusive SIPs may cause 

third-party data vendors to require 

additional hardware to support higher 

message rates.95 As discussed below,96

the Commission is adopting 

amendments to the minimum pricing 

increments with modifications from the 

proposal, which will lessen the 

potential costs identified by the 

commenter. Specifically, the 

Commission is adopting one minimum 

pricing increment for a smaller universe 

of NMS stocks than was proposed and 

is reducing the frequency of minimum 

pricing increment updates from a 

quarterly to a semiannual basis.97 While 

this additional minimum pricing 

increment will likely require market 

participants to incur new technology 

costs to manage the new data, fewer 

changes are being adopted than were 

proposed and these changes are 

necessary and justified to address the 

issues related to constraints that have 

developed with the $0.01 minimum 

pricing increment.98 Further, the costs 

related to implementing the round lot 

definition were considered as part of the 

MDI Rules and the acceleration of the 

timing of implementation does not 

increase those costs. Although the 

Commission is modifying the round lot 

definition from the definition adopted 

in the MDI Rules, the modifications will 

reduce ongoing round lot 

implementation costs because round 

lots will be assigned less frequently, i.e., 

from a monthly basis to a semiannual 

basis, which means that systems will 

have to be updated less frequently. 

Synchronizing the dates of the changes 

to round lots and minimum pricing 

increments should also lower ongoing 

implementation costs for market 

participants by potentially decreasing 

the number of updates needed for their 

trading systems.99 Finally, the costs 

related to implementing the odd-lot 

information definition were considered 

in the Proposing Release.100 The 

adopted amendments, which will result 

in fewer systems changes than 

anticipated in the Proposing Release, 

will result in lower implementation 

costs than were contemplated in the 

proposal 101 and reduce the amount of 

data disseminated by the exclusive SIPs 

and any future competing consolidators 

as compared to what was contemplated 

in the Proposing Release. 

One commenter stated that the 

implementation of various components 

of the Proposing Release at or around 

the same time (specifically access fees, 

minimum pricing increments and round 

lot sizes) could complicate the 

Commission’s ability to assess the 

impact of a specific change and 

‘‘whether other consequences will 

ensue.’’ 102 To the specific concerns of 

this commenter, the Commission has 

carefully considered the interacting 

effects of access fees, minimum pricing 

increments, and round lot sizes, see 

section VII. While the Commission 

acknowledges that staging amendments 

may make them easier to study, the 

nature of the adopted amendments will 

still make such study possible, even if 

implemented together. Namely, the set 

of stocks for which the tick size change 

applies tends to differ from the set of 

stocks for which round lot changes 

apply.103 Access fee changes apply to 

some stocks that will not be directly 

affected by either round lot reform or 

tick size changes. Further, staging the 

amendments would delay the 

significant benefits of the 

amendments.104

Several commenters suggested 

implementing the proposed accelerated 

implementation of the round lot and 

odd-lot information definitions so that 

the effects of these definitions could 

inform other proposed changes.105

Other commenters suggested that round 

lots should be implemented before the 

proposed changes to the minimum 

pricing increments, so that data based 

on the MDI Rules’ round lots could 

inform changes to the minimum pricing 

increments.106

While the dissemination of odd-lot 

information will result in the display of 

narrower spreads based on odd-lots, the 

calculation of the TWAQS for 

determining minimum pricing 


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107See infra section III.C.7.b. 

108See infra section V.B.3.b.i (identifying only 

two stocks—both highly liquid—that would have 

qualified for both a tick reduction and a reduction 

in the round lot as of Nov. 30, 2023). 

109See infra section VII.D.4. 

110 Id. 

111See, e.g., Letters from Michael Blaugrund, 

Chief Operating Officer, NYSE, Jason Clague, 

Managing Director, Head of Operations, Charles 

Schwab & Co., and Joseph Mecane, Head of 

Execution Services, Citadel Securities, dated Mar. 6, 

2023 (‘‘NYSE, Schwab, and Citadel Letter’’) at 2; 

Jason Clague, Managing Director, Head of 

Operations, Charles Schwab & Co., Inc., dated Mar. 

31, 2023 (‘‘Schwab Letter II’’) at 6, 36; Ryan 

Kwiatkowski, Chairman of the Board, and James 

Toes, President & Chief Executive Officer, Security 

Traders Association, dated Apr. 3, 2023 (‘‘STA 

Letter’’) at 8; Adam Nunes, Hudson River Trading 

LLC, dated Mar. 31, 2023 (‘‘Hudson River Letter’’) 

at 2; Joanna Mallers, Secretary, FIA Principal 

Traders Group, dated Mar. 31, 2023 (‘‘FIA PTG 

Letter II’’) at 4–5; BlackRock Letter at 12. See also 

infra section V.C.1.a. for a discussion of comments 

received on the accelerated implementation of the 

odd-lot information definition. 

112See FIA PTG Letter II at 4–5; Hudson River 

Letter at 2. 

113See FIA PTG Letter II at 4–5. 

114Schwab Letter II at 36. 

115See infra section VI.C. 

116See infra section V.B.3.a. 

117See Securities Exchange Act Release Nos. 

96943 (Dec. 14, 2022), 88 FR 3786 (Jan. 20, 2023) 

(proposal to amend rule 605 of Regulation NMS) 

(‘‘Rule 605 Proposal’’); 96945 (Dec. 14, 2022), 88 FR 

128 (Jan. 3, 2023) (proposal to adopt a new rule 

under Regulation NMS that would enhance 

competition for the execution of marketable orders 

of individual investors) (‘‘OCR Proposal’’); and 

96946 (Dec. 14, 2022), 88 FR 5440 (Jan. 27, 2023) 

(proposal to establish Commission rule-based best 

execution standards) (‘‘Best Execution Proposal’’) 

(together, with the Proposing Release, the ‘‘EMS 

Proposals’’). The Rule 605 Proposal was adopted on 

Mar. 6, 2024. See Rule 605 Amendments, supra 

note 10. 

118See, e.g., Letters from Thom Tillis, Bill 

Hagerty, Mike Crapo, Cynthia Lummis, and Kevin 

Cramer, United States Senate, dated Jan. 20, 2023 

(‘‘Tillis et al. Letter’’); Ellen Greene, Managing 

Director, Equity and Options Market Structure, 

Securities Industry and Financial Markets 

Association, dated Feb. 8, 2023 (‘‘SIFMA Letter I’’); 

Joanna Mallers, Secretary, FIA Principal Traders 

Group, dated Feb. 15, 2023 (‘‘FIA PTG Letter I’’); 

Hope M. Jarkowski, General Counsel, NYSE Group, 

Inc., dated Mar. 13, 2023 (‘‘NYSE Letter I’’); John 

A. Zecca, Executive Vice President, Global Chief 

Legal, Risk & Regulatory Officer, Nasdaq, Inc., dated 

Mar. 30, 2023 (‘‘Nasdaq Letter I’’); Stephen John 

Berger, Managing Director, Global Head of 

Government & Regulatory Policy, Citadel Securities, 

dated Mar. 31, 2023 (‘‘Citadel Letter I’’); Adrian 

Griffiths, Head of Market Structure, MEMX LLC, 

dated Mar. 31, 2023 (‘‘MEMX Letter’’); Mehmet 

Kinak, Vice President and Global Head of Equity 

Trading, and Jonathan Siegel, Vice President and 

Managing Legal Counsel (Legislative & Regulatory 

Affairs), T. Rowe Price Associates, Inc., dated Mar. 

31, 2023 (‘‘T. Rowe Price Letter’’); Bill Foster, 

French Hill, Henry Cuellar, Bill Huizenga, Wiley 

Nickel, Andy Barr, Ritchie Torres, Ann Wagner, 

Brittany Pettersen, Dan Meuser, Josh Gottheimer, 

Mike Flood, Vicente Gonzalez, Byron Donalds, 

Mike Quigley, Michael V. Lawler, David Scott, 

Andrew R. Garbarino, Gregory W. Meeks, Monica 

De La Cruz, Sean Casten, Scott Fitzgerald, Bradley 

S. Schneider, Erin Houchin, Jim Himes, Young Kim, 

Steven Horsford, Ralph Norman, Gwen Moore, Tom 

Emmer, Marc Veasey, and Zach Nunn, United 

States House of Representatives, dated Sept. 26, 

2023 (‘‘Foster et al. Letter’’). See also Form Letter 

Type E, of which 14 comments were received, Form 

Letter Type F, of which 1,703 comments were 

received, and Form Letter Type G, of which 652 

comments were received, available at https://

www.sec.gov/comments/s7-30-22/s73022.htm. 119See Letter from John Ramsay, Chief Market 

Policy Officer, Investors Exchange LLC, dated Oct. 

13, 2023 (‘‘IEX Letter III’’) at 3–5 (explaining how 

adoption of the amendments to rule 605 should not 

delay adoption of the access fee cap and minimum 

increment amendments, and stating, ‘‘the premise 

that Rule 605 updates must be a precondition to any 

other changes looks more like a calculated stall than 

an argument for careful, reasoned decision 

making’’). 

120See, e.g., T. Rowe Price Letter at 3; BlackRock 

Letter at 17; FIA PTG Letter II at 2; Dimensional 

Letter at 1, 3; State Street Letter at 1–2; Letters from 

Jameson Schriber, Managing Director, Goldman 

Sachs & Co. LLC, dated Mar. 31, 2023 (‘‘Goldman 

Sachs Letter’’) at 8–9; Kirsten Wegner, Chief 

Executive Officer, Modern Markets Initiative, dated 

Mar. 24, 2023 (‘‘MMI Letter’’) at 2; William Capuzzi, 

Chief Executive Officer, Apex Fintech Solutions, 

Inc., dated Mar. 31, 2023 (‘‘Apex Letter’’) at 14, 19; 

Michael Markunas, Deputy General Counsel, Chief 

Compliance Officer, B. Riley Securities, Inc., dated 

Mar. 31, 2023 (‘‘B. Riley Letter’’) at 1; Kristen 

Malinconico, Director, Center for Capital Markets 

Competitiveness, U.S. Chamber of Commerce, dated 

Mar. 31, 2023 (‘‘Chamber of Commerce Letter’’) at 

2; Ellen Greene, Managing Director, Equity and 

Options Market Structure, Securities Industry and 

Financial Markets Association, dated Mar. 31, 2023 

(‘‘SIFMA Letter II’’) at 2, 22–23; William C. Thum, 

Managing Director and Assistant General Counsel, 

Securities Industry and Financial Markets 

Association Asset Management Group, dated Mar. 

31, 2023 (‘‘SIFMA AMG Letter I’’) at 2; Peter D. 

Stutsman, Global Head of Equity Trading, and 

Timothy J. Stark, Head of Equity Markets and 

Transaction Research, The Capital Group 

increments is based on round lots.107

Therefore, odd-lot information will not 

have an impact on determining 

minimum pricing increments under 

Rule 612. Further, for the reasons 

discussed below, the interaction of the 

reduction in tick size and the MDI 

Rules’ round lot definition will likely 

not have a material impact on the NBBO 

of affected stocks since only the most 

exceptionally liquid stocks would have 

prices over $250 and a TWAQS equal to 

or less than $0.015.108 Therefore, it is 

not necessary to postpone amending the 

minimum pricing increments until data 

is analyzed using the MDI Rules’ round 

lots. 

In addition, the dissemination of oddlot information in conjunction with the 

MDI Rules’ round lot sizes will increase 

transparency about better priced orders 

and therefore should be implemented 

within a similar time frame.109 Odd-lot 

information will be provided for all 

NMS stocks, not just those NMS stocks 

that may be assigned a smaller round 

lot. As discussed below, the number of 

NMS stocks that may be assigned a 

smaller round lot as of November 30, 

2023 is 163 NMS stocks.110 Therefore, 

while the MDI Rules’ round lot sizes 

will provide transparency about some 

better priced orders in higher priced 

stocks, they will not enhance 

transparency about those orders that 

continue to be defined as odd-lots and 

will not increase transparency for NMS 

stocks priced at $250 or less. This 

transparency is important for investors 

as it will enhance their ability to assess 

the current pricing in the market for 

certain NMS stocks. Therefore, the oddlot information definition and the round 

lot definition each represents important, 

but different information that will 

enhance the usefulness of quotation 

information. 

Some commenters recommended 

implementing the round lot definition 

but not the odd-lot information 

definition,111 stating that implementing 

odd-lot information would be 

burdensome on the industry,112 or 

would delay the implementation of the 

round lot definition by increasing the 

development work needed to be 

performed by the industry,113 or that 

implementation of the odd-lot 

information definition ‘‘could lead 

investors to expect prices that are not 

available.’’ 114 For the reasons discussed 

above, the implementation of both of 

these definitions is important to 

enhancing transparency for investors. 

The Commission has provided more 

time for implementing these data 

elements to accommodate the systems 

changes that will be necessary, therefore 

lessening implementation and 

development burdens on the 

industry.115 Further, as discussed 

below, market participants may decide 

to provide information to their 

customers about the changes that are 

being implemented, such as how to 

understand the different prices, and 

how the changes may impact their order 

entry requirements. Investor notification 

and education can help investors 

understand the operation and impact of 

these data elements.116

II. Equity Market Structure Initiatives 

and the Regulation NMS Proposal 

In December 2022, the Commission 

issued three other proposals related to 

separate aspects of equity market 

structure and Regulation NMS.117 A 

number of commenters provided 

comments on all four EMS Proposals 

jointly.118 One commenter stated that 

adoption of the Rule 605 Proposal is not 

a prerequisite to adoption of the other 

equity market structure proposals.119

However, some commenters stated that 

the Commission should consider an 

incremental approach and stagger the 

implementation of the four EMS 

Proposals because of the extent to which 

the proposed changes could impact the 

market and investors.120 Some 


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Companies, Inc., dated Mar. 31, 2023 (‘‘Capital 

Group Letter’’) at 2, 5; Ann Wagner, United States 

House of Representatives, dated Nov. 28, 2022 

(‘‘Wagner Letter’’) at 2. 

121See, e.g., Letters from Stephen John Berger, 

Managing Director, Global Head of Government & 

Regulatory Policy, Citadel Securities, dated Mar. 31, 

2023 (‘‘Equity Market Structure Citadel Letter’’) at 

21; Ellen Greene, Managing Director, Equities & 

Options Market Structure, and Joseph Corcoran, 

Managing Director, Associate General Counsel, 

Securities Industry and Financial Markets 

Association, dated Aug. 24, 2023 (‘‘SIFMA Letter 

III’’) at 3; Steven M. Greenbaum, Senior Vice 

President, General Counsel, TradeStation 

Securities, Inc., dated Mar. 30, 2023 (‘‘TradeStation 

Letter’’) at 7; Gregory Davis, Managing Director and 

Chief Investment Officer, and Matthew Benchener, 

Managing Director, Personal Investor, The 

Vanguard Group, Inc., dated Mar. 31, 2023 

(‘‘Vanguard Letter’’) at 2; Michael Camacho, Chief 

Executive Officer, Wealth Management Solutions, 

George C.W. Gatch, Chief Executive Officer, J.P. 

Morgan Asset Management, and Jason E. Sippel, 

Chief Executive Officer, J.P. Morgan Securities LLC, 

JPMorgan Chase & Co., dated Mar. 31, 2023 

(‘‘JPMorgan Letter’’) at 2; Jirˇı ́ Kro ́l, Deputy Chief 

Executive Officer, Global Head of Government 

Affairs, Alternative Investment Management 

Association, dated Mar. 31, 2023 (‘‘AIMA Letter’’) 

at 3; John L. Thornton, Co-Chair, Hal S. Scott, 

President, and R. Glenn Hubbard, Co-Chair, 

Committee on Capital Market Regulation, dated 

Mar. 31, 2023 (‘‘CCMR Letter’’) at 46; Douglas A. 

Cifu, Chief Executive Officer, Virtu Financial, Inc., 

dated Mar. 30, 2023 (‘‘Virtu Letter II’’) at 4; Andrew 

M. Saperstein, Co-President, Morgan Stanley, dated 

Mar. 31, 2023 (‘‘Morgan Stanley Letter’’) at 2–3, 6 

and 7; Steve Quirk, Chief Brokerage Officer, 

Robinhood Markets, dated Mar. 31, 2023 

(‘‘Robinhood Letter’’) at 46; MFA Letter at 14; FIA 

PTG Letter II at 2, 4, 7; NYSE Letter I at 10–11; 

SIFMA Letter II at 11, 23; State Street Letter at 3; 

Chamber of Commerce Letter at 1; STA Letter at 10– 

11; T. Rowe Price Letter at 3; Verret Letter I at 1, 

5, 11; MMI Letter at 2–3; BlackRock Letter at 17; 

Capital Group Letter at 5; UBS Letter at 1–2; Foster 

et al. Letter at 1, 2; Fidelity Letter at 2, 5. 

122See, e.g., Letters from David Howson, 

Executive Vice President, Global President, Cboe 

Global Markets, Nathaniel N. Evarts, Managing 

Director, Head of Trading, Americas, State Street 

Global Advisors, Kimberly Russell, Market 

Structure Specialist, Global SPDR Business, State 

Street Global Advisors, Mehmet Kinak, Global Head 

of Equity Trading, T. Rowe Price, Todd Lopez, 

Americas Head of Execution Services, UBS 

Securities LLC, and Douglas A. Cifu, Chief 

Executive Officer, Virtu Financial Inc., dated Mar. 

24, 2023 (‘‘Cboe, State Street, et al. Letter’’) at 1– 

2, 3; Michelle Bryan Oroschakoff, Managing 

Director, Chief Legal Officer, LPL Financial LLC, 

dated Mar. 31, 2023 (‘‘LPL Financial Letter’’) at 4; 

Schwab Letter II at 6, 37; UBS Letter at 1–2; Apex 

Letter at 14–15; MFA Letter at 6; SIFMA Letter II 

at 11, 22; SIFMA AMG Letter I at 2; T. Rowe Price 

Letter at 3; Vanguard Letter at 2, 7; JPMorgan Letter 

at 2; AIMA Letter at 3; CCMR Letter at 46; UBS 

Letter at 1–2, 10; Virtu Letter II at 4; Foster et al. 

Letter at 1, 2; Capital Group Letter at 5; Morgan 

Stanley Letter at 2, 6–7; Fidelity Letter at 2, 5, 27; 

Letter from Ann Wagner, Andrew R. Garbarino, 

Frank D. Lucas, Bill Huizenga, Tom Emmer, Dan 

Meuser, Zach Nunn, Pete Sessions, French Hill, 

Bryan Steil, Michael V. Lawler, Erin Houchin, 

United States House of Representatives, dated June 

27, 2024 (‘‘Wagner et al. Letter’’). Some commenters 

suggested adopting only the Rule 605 Amendments 

and portions of the Regulation NMS Proposal and 

then evaluating the impact of those changes on the 

market. See Letter from Melanie Ringold, Head of 

Legal, Americas, and Will Geyer, Global Head of 

Capital Markets, Invesco Ltd., dated Mar. 31, 2023 

(‘‘Invesco Letter’’) at 2, 5; Hudson River Letter at 1– 

2; TradeStation Letter at 7. 

123See, e.g., Letters from Barbara Comstock, 

Executive Director, American Consumer & Investor 

Institute, dated May 20, 2024 (‘‘ACII Letter II’’) at 

1 and 3; Ellen Greene, Managing Director, Equities 

& Options Market Structure, SIFMA, and Joseph 

Corcoran, Managing Director, Associate General 

Counsel, SIFMA, dated 14, 2024 (‘‘SIFMA Letter 

IV’’); Ellen Greene, Managing Director, Equities & 

Options Market Structure, SIFMA, Joseph Corcoran, 

Managing Director and Associate General Counsel, 

SIFMA, William C. Thum, Managing Director and 

Associate General Counsel, dated Aug. 13, 2024 

(‘‘SIFMA AMG Letter II’’) at 1–2; Thomas H. 

Merritt, Deputy General Counsel, Virtu Financial, 

Inc., dated June 21, 2024 (‘‘Virtu Letter III’’). See 

also Letters from Dan Meuser, Ann Wagner, Frank 

Lucas, Pete Sessions, Bill Huizenga, French Hill, 

Andrew Garbarino, Young Kim, Byron Donalds, 

Michael V. Lawler, Zach Nunn, United States 

House of Representatives, dated June 27, 2024 

(‘‘Meuser et al. Letter’’) at 2; Michael V. Lawler, 

United States House of Representatives, dated July 

9, 2024 (‘‘Lawler Letter’’) at 1; Wagner et al. Letter 

at 1–2. 

124See State Street Letter at 3. 

125See supra notes 121–124 and accompanying 

text. See also supra note 104. 

126See supra note 122. 

127Although the amendments adopted in this 

release are not dependent on the implementation of 

the Rule 605 Amendments, the amendments 

adopted in this release will enhance the usability 

of information in the recently amended rule 605 

reports. See infra section VII.D.6.a.ii. 

128See Rule 605 Amendments, supra note 10. 

commenters suggested implementing 

only some of the proposed equity 

market structure changes, such as the 

Rule 605 Amendments or portions of 

the Regulation NMS Proposal.121 Some 

commenters stated that the Rule 605 

Proposal should be implemented first 

and that data from the changes 

implemented in the Rule 605 Proposal 

should be analyzed to assess whether 

the changes proposed in the Regulation 

NMS Proposal should be made.122 Some 

commenters stated that, in light of the 

Commission’s approval of the 

amendments to rule 605, the 

Commission should defer or suspend 

action on the Regulation NMS Proposal 

(and the two remaining EMS Proposals) 

and re-evaluate whether to proceed after 

the amendments to rule 605 have been 

implemented and the data collected 

following implementation has been 

analyzed.123 One commenter suggested 

implementing the round lot and odd-lot 

information definitions after 

implementation of the Rule 605 

Proposal, and thereafter pausing to 

assess the impact of the changes on the 

markets.124

The Commission disagrees with 

comments urging delayed 

implementation of the Regulation NMS 

Proposal, either in its entirety or 

portions of it, as delaying these 

amendments will delay significant 

benefits for investors.125 The 

amendments adopted in this release 

revise several provisions of Regulation 

NMS to benefit investors. The 

Commission is adopting amendments to 

Rule 612 that will benefit investors and 

other market participants by allowing 

certain NMS stocks to be priced in 

increments that are smaller than the 

preexisting rule allowed, which will 

lower transaction costs and introduce 

greater competition on price into the 

market. The adopted amendments to 

Rule 610 will lower costs for investors 

and other market participants by 

reducing the access fee caps and will 

help to address distortions in the market 

associated with the preexisting fee caps. 

Additionally, the amendments will 

require all exchange fees charged and 

rebates paid for the execution of an 

order to be determinable at the time of 

execution, allowing investors and other 

market participants the ability to know 

with certainty the costs of their 

transactions at the time of the trade and 

to allow investors to more readily 

request details about the fees and 

rebates applicable to their orders. 

Accelerating the implementation of the 

MDI Rules’ round lot and odd-lot 

information definitions will provide 

investors and other market participants 

that use SIP data with transparency 

about better priced quotes and orders 

that are available in the market but only 

visible to subscribers of exchange 

proprietary data feeds sooner than 

originally planned. The amendments 

provide important investor benefits, 

which are discussed throughout. 

Therefore, the Commission is not 

delaying adopting the amendments. 

With respect to the Rule 605 

Amendments, the Commission does not 

agree with commenters that stated that 

amended rule 605 data must be 

analyzed before adoption of the changes 

in this release.126 The amendments 

adopted in this release are not 

dependent on rule 605 data nor is the 

data from rule 605 reports necessary 

before the Commission makes changes 

to better protect investors and benefit 

the markets more broadly.127 While the 

Rule 605 Amendments will bring 

improvements to disclosures for order 

executions of NMS stocks,128 the 

Regulation NMS amendments address 

other structural concerns relating to 

investors’ trading and the lack of 

transparency in the national market 

system. For example, quoted spreads for 

NMS stocks could not get tighter than 

$0.01 under preexisting Rule 612 for all 

quotes and orders in NMS stocks that 

were priced equal to, or greater than, 

$1.00 per share. 

The Commission disagrees with the 

commenter that stated that the 

Commission should implement the 


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81630 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

129See State Street Letter at 3. 

130See State Street Letter at 3. 

131See Rule 605 Amendments, supra note 10, at 

26482 (stating, ‘‘Rule 605’s price improvement 

statistics that are relative to the best available 

displayed price will not be required to be reported 

until six months after odd-lot order information 

needed to calculate the best available displayed 

price is made available pursuant to an effective 

national market system plan.’’). 

132See infra section VII.D.6.a.iii (stating that the 

Commission did not rely on rule 605 data in its 

analyses in the Proposing Release and in this 

release). 

133See id. The Commission also has considered 

the interaction of the compliance dates of the 

adopted amendments with the compliance date of 

the Rule 605 Amendments. See infra section VI; 

section VII.D.6.b. 

134See Citadel Letter I at 29. 

135See, e.g., NYSE, Schwab, and Citadel Letter at 

2; STA Letter at 4, 10–11; T. Rowe Price Letter at 

3; RBC Letter at 2 and 5; Nasdaq Letter I at 1, 6; 

Dimensional Letter at 1–2; FIA PTG Letter II at 2; 

Schwab Letter II at 3, 37; Apex Letter at 14–15, 19; 

JPMorgan Letter at 2–3; Chamber of Commerce 

Letter at 2; BlackRock Letter at 3, 17; MMI Letter 

at 2–3, 9; B. Riley Letter at 2; Capital Group Letter 

at 5; Letters from Ari Rubenstein, CEO, GTS 

Securities LLC, dated Mar. 31, 2023 (‘‘GTS Letter’’) 

at 4, 9; Jatin Suryawanshi, Managing Director, Head 

of Global Quantitative Strategies, and Anna Ziotis 

Kurzrok, Managing Director, Head of Market 

Structure, Jefferies, LLC, dated May 2, 2023 

(‘‘Jefferies Letter’’) at 1. See also Letters from Patrick 

McHenry, French Hill, Frank Lucas, Pete Sessions, 

Bill Posey, Blaine Luetkemeyer, Bill Huizenga, Ann 

Wagner, Andy Barr, Roger Williams, Tom Emmer, 

Barry Loudermilk, Alexander X. Mooney, Warren 

Davidson, John Rose, Bryan Steil, William 

Timmons, Ralph Norman, Dan Meuser, Scott 

Fitzgerald, Andrew R. Garbarino, Young Kim, 

Byron Donalds, Mike Flood, Michael V. Lawler, 

Zach Nunn, Monica De La Cruz, Erin Houchin, and 

Andy Ogles, United States House of 

Representatives, dated Sept. 26, 2023 (‘‘McHenry et 

al. Letter’’) at 2; Ronald C. Parker, President and 

CEO, National Association of Securities 

Professionals, dated Feb. 28, 2023 (‘‘NASP Letter’’) 

at 4; State Street Letter at 2. 136See, e.g., SIFMA Letter I at 1; SIFMA Letter 

II at 3, 8–9, 11, 12–13; SIFMA AMG Letter I 4–5; 

GTS Letter at 4–5; Hudson River Letter at 1; UBS 

Letter at 2; NYSE, Schwab, and Citadel Letter at 1; 

Citadel Letter I at 2, 28–29; Schwab Letter II at 2– 

3, 37; Virtu Letter II at 5, 19–20, 31–35, 55–57; MMI 

Letter at 2; Nasdaq Letter I at 6–7; Invesco Letter 

at 2; Goldman Sachs Letter at 3; Robinhood Letter 

at 7, 22, 24, 42, 44; Apex Letter at 14, 15; McHenry 

et al. Letter at 1, 2; CCMR Letter at 46; Chamber of 

Commerce Letter at 3; Equity Market Structure 

Citadel Letter at 13–14; Letters from JJ Kinahan, 

President, Tastytrade, Inc., dated Mar. 30, 2023 

(‘‘Tastytrade Letter’’) at 2; Jason Clague, Managing 

Director, Head of Operations, Charles Schwab & 

Co., dated Mar. 22, 2023 (‘‘Schwab Letter I’’) at 2; 

Eric J. Pan, President and CEO, and Susan Olson, 

General Counsel, Investment Company Institute, 

dated Aug. 17, 2023 (‘‘ICI Letter II’’) at 2–3, 7–9; 

Mary Lou H. Ivey, Chairman of the Boards and 

Independent Trustee, David J. Urban, Independent 

Trustee, and Theo H. Pitt, Jr., Independent Trustee, 

Independent Trustees of ETF Opportunities Trust 

and World Funds Trust, dated Mar. 31, 2023 

(‘‘Independent Trustees Letter’’) at 1–2; Stephen 

John Berger, Managing Director, Global Head of 

Government & Regulatory Policy, Citadel Securities, 

dated Dec. 5, 2023 (‘‘Citadel Letter II’’) at 1, 10; 

Christopher A. Iacovella, President & Chief 

Executive Officer, American Securities Association, 

dated Mar. 31, 2023 (‘‘ASA Letter’’) at 2, 3; Seth A. 

Miller, President, Cambridge Investment Research, 

Inc. dated Mar. 31, 2023 (‘‘Cambridge Letter’’) at 3; 

Nicolas Morgan, Founder and President, Investor 

Choice Advocates Network, dated Mar. 31, 2023 

(‘‘ICAN Letter’’) at 2; Rebekah Goshorn Jurata, 

General Counsel, American Investment Council, 

dated Aug. 8, 2023 (‘‘AIC Letter’’) at 2, 5, 10; James 

Angel, Associate Professor of Finance, Georgetown 

University, dated Mar. 31, 2023 (‘‘Angel Letter’’) at 

2; see also Letter from Jonathan Kanter, Assistant 

Attorney General, Doha Mekki, Principal Deputy 

Assistant Attorney General, Maggie Goodlander, 

Deputy Assistant Attorney General, David 

Lawrence, Policy Director, Karina Lubell, Chief, 

Competition Policy & Advocacy Section, Ihan Kim, 

Attorney Advisor, Competition Policy & Advocacy 

Section, and Owen M. Kendler, Chief, Financial 

Services, Fintech & Banking Section, United States 

Department of Justice, dated Apr. 11, 2023 (‘‘DOJ 

Letter’’) at 6. 

137See McHenry et al. Letter at 2. 

138See infra section VII.C. 

139See infra sections VII.C and VII.D.6. 

140The OCR Proposal and the Best Execution 

Proposal Release mentioned by commenters remain 

at the proposal stage. To the extent that the 

Commission takes final action on either of those 

proposals, the baseline in each of those subsequent 

rulemakings will reflect the regulatory landscape 

that is current at that time. See infra section VII.C, 

note 1047. 

141The CAT database contains confidential 

market information. See, e.g., Securities Exchange 

round lot and odd-lot information 

definitions after the implementation of 

the Rule 605 Amendments and then 

wait to assess the effects of these 

changes.129 The commenter stated that 

it supported the round lot and odd-lot 

information definitions but stated, 

without providing details or any other 

support, that ‘‘these changes could have 

unintended impacts on price discovery, 

routing complexity, and trading 

costs.’’ 130 The Commission adopted the 

definitions in 2020 to provide 

transparency about better priced orders 

that are available in the market but are 

not fully transparent in NMS 

information. These definitions will 

result in the provision to market 

participants of important information 

about the prices at which market 

participants are willing to trade and 

therefore will enhance price discovery. 

Market participants may have to assess 

their order routing decisions based on 

this enhanced transparency of better 

priced orders that are available in the 

market.131

As discussed below, the data analysis 

performed by the Commission and other 

market participants to assess changes in 

minimum pricing increments and the 

access fee caps were not derived from 

rule 605 reports.132 While one 

commenter stated that rule 605 data 

should be used to assess the 

amendments adopted in this release, the 

Commission has utilized relevant and 

sufficient data other than rule 605 data 

that fully and robustly support the 

amendments.133 One commenter states 

that if this proposal were to be finalized 

along with the amendments to Rule 605, 

‘‘it appears that market participants and 

regulators would be unable to accurately 

assess the true impact of the market 

structure changes contained in this 

Proposal, precluding an ‘apples-toapples’ before-and-after 

comparison.’’ 134 However, market 

participants have other data with which 

to analyze the effects of these 

amendments. 

Some commenters stated that the EMS 

Proposals would have an impact on 

each other.135 Some commenters stated 

that the EMS Proposals should have 

been analyzed together to assess how 

the proposals would relate to, and 

operate with, each other.136 One group 

of members of Congress recommended 

that no equity market structure rule 

‘‘should be finalized or implemented’’ 

until the Commission ‘‘[c]onduct[s] a 

comprehensive cost-benefit analysis of 

the aggregate impact of [these rules] and 

seek[s] public comment on this 

analysis[,]’’ and the Commission 

proposes ‘‘a reasonable, workable, and 

staggered schedule for public comment 

on the adoption and implementation of 

the proposals, considering their 

overlapping nature, significant 

compliance and operational burdens, 

and if they may be insurmountable for 

smaller or emerging firms.’’ 137

As discussed below in the economic 

analysis, the Commission uses as a 

baseline the world as it exists at the time 

of adoption, including adopted rules but 

not proposed rules.138 Each release, like 

this release and the Rule 605 

Amendments (which were adopted 

prior to the amendments in this release), 

explains fully the rationale for the 

particular rulemaking and includes a 

robust economic analysis of the rules 

being adopted, including the possible 

economic effects that commenters raised 

with regard to specific interactions 

between the amendments and the Rule. 

In addition, comments on how the 

adoption of the amendments should 

affect the timing or sequence of the 

other EMS Proposals will be considered 

if and when those rules are adopted. 

The economic analysis considers 

potential economic effects arising from 

any overlap in compliance dates 

between these amendments and other 

recent amendments.139 Similarly, the 

effects of the amended rules are 

measured against the existing regulatory 

baseline, which includes recently 

adopted rules.140

Commenting on the Proposing Release 

together with the other EMS Proposals, 

some commenters requested that the 

Commission publicly release 

anonymized subsets of CAT data 141


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81631 

Act Release No. 67457 (Jul. 18, 2012), 77 FR 45722, 

45782 (Aug. 1, 2012) (stating that maintaining the 

confidentiality of customer and other information 

reported to CAT ‘‘is essential’’ and that ‘‘[w]ithout 

adequate protections, market participants would 

risk the exposure of highly-confidential information 

about their trading strategies and positions’’); see 

also Securities Exchange Act Release No. 84696 

(Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016). 

142See, e.g., SIFMA Letter I at 1–2, 3–4; Letters 

from Thomas M. Merritt, Deputy General Counsel, 

Virtu Financial, Inc., dated Feb. 24, 2023 (‘‘Virtu 

Letter I’’) at 1, 2; SIFMA Letter II at 2–3, 11, 22; 

SIFMA AMG Letter I at 5; Schwab Letter II at 3– 

4; T. Rowe Price Letter at 3; Chamber of Commerce 

Letter at 2–3; Robinhood Letter at 8; Equity Market 

Structure Citadel Letter at 16–17; Cambridge Letter 

at 4; Jefferies Letter at 1; SIFMA AMG Letter II at 

5–7; and SIFMA Letter IV at 6. 

143See SIFMA Letter I at 7 (‘‘Regulation NMS: 

Minimum Pricing Increments, Access Fees, and 

Transparency of Better Priced Orders—The 

following tables/figures within the Proposal use 

CAT data: none.’’). The Commission responds to 

specific comments on releasing the CAT data used 

in the tables and figures of the specific EMS 

Proposals in the relevant adopting release, where 

appropriate. See Rule 605 Amendments, supra note 

10. 

144See, e.g., Proposing Release, supra note 11, at 

80316, 80340–41. A commenter identifies this 

limited use of CAT data in the Proposing Release 

but does not identify specific additional 

information the Commission should provide. See 

Equity Market Structure Citadel Letter at 16–17. 

145See 17 CFR 242.612. 

146As discussed in the Proposing Release, the 

Commission granted exemptions from Rule 612 to 

various national securities exchanges’ retail 

liquidity programs (‘‘RLPs’’) as a way to allow them 

to compete with over-the-counter (‘‘OTC’’) market 

maker sub-penny price improvement. See 

Proposing Release, supra note 11, at 80271. Under 

the RLPs, exchanges can accept and rank certain 

quotes and orders from certain participants in subpenny increments as small as $0.001. 

147See Proposing Release, supra note 11, at 

80272–80273. 

148See Proposing Release, supra note 11, at 

80280. 

149See infra section VII.D.1.b, table 3. 

150See, e.g., The Tick-Constrained Stock Problem 

by Phil Mackintosh (Jan. 20, 2022), available at 

http://www.nasdaq.com/articles/the-tickconstrained-stock-problem) (‘‘Nasdaq Paper’’). See 

also Petition for Rulemaking to Amend Rule 612 of 

Regulation NMS to Adopt Intelligent Tick-Size 

Regime, dated Dec. 16, 2019, submitted by John A. 

Zecca, Executive Vice President, Chief Legal Officer 

& Chief Regulatory Officer, Nasdaq Inc. available at 

https://www.sec.gov/rules/petitions/2019/petn4- 

756.pdf (‘‘Nasdaq Intelligent Tick Proposal’’); The 

Impact of Tick-constrained Securities on the U.S. 

Equity Market (available at http://www.nyse.com/ 

publicdocs/Tick_Constrained_Stocks.pdf) (‘‘NYSE 

White Paper’’) (no date available); and Cboe 

Proposes Tick-Reduction Framework to Ensure 

Market Structure Benefits All Investors (available at 

https://www.cboe.com/insights/posts/cboeproposes-tick-reduction-framework-to-ensuremarket-structure-benefits-all-investors/) (‘‘Cboe 

Proposal’’). 

151See Proposing Release, supra note 11, at 

80274–80278. 

152See Letters from Angelo Evangelou, Cboe 

Global Markets, Inc., dated Feb. 28, 2023 (‘‘Cboe 

Letter I’’); Patrick Sexton, EVP, General Counsel & 

Corporate Secretary, Cboe Global Markets, Inc., 

dated Mar. 31, 2023 (‘‘Cboe Letter II’’) at Appendix 

A. See also Letter from Hope M. Jarkowski, General 

Counsel, NYSE Group, Inc., dated Mar. 27, 2023 

Continued 

used in connection with the tables and 

figures in the EMS Proposals’ economic 

analyses.142 In the Proposing Release, 

unlike certain of the other EMS 

Proposals, CAT data was not used in 

any tables and figures.143 Rather, the 

Proposing Release used CAT data to 

determine the numbers of affected 

broker-dealers in the baseline and 

compliance cost discussion in the 

economic analysis, as well as to 

determine statistics in a reasonable 

alternative to the proposed amendment 

that would have imposed a minimum 

pricing increment for trades.144 The 

CAT information used in this adopting 

release is narrower still. Specifically, 

the Commission uses CAT information, 

consisting of lists of firm names, 

including firm identifier numbers and 

account type information, only to 

determine the numbers of affected firms. 

The Commission is not releasing 

anonymized versions of the CAT 

information used in this release because 

releasing an anonymized list of firm 

names would provide no meaningful 

information beyond the total number of 

affected firms, which is the same 

information provided in this release. 

The Commission described in the 

Proposing Release and describes in this 

release the CAT data and methodology 

used in connection with its estimates. 

III. Final Rule 612 of Regulation NMS— 

Minimum Pricing Increment 

Rule 612 of Regulation NMS 

establishes minimum pricing 

increments (also known as minimum 

price variations or tick sizes) for 

quotations and orders in NMS stocks. 

Specifically, preexisting Rule 612 stated 

that ‘‘[n]o national securities exchange, 

national securities association, 

alternative trading system, vendor, or 

broker or dealer shall display, rank, or 

accept from any person a bid or offer, 

an order, or an indication of interest in 

any NMS stock priced in an increment 

smaller than $0.01 if that bid or offer, 

order, or indication of interest is priced 

equal to, or greater than, $1.00 per 

share.’’ 145 Preexisting Rule 612(b) had 

similar language that applied to bids, 

offers, orders, and indications of interest 

in any NMS stock priced less than $1.00 

per share and specified that the 

minimum pricing increment could not 

be smaller than $0.0001. Preexisting 

Rule 612 of Regulation NMS did not 

establish or include minimum pricing 

increments for transactions.146

A. Issues Raised in the Existing Market 

Structure Related to Tick Sizes 

The Proposing Release contains an 

extensive discussion of the development 

and the consideration by the 

Commission and market participants of 

Rule 612 since its adoption.147 Since the 

adoption of Rule 612, there has been a 

marked increase in the trading volume 

of NMS stocks that would likely be 

priced with tighter spreads if their 

pricing was not constrained by the 

uniform $0.01 minimum pricing 

increment required by preexisting Rule 

612 for quotes and orders all NMS 

stocks priced equal to, or greater than, 

$1.00 per share. Easing constraints on 

ticks for these NMS stocks will reduce 

transaction costs for market 

participants, including investors, and 

allow prices to be determined in a more 

competitive manner. In other words, the 

number and volume of NMS stocks that 

could benefit from the ability to quote 

in a minimum pricing increment that is 

smaller than $0.01 (i.e., sub-pennies) 

has grown. 

In the Proposing Release, the 

Commission considered data to evaluate 

and determine which NMS stocks, by 

number and by volume, would benefit 

from a reduced minimum pricing 

increment for quotes and orders that 

would allow for tighter spreads. While 

the Commission could not estimate the 

number of stocks that would have a 

TWAQS of $0.008 or less due to the 

preexisting Rule 612 requirement that 

all orders priced equal to greater than 

$1.00 per share have a $0.01 minimum 

pricing increment, the Commission 

could estimate that 1,707 stocks, which 

represented approximately 64% of share 

volume and 37.9% of dollar volume in 

January through May 2022, had TWAQS 

that were less than $0.016.148

Additionally, 2,648 stocks, which 

represented approximately 17.9% of 

share volume and 22.3% of dollar 

volume in January through May 2022, 

traded with a spread that was greater 

than $0.016 and less than or equal to 

$0.04. More recently, the Commission 

analyzed NMS stocks in 2023 and 

identified 2,420 NMS stocks that had a 

TWAQS of $0.015 or less; these NMS 

stocks represent about 74% of share 

volume and about 47% of dollar 

volume.149

Prior to the Proposing Release, certain 

market participants conducted data 

analyses on the effects of Rule 612 and 

concluded that a $0.01 minimum 

quoting increment may not be 

appropriate for all NMS stocks that are 

priced greater than or equal to $1.00.150

The Commission discussed these data 

analyses in the Proposing Release.151

One of these market participants, Cboe, 

submitted updated data analysis in two 

comment letters to the Proposing 

Release.152


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81632 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

(‘‘NYSE Letter II’’) (submitting for the record its 

paper entitled Price Improvement, tick 

harmonization & investor benefit (Aug. 22, 2022). 

This paper was described in the Proposing Release, 

supra note 11, at 80275; MEMX Letter, Appendix 

(submitting Tick-constrained Securities (Aug. 

2021). This paper was described in the Proposing 

Release, supra note 11, at 80274. In the MEMX 

Letter, MEMX also submitted Tick-constrained 

Securities, The Tick Size Debate, Revisited (Jan. 

2022) which analyzed a set of reverse splits on 

certain low-priced ProShares exchange-traded 

products (‘‘ETPs’’) and finding that the tickconstrained ETPs analyzed traded with significantly 

lower spreads post reverse split. This paper was 

described in the Proposing Release, supra note 11, 

at 80318. 

153See infra section III.C.7.b. See also proposed 

Rule 612(a). 

154See infra section III.C.7.a. See also proposed 

Rule 612(a). 

155See proposed Rule 612(c). 

156See proposed Rule 612(a). 

157See Proposing Release, supra note 11, at 80273 

(discussing the competitive dynamic among 

exchanges, ATSs and OTC market makers). 

158Rule 612(b)(3) is the same as preexisting Rule 

612(b). 

159See Rule 612(a)(1). 

160Some commenters suggested that the 

Commission consider wider quoting increments. 

See, e.g., Nasdaq Letter I; ASA Letter at 4; MEMX 

Letter at 20; Cboe, State Street, et al. Letter at 2; BIO 

Letter at 3; Invesco Letter at 3; Robinhood Letter at 

39; Themis Letter at 5; Dimensional Letter at 2; and 

Letter from Tim Gately, Managing Director, Head of 

Equities Sales, Americas, Citigroup Global Markets, 

Inc., dated Mar. 31, 2023 (‘‘Citigroup Letter’’) at 5. 

The Commission is not adopting a wider quoting 

increment for NMS stocks or a subset of NMS stocks 

as part of these amendments. As discussed 

throughout this release, the Commission is 

amending Rule 612 to address issues that developed 

related to the constraint that results from the $0.01 

minimum pricing increment. A wider quoting 

increment would not address these specific issues. 

161See supra note 82. 

162See, e.g., Form Letter Type A, of which 22 

comments were received; Form Letter Type D, of 

which 255 comments were received; Form Letter 

Type G, of which 652 comments were received, 

available at https://www.sec.gov/comments/s7-30- 

22/s73022.htm; IEX Letter I at 6; Letters from David 

Mechner, Chief Executive Officer, Pragma, LLC, 

dated Mar. 23, 2023 (‘‘Pragma Letter’’); Citigroup 

Letter at 4; MMI Letter at 3; Cboe, State Street, et 

al. Letter at 2; Nasdaq Letter I at 2; Managed Funds 

Letter dated March 30, 2023 at 11; letter from 

Joseph Scafidi, Global Head of Trading, and Carlos 

Oliveira, Head of Trading Analytics and Market 

Structure, Brandes Investment Partners, L.P., dated 

Mar. 23, 2023 (endorsed by Adam Conn, Director, 

Baillie Gifford (Overseas) Ltd. et al.) (‘‘Brandes 

Letter’’) at 1; Angel Letter at 5; TradeStation Letter; 

Vanguard Letter at 4; B. Riley Letter at 1; JPMorgan 

Letter at 4; and UBS Letter at 10. 

163See, e.g., Form Letter Type D, of which 255 

comments were received; Form Letter Type E, of 

which 14 comments were received; and Form Letter 

Type G, of which 652 comments were received, 

available at https://www.sec.gov/comments/s7-30- 

22/s73022.htm; Letter from Bibambop RIP, dated 

B. Proposal To Amend Rule 612 

The Commission proposed variable 

minimum pricing increments for quotes 

and orders for NMS stocks priced at, or 

greater than, $1.00 per share based on 

the TWAQS of a particular NMS stock. 

The Commission also proposed that the 

minimum pricing increment for 

executions be the same as, and correlate 

to, the minimum pricing increment for 

quoting on all trading venues (i.e., onexchange and OTC), subject to certain 

exceptions. 

Specifically, the Commission 

proposed that the minimum pricing 

increments for quotations, orders and 

executions in NMS stocks that are 

priced equal to or greater than $1.00 per 

share would be variable and no smaller 

than: (1) $0.001 if the TWAQS153 for the 

NMS stock during the Evaluation 

Period 154 was equal to, or less than, 

$0.008; (2) $0.002, if the TWAQS for the 

NMS stock during the Evaluation Period 

was greater than $0.008 but less than, or 

equal to $0.016; (3) $0.005, if the 

TWAQS for the NMS stock during the 

Evaluation Period was greater than 

$0.016 but less than, or equal to, $0.04; 

and (4) $0.01 if the TWAQS for the NMS 

stock during the Evaluation Period was 

greater than $0.04.155 Further, as 

proposed, NMS stocks’ TWAQS would 

have been measured quarterly based on 

one month of trading data.156 In other 

words, it was proposed that the 

assignment of minimum pricing 

increments for the quoting and trading 

of NMS stocks priced equal to or greater 

than $1.00 per share be done on a 

quarterly basis. 

The Commission stated that it 

preliminarily believed that the proposed 

Rule 612 amendments would promote: 

(1) fair and orderly markets and 

economically efficient executions, 

particularly for tick-constrained NMS 

stocks and retail order flow; and (2) fair 

competition and equal regulation 

between OTC market makers, 

exchanges, and ATSs that compete for 

retail liquidity by requiring that NMS 

stocks trade with the same minimum 

pricing increment regardless of venue 

(i.e., on or off-exchange).157 The 

Commission also stated that proposed 

Rule 612 would promote price 

discovery and price competition, 

particularly for tick-constrained stocks 

and retail order flow, by permitting the 

uniform quoting and trading of NMS 

stocks across trading venues, in finer 

increments, based on objective criteria. 

The Commission preliminarily believed 

that the proposed Rule 612 amendments 

would result in the pricing of quotes 

and orders being more in alignment 

with the principles of supply and 

demand. 

C. Final Rule—Minimum Pricing 

Increments for Orders Priced Equal to or 

Greater Than $1.00 per Share 

After considering comments, and 

analyzing additional data in response to 

those comments, the Commission is 

modifying and adopting the proposed 

amendments to Rule 612. As adopted, 

Rule 612(b)(2) provides that no national 

securities exchange, national securities 

association, ATS, vendor, or broker or 

dealer shall display, rank, or accept 

from any person a bid or offer, an order, 

or an indication of interest in any NMS 

stock in an increment smaller than 

required pursuant to either paragraph (i) 

or (ii) below if that bid or offer, order, 

or indication of interest is priced equal 

to or greater than $1.00 per share: 

(i) $0.01, if the Time Weighted 

Average Quoted Spread for the NMS 

stock during the Evaluation Period was 

greater than, $0.015; or 

(ii) $0.005, if the Time Weighted 

Average Quoted Spread for the NMS 

stock during the Evaluation Period was 

equal to or less than $0.015. 

Rule 612(b)(3) provides that no 

national securities exchange, national 

securities association, alternative 

trading system, vendor, or broker or 

dealer shall display, rank, or accept 

from any person a bid or offer, an order, 

or an indication of interest in any NMS 

stock priced in an increment smaller 

than $0.0001 if that bid or offer, order, 

or indication of interest is priced less 

than $1.00 per share.158

Further, as amended, minimum 

pricing increments for quotes and orders 

will be assigned on a semiannual basis 

using 3-months of trading data to 

calculate each NMS stock’s TWAQS.159

Therefore, as adopted, a minimum 

pricing increment of either $0.01 or 

$0.005 will be assigned to each NMS 

stock for quotes and orders that are 

priced equal to or greater than $1.00 per 

share twice a year and will be operative 

for a six-month period.160

The amendment differs from the 

proposal because rather than adding 

three proposed smaller minimum 

pricing increments for quotes and orders 

($0.005, $0.002, $0.001) to the current 

$0.01 increment, only one additional 

minimum pricing increment ($0.005) for 

NMS stocks that have a TWAQS of 

$0.015 or less will be added. In 

addition, the amendment differs from 

the proposal as it (1) does not include 

a minimum pricing increment for 

trades, (2) modifies the Evaluation 

Period, and (3) provides for an 

implementation period. 

1. General Comments and Discussion 

The Commission received many 

comments on the proposal to amend 

Rule 612.161 Some commenters 

supported the need to amend Rule 

612.162 Many individual commenters 

generally supported the proposed 

amendments; 163 while some individual 


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Mar. 16, 2023; Letter from Binh Tran, dated Mar. 

4, 2023; Letter from Jerry Pang, dated Mar. 4, 2023; 

Letter from Charlie Chen, dated Mar. 1, 2023; Letter 

from Daniel Song, dated Jan. 12, 2023; Letter from 

Deok Park, dated Dec. 26, 2023; and Letter from 

Clarissa West, dated Apr. 1, 2023. 

164See, e.g., Form Letter Type H, of which 853 

comments were received, available at https://

www.sec.gov/comments/s7-30-22/s73022.htm. 

165See, e.g., Letter from Stephen W. Hall, Legal 

Director and Securities Specialist, Better Markets, 

Inc., dated Oct. 31, 2023 (‘‘Better Markets Letter II’’) 

at 3; SIFMA Letter II; Brandes Letter at 1; ICI Letter 

I; BlackRock Letter; B. Riley Securities Letter; 

JPMorgan Letter at 4; Cambridge Letter at 6; Invesco 

Letter at 3; UBS Letter at 10; Citigroup Letter at 4; 

TradeStation Letter at 6; letters from individuals, 

including the Form Letter Type D, of which 255 

comments were received; Form Letter Type G, of 

which 652 comments were received; and Form 

Letter Type H, of which 853 comments were 

received, available at https://www.sec.gov/ 

comments/s7-30-22/s73022.htm. 

166See ASA Letter at 4. 

167See MEMX Letter at 9. 

168See, e.g., SIFMA Letter II at 33; BlackRock 

Letter at 5; Citigroup Letter at 4; and MMI Letter 

at 5; UBS Letter at 10; Letter from Lawrence Harris, 

Ph.D., CFA, Professor of Finance and Business 

Economics, U.S.C. Marshall School of Business, 

dated Dec. 18, 2023 (‘‘Harris Letter’’) at 8. 

169See Better Markets Letter II at 8. 

170See, e.g., Form Letter Type A, of which 22 

comments were received; Form Letter Type D, of 

which 255 comments were received; Form Letter 

Type E, of which 14 comments were received; Form 

Letter Type G, of which 652 comments were 

received; Form Letter Type I, of which 22 

comments were received; Form Letter Type J, of 

which 15 comments were received; and Form Letter 

Type K, of which 22 comments were received, 

available at https://www.sec.gov/comments/s7-30- 

22/s73022.htm. 171Letter from John dated Feb. 23, 2023. 172Letter from Nevin Varghese dated Dec. 26, 

2022. 173See IEX Letter I at 6; Cboe, State Street, et al. 

Letter at 2; Nasdaq Letter I at 14; MEMX Letter at 

18; and Cboe Letter II at 3. 

174See Capital Group Letter at 4; ICI Letter I at 

5–6; Vanguard Letter at 4–5; Invesco Letter at 3; 

Schwab Letter II at 6; T. Rowe Price Letter at 4; 

Fidelity Letter at 14; Brandes Investment Letter 

dated March 31, 2023 at 2; Ontario Teachers, 

Alberta Investment, CalSTRS, CalPERS, Canada 

Pension, and Texas Retirement Letter dated Mar. 

31, 2023 at 2 (‘‘Ontario Teachers et al. Letter’’); 

BlackRock Letter at 5; Dimensional Letter at 2; B. 

Riley Letter at 1; and Letter from Christopher P. 

Bowker Jr., Director of Global Equity Trading, 

Boston Partners Global Investors, Inc., Joe Mariano, 

Senior Vice President, Global Head of Trading, 

Calamos Advisors LLC, Melissa F. Hinmon, Director 

of Equity Trading, Glenmede Investment 

Management, Dan Royal, Global Head of Equity 

Trading, Janus Henderson Investors US LLC, dated 

Apr. 6, 2023 (‘‘Boston Partners, Calamos Advisors, 

Glenmede Investment, and Janus Henderson 

Letter’’); State Street Letter at 3; NYSE, Schwab, and 

Citadel Letter at 2; Letter from John Zhu, Head of 

Trading, Optiver US LLC, dated Mar. 15, 2023 

(‘‘Optiver Letter’’) at 4; Pragma Letter at 1; Cboe, 

State Street, et al. Letter at 2; Letter from Milan 

Galik, Chief Executive Officer, Interactive Brokers 

Group, Interactive Brokers LLC, dated Mar. 30, 2023 

(‘‘Interactive Brokers Letter’’) at 5; RBC Letter at 3; 

Morgan Stanley Letter at 3–4; JPMorgan Letter at 4– 

5; Letter from at 2; Joe Wald, Managing Director & 

Co-Head of Electronic Trading, Eric Stockland, 

Managing Director, Global Markets, Brad A. 

Rothbaum, Managing Director & Head U.S. Global 

Markets, Chief Operating Officer & Head of the U.S. 

Branches, and Michael Forlenza, Managing Director 

& Head of U.S. Capital Markets Compliance, BMO 

Capital Markets Corp., dated Mar. 31, 2023 (‘‘BMO 

Letter’’); Brandes Investment Letter dated March 23, 

2023 at 2; B Riley Letter at 1; Themis Letter; UBS 

Letter at 10; Citigroup Global Letter at 4–5; and 

Jefferies Letter at 3. 175See, e.g., BlackRock Letter at 6 and B. Riley 

Letter at 1. 

176See Jefferies Letter. See also Proposing 

Release, supra note 11, at 80277 for a discussion of 

the MEMX request for exemption. 

177See Proposing Release, supra note 11, at 80277 

for a discussion of the MEMX request for 

exemption. 

178See Jefferies Letter at 2. 

179 Id. at 4. 

180See, e.g., Cboe, State Street, et al. Letter at 2; 

letter from Carlo Passeri, Vice President 

Biotechnology Innovation Organization (‘‘BIO 

Letter’’), dated Mar. 30, 2023; and State Street Letter 

at 3; MMI Letter at 3–7. 

181See Citigroup Letter at 6. With regard to the 

comment about an ‘‘off-ramp/kill-switch,’’ should 

the Commission observe trends detrimental to 

investors, the Commission could take appropriate 

action. 

182See Citadel Letter II at 3. 

commenters agreed that Rule 612 

should be amended but recommended 

that the proposal be modified.164

Broadly, many commenters stated that 

preexisting Rule 612 should be 

amended in order to permit sub-penny 

quoting.165 One commenter stated that 

for those stocks that are tick-constrained 

‘‘[t]he one-cent increment for quoting 

can make it difficult for liquidity 

providers to fill orders and often results 

in higher trading costs.’’ 166 Another 

commenter stated that tick-constrained 

stocks experience wider quoted spreads, 

which results in ‘‘significantly increased 

transaction costs for investors,’’ and that 

these securities generally have longer 

queues and trade with ‘‘outsized 

notional liquidity at the NBBO.’’ 167

Several commenters stated that the 

‘‘one-size-fits-all’’ requirement in Rule 

612 should be revisited.168 One 

commenter stated that Rule 612 

impedes the ability of market 

participants to price some NMS stocks 

that would naturally be priced within 

the penny spread.169 The adopted 

minimum quoting increment of $0.005 

will enable the targeted NMS stocks to 

be more naturally priced based on the 

principles of supply and demand within 

the penny spread. 

Generally, comments from 

individuals supported the proposal 

without any additional suggested 

changes.170 One commenter stated of 

the proposal, ‘‘[t]his means that the 

pricing of stocks will be more precise 

and accurate, ensuring that I can get the 

best possible price for my trades.’’ 171

Another commenter stated that 

‘‘[a]llowing for sub-penny pricing will 

enable buyers to obtain lower prices 

from willing sellers and sellers to obtain 

higher prices from willing buyers, 

resulting in a more efficient market.’’ 172

Comments from other market 

participants, including exchanges,173

broker-dealers, and institutional 

investors 174 recommended modifying 

the proposal to Rule 612 to reduce the 

number of potential minimum quoting 

increments. Some commenters stated 

that further reduction of the minimum 

pricing increment for quotes and orders 

may be warranted for certain NMS 

stocks ‘‘in the future’’ but that a $0.005 

increment should be implemented and 

studied before any further reductions.175

For the reasons discussed throughout, in 

response to commenters, the 

Commission is adopting amended Rule 

612. Compared to the initial proposal, 

the modified amendments will be easier 

for market participants to implement 

and adapt to. 

One commenter suggested that the 

Commission use its exemptive authority 

to reduce minimum pricing increments 

and access fees in a manner similar to 

that requested by MEMX.176 MEMX 

requested an increment of $0.005 for 

NMS stocks that are ‘‘tick-constrained’’ 

(defined by MEMX as stocks that trade 

with an average quoted spread of $0.011 

or less).177 The commenter 

recommended this course of action as a 

means to gather data on sub-penny 

pricing increments to help determine 

whether, and to what degree, the 

proposed modifications were 

warranted.178 The commenter also 

stated that using an exemption to test a 

reduction of minimum pricing 

increments and the access fee caps 

could include an expiration and a ‘‘rollback’’ plan should unintended 

consequences become apparent.179

Other commenters recommended that 

the Commission reduce the minimum 

pricing increments for a sample of 

stocks so that data could be gathered 

and evaluated before changes were 

adopted on a more widespread basis.180

Finally, one commenter recommended 

that the Commission establish a 

‘‘transparent structured process to 

evaluate whether proposed changes to 

minimum pricing increments and access 

fees are actually improving the 

execution experience’’ and that a 

‘‘clearly articulated off-ramp/kill-switch 

to unwind these changes’’ be in place to 

return to current minimum pricing 

increments and the access fee caps.181

Another commenter stated that if the 

Commission adopted a modified 

amendment to Rule 612 that such 

modification should be re-proposed for 

public comment.182

An exemption, other temporary 

course of action, such as a pilot or 

sample reduction, or a re-proposal of the 


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183See, e.g., MEMX Letter, Pragma Letter; IEX 

Letter I; and Nasdaq Letter I. See infra section 

VII.D.1.b. 

184See supra section III.A. 

185See infra section VII.D.1.b.ii. 

186See infra section VII.D.1.b.ii. 

187See infra section VII.D.1.a. 

188See, e.g., MEMX Letter at 15–16. See also note 

219 and accompanying text. 

189See, e.g., letters from Joshua Russell dated 

Dec. 27, 2022; Matthew Gayvin Mutman dated Mar. 

7, 2023; Aswin Joy dated Mar. 7, 2023. 190See Letter from Joshua Russell dated Dec. 27, 

2022. But see letter from Anonymous dated Apr. 1, 

2023 (stating ‘‘[g]etting more precise increment 

should be easy enough with our modern computers. 

At the gas station I get charged down to the .000th 

place, so why shouldn’t our markets work the 

same? Seems fair to me.’’). 191Prior to decimalization, quotes and orders 

were made in increments that were fractions of a 

dollar, including 1⁄8, 1/16 and 1/32, which resulted 

in sub-penny pricing. 192See supra section III.A. 193One commenter stated that to the extent the 

minimum quoting increment is reduced, FINRA 

would need to update the Manning Rule (FINRA 

rule 5320 which protects customer limit orders by 

requiring a minimum amount of price improvement 

for a firm to execute an order on a proprietary basis 

while holding an unexecuted customer limit 

order—the minimum amount of price improvement 

is currently $0.01 for orders equal to or greater than 

$1) in an equivalent manner. See Citadel Letter I at 

8. The compliance date of the adopted rule provides 

sufficient time for FINRA to determine whether it 

would want to amend the Manning Rule in light of 

the amendments to Rule 612 and to file a proposed 

rule change pursuant to section 19(b) of the 

Exchange Act and rule 19b–4 thereunder. 

194See Letter from Matthew Gayvin Mutman 

dated Mar. 7, 2023. The commenter suggested a 

uniform $0.001 minimum pricing increment for all 

NMS stocks. Comments related to the level of 

minimum pricing increment are addressed in the 

next section. 

195See infra note 994 defining pennying. See also 

infra section VII.D.1 for additional discussion of 

this topic. 

196See, e.g., Form Letter Type G Nasdaq Letter I; 

MFA Letter; Letter from Douglas Friedman, General 

Counsel, Tradeweb Markets Inc., dated Mar. 30, 

2023 (‘‘Tradeweb Markets Letter’’); Virtu Letter II; 

State Street Letter; RBC Letter; Invesco Letter; ICI 

Letter I; Cboe Letter II; SIFMA Letter II; Vanguard 

Letter; JPMorgan Letter; Hudson River Letter; T. 

Rowe Price Letter at 4; Goldman Sachs Letter; 

Fidelity Letter; Citadel Letter I; Robinhood Letter; 

GTS Letter; BlackRock Letter; Citigroup Letter; 

Fidelity Letter at 11; Themis Letter at 3; and 

Tastytrade Letter at 20. 

197See Regulation NMS Adopting Release, supra 

note 4, at 37551. 

198See, e.g., MFA Letter at 11, State Street Letter 

at 3, and RBC Letter at 3. 

199See, e.g., Nasdaq Letter I at 13; MFA Letter at 

11, Virtu Letter II at 15, State Street Letter at 3, and 

RBC Letter at 3. 

adopted amendments is not warranted. 

The Commission and market 

participants already have provided data 

and analyses that support amending 

Rule 612 to address tick constraints.183

As discussed throughout this release, 

the adopted amendments to Rule 612 

will allow NMS stocks that are 

experiencing tick constraints with the 

$0.01 minimum pricing increment to be 

priced more competitively (i.e., reduce 

quoted spreads) and reduce transaction 

costs for liquidity demanders. The 

amendments to minimum pricing 

increments are designed to 

appropriately address significant 

concerns related to Rule 612.184 One of 

the primary goals of the proposal and 

the adopted amendments is to alleviate 

tick constraints. 

Reducing the minimum quoting 

increment for quotes and orders to 

$0.005 for certain NMS stocks will 

enable such stocks to quote with tighter 

spreads, which in return reduces the 

transaction costs of investors.185 As 

discussed below, the Commission has 

conducted analysis to show that quoted 

and effective spreads are likely to 

decline such that costs of executing 

small and medium trades will likely 

decline.186 Further, Rule 612, as 

amended, while simplified compared to 

the proposal, continues to be designed 

to address constraint concerns with 

respect to those NMS stocks. Market 

participants and investors will be able 

to more easily adapt to the amended tick 

regime because they will only need to 

accommodate, and adjust for, one 

additional minimum pricing increment 

that is already familiar for a limited, 

readily discernable, group of NMS 

stocks.187 The $0.005 minimum pricing 

increment for quotes and orders, one of 

the three additional ticks proposed by 

the Commission, was widely supported 

by commenters.188 Price improvement 

on exchanges and ATSs often occurs 

through midpoint executions in an 

increment of $0.005. Accordingly, 

$0.005 is an appropriate increment to 

introduce smaller, sub-penny minimum 

pricing increments in the national 

market system for quotes and orders 

priced equal to or greater than $1.00. 

Some individual commenters did not 

support the proposal.189 One of those 

commenters stated that the minimum 

pricing increment for quotes and orders 

should be ‘‘based solely on that which 

can be spent in real life; no less than a 

single penny.’’ 190 Preexisting Rule 612 

allowed quotes and orders in NMS 

stocks priced less than $1.00 per share 

to be accepted, ranked and displayed in 

an increment as small as $0.0001. 

Similarly, certain RLP Programs for 

national securities exchanges have been 

granted Commission exemptions to 

permit quotes and orders in NMS stocks 

priced equal to, or greater than, $1.00 

per share to be accepted, ranked and 

displayed in an increment as small as 

$0.001. Sub-penny increments also 

existed in the market for many years, 

even prior to the adoption of Rule 612 

in 2005.191 Sub-penny increments can 

allow market participants to better 

convey prices at which they are willing 

to trade, which can promote better price 

competition and lead to better price 

discovery. Further, as discussed above, 

sub-penny trading occurs frequently, 

whether at the midpoint or in other subpenny increments.192 Thus, sub-penny 

increments are not a novel concept. As 

discussed above, $0.005 is a common 

trading increment because of the use of 

midpoint orders under current Rule 612, 

and the ability to use such orders will 

not change under amended Rule 612. 

Nonetheless, the Commission 

understands that market participants 

may decide to provide investor notice 

and education about the availability of 

the new increment.193

Another commenter stated that the 

proposed variable minimum pricing 

increments were ‘‘not an effective 

solution to address concerns related to 

tick-constrained stocks’’ and suggested a 

uniform $0.001 minimum pricing 

increment for all NMS stocks.194 A 

uniform $0.001 minimum pricing 

increment for all NMS stocks goes 

beyond what is necessary to address the 

issues related to NMS stocks that are 

currently constrained by the $0.01 tick. 

A $0.001 minimum pricing increment 

would be significantly smaller than the 

current uniform $0.01 minimum pricing 

increment for quotes and orders for 

NMS stocks that are priced equal to, or 

greater than, $1.00 per share. A subpenny increment for NMS stocks that is 

too small would increase the incidence 

of stepping ahead (i.e., pennying) 195

and costs would not justify the benefits. 

2. Specific Comments on the Proposed 

Minimum Pricing Increments 

A few commenters did not support 

the implementation of the smallest 

proposed sub-penny increments (i.e., 

$0.002 and $0.001), and referenced 

certain concerns, including stepping 

ahead of displayed orders, quote 

flickering that occurs when the price of 

a trading center’s best displayed 

quotations changes multiple times in a 

single second, and decreased depth.196

Each of these were articulated as 

concerns by the Commission when Rule 

612 was first adopted.197

Some commenters stated that having 

ticks that are too small would result in 

queue jumping 198 and decreased 

depth.199 In the Regulation NMS 

Adopting Release, the Commission 

discussed concerns related to stepping 

ahead of displayed quotations with 

orders priced in economically 

insignificant increments (i.e., to gain 


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200See Regulation NMS Adopting Release, supra 

note 4, at 37551. 

201See infra section VII.D.1.b.ii and notes 1300– 

1303 and accompanying text. 

202See, e.g., MFA Letter at 11, State Street Letter 

at 3, RBC Letter at 3, and Invesco Letter at 3. 

203See Regulation NMS Adopting Release, supra 

note 4, at 37551. 

204 Id. at 37552. 

205See MDI Adopting Release, supra note 10, for 

a discussion about market data latencies. Flickering 

quotations is more of a concern when there is quote 

latency, in other words, when the displayed 

quotations do not reflect the actual quotations. For 

example, when the quote is being updated faster 

than the quote can be displayed, the price discovery 

mechanism may not be benefitted. 

206See Regulation NMS Adopting Release, supra 

note 4, at 37553–37554 (discussing the concerns 

with flickering quotes when Rule 612 was adopted 

and acknowledging that the market could evolve). 

207See, e.g., SIFMA Letter II at 33; Vanguard 

Letter at 5; Schwab Letter II at 35; Fidelity Letter 

at 11; JPMorgan Letter at 4; UBS Letter at 12; 

Citigroup Letter at 4; and Harris Letter at 7. 

208See, e.g., Pragma Letter, Robinhood Letter at 

40; IEX Letter I at 9; and Angel Letter at 6. The 

adopted $0.005 minimum pricing increment will 

provide for at least three ticks intra-spread. See 

infra section VII.D.1. 

209See, e.g., Interactive Brokers Letter at 4; Virtu 

Letter II at 4; and Themis Letter at 3. 

210See infra section VII.D.1.b. 

211See Regulation NMS Adopting Release, supra 

note 4, at 37552. 

212See Regulation NMS Adopting Release, supra 

note 4, at 37552. 

213See Citadel Letter I at 7. See also Virtu Letter 

II at 2 and 6–7. 

214See infra section VII.D.1.b.i. 

215See infra section III.C.6. 

216See infra note 1299 and accompanying text. 

217See, e.g., SIFMA Letter II at 34; AIMA Letter 

at 2; STA Letter at 6–7; Citadel Letter I at 30; 

Citigroup Letter at 4; Dimensional Letter at 2; 

BlackRock Letter at 3; Public Pension Letters dated 

Mar. 31, 2023; MMI Letter at 3; Brandes Letter at 

1; Schwab Letter II at 35–36; Invesco Letter at 3; B. 

Riley Letter at 1; JPMorgan Letter at 4; Cambridge 

Letter at 6; and Tastytrade Letter at 18. 

218See, e.g., MFA Letter at 12; Capital Group 

Letter at 3; ICI Letter I ; Angel Letter at 6 ; Vanguard 

Letter at 5; and Meuser et al. Letter at 1. 

219See id. See also Nasdaq Letter I; MFA Letter; 

MEMX Letter; Capital Group Letter; ICI Letter I; 

Citadel Letter I; Citigroup Letter at 4; BlackRock 

Letter; Apex Letter; Ontario Teachers et al. Letter 

at 2; Citigroup Letter; GTS Letter; ICI Letter I; 

Invesco Letter; Robinhood Letter; SIFMA Letter II; 

STA Letter; UBS Letter; Vanguard Letter; 

TradeStation Letter at 6; Cboe Letter; IEX Letter; 

Nasdaq Letter I; and NYSE Letter I; Brandes Letter 

at 2; Invesco Letter at 2; Fidelity Letter at 14; 

Themis Letter at 6; B. Riley Letter at 1; JPMorgan 

Letter at 4; Morgan Stanley Letter at 4; State Street 

Letter at 3; Dimensional Letter at 2; BMO Capital 

Letter at 2; and Meuser et al. Letter at 1. 

220See ASA Letter at 5. See also TradeStation 

Letter at 6. 

221See, e.g., CTA/UTP Letter dated March 29, 

2023; Nasdaq Letter I; State Street Global Letter; 

RBC Letter; ICI Letter I; Vanguard Letter; Cboe 

Letter II; SIFMA Letter II; Fidelity Letter; Brandes 

Letter at 2; Robinhood Letter at 20; Morgan Stanley 

Letter at 4; and Meuser et al. Letter at 2. 

execution priority) which can deter the 

display of aggressively-priced limit 

orders that would narrow the spread.200

In light of these comments, amended 

Rule 612 has been simplified compared 

to what was proposed. Thus, the 

Commission is only adding the $0.005 

minimum pricing increment for quotes 

and orders for those NMS stocks that 

have a TWAQS of $0.015 or less. 

Because the $0.005 minimum pricing 

increment is based on the TWAQs of the 

NMS stock, the $0.005 minimum 

pricing increment, relative to the 

spread, will be economically significant 

for these stocks.201

Some commenters stated that smaller 

tick sizes would cause flickering 

quotations.202 In the Regulation NMS 

Adopting Release, the Commission 

considered issues related to quote 

flickering.203 The Commission stated 

that quote flickering can result in 

broker-dealers having difficulties in 

satisfying their best execution 

obligations and other regulatory 

responsibilities.204 Because computer 

algorithms and ultra-fast connections 

dominate today’s trading and quoting 

activities such concerns are not as acute 

or prevalent as they were at the time of 

the adoption of Rule 612.205 Today’s 

quotations are calculated and displayed 

in microseconds, which is significantly 

faster than in 2005 and while flickering 

quotations can exist today, computer 

systems are much better able to process 

them such that they should not cause 

compliance difficulties or investor 

confusion.206 Accordingly, because of 

technological advancements, today’s 

market structure, compared to 2005, can 

more readily handle rapid changes to a 

trading center’s best bid or offer. 

Further, the concerns about the 

potential for flickering quotes should be 

mitigated to some extent because the 

amendments do not include the smaller 

proposed increments (i.e., $0.001 and 

$0.002) and are designed to have fewer 

ticks between the spread which will 

lessen the potential price changes 

between the spread. 

Other commenters stated that the 

proposed minimum quoting increments 

of $0.002 and $0.001 were too small,207

would introduce too many intra-spread 

ticks,208 and could harm trading by 

substantially increasing fragmentation 

of liquidity.209 The Commission also 

considered the impact of sub-penny 

quoting on market depth,210 i.e., the 

number of shares available at the NBBO 

when it originally adopted quoting 

increments.211 Decreased depth could 

lead to increased transaction costs and 

fragmentation.212 Adopting only one 

additional minimum quoting increment 

instead of the proposed four-tier 

approach, should help address 

commenters’ concerns with respect to 

fragmented liquidity 213 because there 

will be fewer price levels at which 

liquidity aggregates, which will result in 

less fragmentation. The modified 

amendment of Rule 612 does not 

include the proposed smaller minimum 

pricing increments for quotes and orders 

of $0.001 and $0.002, and thus 

commenters’ concerns related to those 

increments (e.g., decreased depth at the 

NBBO) are not applicable.214 As 

discussed, the Commission has 

determined to take an incremental 

approach in amending Rule 612 by only 

adding a $0.005 minimum pricing 

increment for those NMS stocks that are 

constrained by the preexisting, uniform 

minimum pricing increment based on 

an objective standard that is designed to 

have fewer ticks between the spread 

than the proposal.215 As adopted, those 

NMS stocks that are assigned the $0.005 

minimum pricing increment will result 

in three ticks intra-spread, which falls 

in the middle of the 2 to 4 ticks intraspread suggested as potentially optimal 

by many commenters.216 Finally, the 

Commission addresses its primary 

concern of relieving the constraint 

related to the $0.01 increment for 

certain NMS stocks by only adding the 

$0.005 minimum pricing increment and 

not adding minimum pricing 

increments of $0.002 and $0.001. The 

$0.005 minimum pricing increment for 

constrained NMS stocks will allow 

these stocks to quote more naturally and 

efficiently, and thereby reduce 

transaction costs for investors without 

the concerns that would attach if the 

minimum pricing increments were 

smaller. 

3. Comments on the Number of 

Proposed Increments 

Some commenters supported 

reducing the minimum pricing 

increment for quotes and orders to 

address those NMS stocks that are tickconstrained, but overall did not support 

the proposal’s four minimum quoting 

increments.217 Many commenters stated 

that the proposed quoting increments 

were too numerous.218 Instead, a 

number of commenters recommended 

that the Commission adopt a modified, 

simpler amendment to Rule 612 and 

suggested only adopting one additional 

minimum quoting increment of $0.005 

for tick-constrained NMS stocks.219 One 

commenter said that ‘‘reducing the tick 

size to one-half cent for stocks with 

narrower spreads will address the 

current market need.’’ 220 Commenters 

opposed the proposed four minimum 

quoting increments based on complexity 

for market participants to program into 

their systems these increments,221

potential increased costs for 


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222See, e.g., Dimensional Letter at 2. 

223See, e.g., Tastytrade Letter at 5, 18; SIFMA 

Letter II at 7; Morgan Stanley Letter at 3, 4; Fidelity 

Letter at 13; SIFMA Letter II at 34; Better Markets 

Letter I at 14; Robinhood Letter at 20; Citadel Letter 

I at 8; and STA Letter at 5. 

224See Better Markets Letter II at 4. See also 

Fidelity Letter at 12; Themis Letter at 6; Ontario 

Teacher et al. Letter at 2; and Harris Letter at 7. 

225See TradeStation Letter at 6. 

226See Themis Letter at 5. As discussed, the 

Commission is adopting a modified amendment to 

Rule 612 to introduce only a $0.005 minimum 

pricing increment for certain NMS stocks, not the 

smaller proposed increments of $0.002 and $0.001. 

Therefore, the commenter’s recommendation is no 

longer germane because without the proposed 

smaller $0.002 and $0.001 increments, the liquidity 

would not be as dispersed throughout the depth of 

the book which would not necessitate protection of 

the full depth of the book. 

227See infra section VII.D.1. 

228See BIO Letter at 1–2, 3 and STA Letter at 5. 

229See BIO Letter at 1–2, 3. 

230See STA Letter at 5. 

231See Proposing Release, supra note 11, at 

80272–73 for a discussion of the tick size pilot 

program. See also Tick Sizes and Market Quality: 

Revisiting the Tick Size Pilot by Yashar H. 

Barardehi, Peter Dixon, Qiyu Liu, and Ariel Lohr, 

available at https://www.sec.gov/dera/staff-papers/ 

working-papers/dera_wp_tick-sizes-and-marketqualityrevisiting-tick-size-pilot. 

232See infra section VII.D.1. 

233See infra section VII.D.1.b.ii. 

234See also infra section VII.D.1.b.i and VII.B.2 

for additional discussion. 

235See, e.g., Letter from Howard Meyerson, 

Managing Director, Financial Information Forum, 

dated Mar. 31, 2023 (‘‘FIF Letter’’) at 6; and 

Goldman Sachs Letter at 8. 

236See FIF Letter at 7. 

237See FIF Letter at 7. See also Robinhood Letter 

at 41; Morgan Stanley Letter at 3; UBS Letter at 12; 

Citigroup Letter at 4; TradeStation Letter at 7; and 

Goldman Sachs Letter at 9. 

investors,222 and potential investor 

confusion with respect to minimum 

pricing increments that could change 

periodically as proposed.223 Another 

commenter stated that the four-tier 

proposal would favor ‘‘high-frequency 

traders who have a long history of 

leveraging complexity to their advantage 

and to the detriment of ordinary 

investors.’’ 224 One commenter stated 

that the proposed variable minimum 

pricing increments ‘‘as small as $0.001 

goes well beyond what is necessary, and 

would also be cost prohibitive and 

complicated to implement.’’ 225 One 

commenter questioned the impact of 

smaller increments on Rule 611 of 

Regulation NMS and recommended that 

if the Commission ‘‘proceed[ed] with 

their sub-penny quoting proposal. . . .’’, 

it should consider amending Rule 611 to 

include all displayed depth of book 

quotes.226

After considering the comments and 

analyzing data,227 the Commission is 

amending Rule 612 to only add one new 

minimum pricing increment of $0.005 

for those NMS stocks that have a 

TWAQS of $0.015 or less, rather than 

also adopting the additional two $0.002 

and $0.001 pricing increments as 

proposed. The Commission’s basis for 

the new minimum pricing increment of 

$0.005 is rooted by the current midpoint 

increment when the NBBO is at its 

narrowest (or smallest) spread. The 

midpoint increment of the current $0.01 

minimum quoting spread is calculated 

as (NBB plus NBO) divided by 2, and 

when the spread is at its narrowest, the 

midpoint increment is equal to $0.005. 

For example, if the NBB is 10.01 and the 

NBO is 10.02, the midpoint would be 

10.015 ((10.01 + 10.02)/2) = 10.015). 

Further, the new minimum quoting 

increment is at a price level familiar to 

all market participants and is already 

programmed into many computer 

systems. This modified approach 

addresses the concerns raised by 

commenters related to the proposed 

$0.002 and $0.001 minimum pricing 

increments. The adopted amendments 

also address commenters’ concerns 

about complexity and potentially 

advantaging certain types of market 

participants by reducing the number of 

new increments and the universe of 

NMS stocks that may be eligible for a 

smaller minimum pricing increment. 

The adopted $0.005 minimum pricing 

increment for those NMS stocks that 

have a TWAQS of $0.015 will address 

the immediate concerns about the 

constraints that have developed in the 

national market system as a result of 

preexisting Rule 612. 

4. Comments on Small- and Mid-Sized 

Stocks 

A few commenters stated that the 

proposal to reduce minimum pricing 

increments did not consider the impact 

on small and mid-sized stocks.228 One 

commenter opposed the Regulation 

NMS Proposal because of concerns that 

it did not ‘‘address the needs and 

possible unintended consequences for 

small and mid-sized stocks’’ and that 

the Commission should ‘‘not take any 

action until such time as a pilot has 

been launched and its effects studied 

and verified by a committee of market 

participants and academics.’’ 229

Another commenter stated that the 

proposed tick sizes were ‘‘too granular’’ 

for small to mid-sized stocks and would 

result in fewer liquidity providers.230

The assignment of the smaller 

minimum pricing increment is not 

based on market capitalization because 

the economics of being tick-constrained 

do not depend on market capitalization. 

Rather, whether a stock is experiencing 

constraint depends on its spread. In 

other words, since a stock’s spread 

relative to the tick size does not depend 

on whether it has a small or mid-sized 

market capitalization, such a stock 

could still trade with a quoted spread 

constrained by $0.01 minimum pricing 

increment. With respect to 

implementing a pilot program to assess 

the needs and potential consequences of 

the proposal for small and mid-sized 

stocks, the Commission previously 

conducted a tick size pilot program for 

small- and mid-sized stocks to assess 

the impact of wider minimum quoting 

and trading increments.231 The 

Commission analyzed data from that 

pilot program for purposes of the 

amendments.232 Another pilot program 

is not necessary because the 

Commission and market participants 

have demonstrated with data the issues 

related to tick constraints that have 

increased since the preexisting rule was 

adopted.233 Further, the modified 

amendment will not introduce 

increments that are ‘‘too granular’’ for 

any NMS stock; only those NMS stocks 

that have a TWAQS of $0.015 or less 

will be assigned the new $0.005 

increment, or three ticks or fewer within 

the spread. These NMS stocks are 

constrained by the preexisting 

increment and the amendment will 

alleviate this regulatory constraint to 

allow competitive forces of supply and 

demand to better establish bid and ask 

prices.234

5. Comments on Market Resiliency 

A few commenters raised concerns 

related to market resiliency risks.235 The 

commenter stated that ‘‘[b]ecause the 

Commission’s proposal would increase 

the number of ticks inside the weighted 

average spread for many stocks, we 

could expect a significant increase in 

message traffic that would result from 

the Commission’s proposal.’’ 236 The 

commenter asked the Commission to 

consider the potential increased 

message traffic that could result from 

the proposed minimum pricing 

increments and stated that the proposal 

would result in a significant increase in 

message traffic.237 The commenter 

recommended the Commission take a 

measured and phased approach for 

reducing the minimum pricing 

increment for quoting to apply the 

minimum quoting increment initially to 

a limited number of stocks and 

additional groups of stocks in 

subsequent phases, with review of 

market resiliency during each phase. 

The amendments modifying Rule 612 

will result in less message traffic, fewer 

systems changes and lower costs related 

to updating ticks for NMS stocks 

compared to the original proposal and 


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238See FIF Letter at 9. See also Citigroup Letter 

at 2. See infra section VII.D.5.a. 

239See Proposing Release, supra note 11, at 

80279, notes 196 and 197 (stating that in the second 

quarter of 2011, the average peak message per 

second for Tapes A and B reported by the CTA/CQ 

Plan was 1,015,000 and for Tape C reported by the 

UTP Plan was 408,300 versus 36.4 million reported 

by the Options Price Reporting Authority 

(‘‘OPRA’’)). See also section VII.E.1. 

240See NYSE Letter I at 11–13. 

241See FIF Letter at 10 (‘‘FIF members are 

concerned that increased message traffic could 

significantly increase the costs for the operation of 

the CAT system as increased quote volumes 

(including increased frequency of quote updates) 

would increase the number of CAT-reportable 

events. 100% of these increased CAT costs would 

be charged to broker-dealers and exchanges. The 

operating expenses for CAT were $84.5 million for 

2020 and $146.5 million for 2021. CAT LLC, the 

operator of the CAT system, has estimated the total 

expenditures for CAT for 2022 at $178.9 million. 

These costs are in excess of the costs that were 

contemplated in the CAT NMS Plan.’’). 

242See Citadel Letter II at 5. The commenter 

added that increased message traffic increases costs 

for all market participants, including higher fees 

charged by CAT and the exclusive SIPs. See also 

Citadel Letter I at 9 and Virtu Letter II at 6–7. 

243See infra section VII.D.1.c. 

244See, e.g., Citadel Letter II at 9 (‘‘A material 

increase in total message traffic increases costs for 

all market participants, including due to the 

resulting higher fees charged by industry utilities, 

such as the [CAT] and the [SIP]’’) and Virtu Letter 

II at 6–7 (‘‘The Commission has failed to analyze 

the impact of the significantly increased volume of 

market data on competing consolidators.’’). 

245See infra section VII.D.1. 

246See NYSE Letter II at 11 (stating that OPRA 

handles many times more messages than the equity 

markets). 

247See MFA Letter at 11. 

248See Tradeweb Letter at 2–3 (‘‘Even trading 

platforms with the most advanced technological 

infrastructure will need to expend considerable 

amounts of time and resources to prepare the 

accommodate increased message traffic, since any 

increase in latency (even at the millisecond level) 

would disrupt trading strategies, impair market 

functionality and liquidity, and, ultimately, harm 

market participants.’’); see also Virtu Letter II at 6 

(‘‘This increase in message traffic. . . will 

significantly add to the overall content of market 

data.’’). See also NYSE Letter I at 6 and Nasdaq 

Letter I at 9 (‘‘Securities with too many ticks not 

only have wider spreads, but they also have more 

odd lots, and more message traffic, leading to a 

more fragile NBBO.’’). 

249See infra section VII.D.1.a. 

250See Options Clearing Corporation Daily 

Volume report, available at https://

www.theocc.com/Market-Data/Market-DataReports/Volume-and-Open-Interest/Daily-Volume. 

therefore there should pose less of a 

concern related to market resiliency. 

The modified amendment adopts a 

single sub-penny increment that 

impacts a smaller universe of NMS 

stocks compared to the proposal, which 

included three sub-penny increments 

that would have impacted more NMS 

stocks. The need for a phased approach 

is significantly reduced because fewer 

NMS stocks will be impacted by the one 

additional minimum quoting increment, 

and there will be fewer ticks between 

the spread. 

The commenter stated that the 

potential costs to industry members 

from increased message traffic would 

include purchasing additional computer 

hardware such as servers and that the 

costs would also apply to production, 

backup, test, and development 

environments.238 The commenter stated 

that the actual costs would be multiples 

of the estimated costs from the proposal. 

However, the adopted amendment to 

Rule 612 will result in less message 

traffic than the proposal because it has 

fewer quoting increments. 

Consequently, the modified 

amendments that are being adopted will 

reduce computer hardware and 

developmental costs for the industry 

compared to the proposal. In the 

Proposing Release, the Commission 

considered the message traffic of the 

options markets, and the systems for the 

options markets that handle many times 

more messages compared to (1) the 

current NMS stock market or (2) the 

estimated additional message traffic 

from the adopted amendments.239 One 

commenter submitted data that 

supported this conclusion.240

The commenter also raised concerns 

that increased quote message traffic 

could significantly increase the costs of 

the operation of the CAT system.241 The 

commenter recommended that the 

Commission estimate the potential 

increase in message traffic, provide 

those estimates to CAT LLC, obtain 

estimates from the CAT LLC of the 

increased CAT costs that would result 

from this increased message traffic, and 

factor the estimated costs into the cost 

benefit analysis of the proposed 

minimum pricing increments changes. 

Another commenter also stated that the 

Commission failed to consider whether 

the increase in message traffic will 

increase the CAT operating budget.242

The Commission estimates the impact of 

the adopted amendments on message 

traffic, and thus on the CAT operating 

budget in section VII.D.1.c. As 

discussed further below, the 

Commission estimates the increase in 

CAT costs associated with adopting the 

additional minimum pricing increment 

to be approximately $4.1 million per 

year.243 The Commission does not 

believe it is appropriate to delay action 

on Rule 612 to have CAT LLC engage in 

its own analysis of the potential costs. 

Commenters raised the issue of 

increased market data volume on 

competing consolidators, which are not 

yet in operation.244 Likewise, the 

possible costs to potential competing 

consolidators will be reduced vis-a`-vis 

the proposal. The Commission 

recognizes that while the costs may be 

lower than the proposed rule, the 

adopted rule could nevertheless create 

increased message traffic than the 

preexisting rule. It follows that more 

message traffic could lead to more 

possible costs for competing 

consolidators. However, this new 

message traffic should still be within the 

operational capacity of the existing 

computer systems.245

One commenter stated that even with 

the largest potential increases in 

messages, equity messaging traffic 

would remain well below that of the 

options market and that ‘‘the increase in 

messaging activity from adopting finer 

tick increments is now well within the 

industry’s capability.’’ 246 On the other 

hand, another commenter stated that a 

larger number of ticks across a large 

number of stocks would lead to 

increased message traffic, which would, 

in turn, increase data and infrastructure 

costs and market latency.247 One 

commenter added that increased 

message traffic would lead to increased 

latency, which would harm market 

participants by disrupting trading 

strategies and impairing market 

functionality and liquidity.248 As stated 

above, the adopted amendment to Rule 

612 is significantly less complex than 

the proposal and will not result in the 

larger number of ticks across a large 

number of stocks as the commenter 

suggested. The proposal’s four 

minimum tick increment has been 

simplified to one additional new tick at 

$0.005, and the proposal’s reduction of 

minimum pricing increments for NMS 

stocks that had a TWAQS of $0.04 or 

less has been reduced to those NMS 

stocks that have a TWAQS equal to or 

less than $0.015, which results in fewer 

expected NMS stocks being assigned a 

smaller minimum pricing increment.249

These adopted changes may result in 

significantly less message traffic than 

under the commenter’s assumption on 

the proposal. While message traffic may 

increase over today’s message traffic, 

any increase in message traffic will be 

significantly less than in the options 

market, and the options market 

participants have over the years 

adjusted to increasingly higher message 

traffic.250

6. Comments on Proposed Criteria for 

Assigning Minimum Pricing Increments 

The Commission proposed to measure 

the TWAQS when determining the 

appropriate minimum pricing increment 

for NMS stocks and proposed four 

ranges of the TWAQS to determine the 

corresponding minimum pricing 

increments. The four proposed TWAQS 

ranges were: (1) equal to or less than 


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251See, e.g., Pragma Letter at 6 (‘‘tick-constrained 

stocks will benefit from smaller tick sizes with 

narrower spreads.’’); MEMX Letter; NYSE, Schwab, 

and Citadel Letter; IEX Letter I at 7; Nasdaq Letter 

I at 2 (‘‘Nasdaq supports adjusting the minimum 

pricing increment (‘‘tick size’’) to better reflect the 

trading dynamics of Regulation National Market 

System (‘‘Reg. NMS’’) securities.’’); Brandes Letter 

at 2; Schwab Letter II at 35; and Robinhood Letter 

at 46. 

252See, e.g., IEX Letter I; Pragma Letter; Invesco 

Letter; ICI Letter II at 14 (stating that the 

Commission should not apply sub-penny 

increments to stocks that are not tick-constrained); 

ASA Letter (‘‘we strongly oppose the application of 

a one-half cent tick size to any stock outside of the 

most liquid (narrower spread) stocks.’’); Nasdaq 

Letter I at 14 (‘‘We propose that securities fall into 

this new $0.005 tick bucket only if they are tickconstrained.’’); and Cboe Letter II. 

253See Invesco Letter at 3. See also e.g., ICI Letter 

II (stating that there is no market failure or harm 

identified for stocks that are not tick-constrained.) 

and Brandes Letter at 2 (favoring a reduction to 

$0.005 for those stocks that are experiencing 

constraint with the $0.01 increment and stating that 

the proposed reduction in a minimum pricing 

increment for stocks that had a TWAQS of $0.04 or 

less was too broad). 

254See, e.g., NYSE Letter I; Vanguard Letter; Cboe 

Letter I; and Schwab Letter II at 35–36. But see also 

Invesco Letter at 3 (stating that $0.011 was overly 

broad and would result in unnecessary tick 

reductions for stocks that are not tick-constrained.). 

255See, e.g., IEX Letter I at 7 (‘‘IEX agrees with 

the premise that tick sizes should be reduced for 

stocks that are currently ‘‘tick-constrained’’ or could 

easily become tick-constrained because of the 

current one-cent limitation.’’). 

256See IEX Letter I at 7, 13 (‘‘We believe that 

reducing the tick size and applying it to all 

securities with a TWAQS up to two cents will 

substantially improve the efficiency of displayed 

trading . . .’’). 

257See BMO Capital Letter at 2 and Form Letter 

Type H, of which 853 comments were received, 

available at https://www.sec.gov/comments/s7-30- 

22/s73022.htm. 

258See Pragma Letter at 6 (‘‘While perhaps not 

conclusive, the lines of evidence from our analysis 

also suggest that the Proposal’s range of 4 to 8 ticks 

is too many and will force wider spreads and higher 

trading costs on the market than necessary. This 

leads to our primary recommendation: stocks 

should be moved to a smaller tick size only when 

their average spread is less than 1⁄5 in the preceding 

month; and moved to a larger tick size only when 

their spread is greater than 4 ticks in the preceding 

month.’’). 

259See infra section VII.D.1.b for more discussion 

on TWAQS. 

260See infra note 1303 and accompanying text. 

See also Nasdaq Letter I at 18 (stating that ‘‘quoting 

outside of the optimal 2–3 tick spreads leads to 

queues for tick-constrained securities and slower 

price formation for securities with overly-wide 

spreads.’’). 

261See infra section VII.D.1.b. 

262See, e.g., Nasdaq Letter I at 8, 18; Pragma 

Letter at 1; RBC Letter at 3; CCMR Letter at 23; 

Letter from Eric Swanson, Chief Executive Officer, 

XTX Markets LLC, dated Mar. 30, 2023 (‘‘XTX 

Letter’’) at 4; MMI Letter at 5; and Harris Letter at 

7. See also infra notes 1293–1299 and 

accompanying text. 263See, e.g., IEX Letter I at 7 (‘‘[w]e agree that 

TWAQS is a reasonable and appropriate measure to 

define which securities should be subject to a 

narrower tick size.’’); MEMX Letter; and BMO 

Capital Letter. 264See, e.g., Form Letter Type K, of which 22 

comments were received, available at https://

www.sec.gov/comments/s7-30-22/s73022.htm; 

Anonymous Letter dated Mar. 6, 2023; letter from 

Victor Piousbox dated Mar. 6, 2023; letter from 

Jimit Raithatha dated Mar. 7, 2023; letter from 

Munib Mian dated Mar. 7, 2023; letter from Peter 

Unum dated Mar. 19, 2023; letter from Anonymous 

dated Mar. 22, 2023; and letters from Chris and 

Donna Graves, dated Mar. 26, 2023; Spencer 

Neukam dated Mar. 26, 2023; Samuel Cressy dated 

Mar. 24, 2023; and Zaf Khan dated Mar. 24, 2023. 

265See, e.g., Cboe Letter II at 3 (‘‘The most critical 

step in any tick-size regime reform is first 

establishing an objective methodology designed to 

address truly tick-constrained securities. In this 

regard, we recommend using a multi-factor 

methodology, such as Cboe’s Tick Size Reduction 

Framework.’’); Themis Letter at 7 (supporting 

Cboe’s methodology); Cboe, State Street, et al. 

Letter; Optiver Letter (discussing the European 

Union’s tick regime as considering stock price and 

liquidity); NYSE Letter I; ICI Letter II at 11 (stating 

that applying other factors would lessen concerns 

about an overbroad tick reduction and mitigate 

concerns about an adverse market outcome); 

BlackRock Letter at 5 (stating that quoted spread is 

one-dimensional and does not provide sufficient 

context for determining the optimal tick size); 

Citigroup Letter (recommending a new $0.005 

quoting increment for the most liquid tickconstrained stocks); T. Rowe Price Letter (stating 

that a multi-factor approach would allow the 

Commission to measure whether a tick size is 

properly calibrated); STA Letter at 6 

(recommending that the Commission use a 

multifactor approach); Virtu Letter II at 6 (stating 

‘‘one must consider many factors, not just quoted 

spread’’ and describing methods proposed by Cboe 

and Nasdaq); NYSE, Schwab, and Citadel Letter at 

1 (‘‘We define ‘tick-constrained’ to mean symbols 

that have an average quoted spread of 1.1 cents or 

less and a reasonable amount of available liquidity 

at the NBBO.’’); and Cambridge Letter at 6 (stating 

that securities should have an average quoted 

spread of 1.1 cents and be ‘‘reasonably liquid’’). See 

also SIFMA Letter II at 36 (‘‘SIFMA believes that 

a more robust analysis is necessary to evaluate the 

most appropriate tick sizes for purposes of 

achieving the best balance between available 

liquidity at the inside quotation versus narrower 

spreads.’’). 266See, e.g., BlackRock Letter at 6 (‘‘ . . . if 

material size was present at the National best Bid 

$0.008; (2) greater than $0.008 but less 

than or equal to $0.016; (3) greater than 

$0.016 but less than or equal to $0.04; 

and (4) greater than $0.04. Preliminarily, 

the Commission believed that NMS 

stocks with a TWAQS of $0.04 or less 

would have benefited from smaller 

minimum pricing increments. After 

considering the comments, the 

Commission is retaining TWAQS as the 

measure to determine when an NMS 

stock will be assigned smaller minimum 

pricing increment but has modified the 

threshold to be equal to or less than 

$0.015. 

Many commenters stated that tickconstrained stocks would benefit from 

smaller minimum pricing 

increments.251 Commenters, however, 

raised concerns about reducing the 

minimum pricing increment for NMS 

stocks that were not experiencing tick 

constraint with the $0.01 minimum 

pricing increment.252 One commenter 

stated that ‘‘a reduction in tick sizes for 

those stocks that are merely near-tickconstrained will not result in 

meaningful price-improvements and 

will not be worth the increased risk of 

diminished liquidity to bids and offers 

being spread too thinly across too many 

price points.’’ 253 As adopted, the new 

$0.005 minimum pricing increment will 

be assigned to those NMS stocks that 

have a TWAQS of $0.015 or less. These 

NMS stocks are experiencing constraint 

with the $0.01 minimum pricing 

increment and will benefit from being 

able to be quoted in the smaller 

increment. As adopted, the Commission 

has modified the amendment so as not 

to assign the smaller $0.005 increment 

to those NMS stocks that are not 

necessarily experiencing constraint with 

the $0.01 minimum pricing increment. 

Some commenters stated that the 

TWAQS of $0.011 should be used for 

identifying NMS stocks that are 

experiencing tick constraint.254

However, one commenter recommended 

that NMS stocks that ‘‘could easily 

become tick-constrained’’ should have 

their minimum pricing increment 

reduced.255 Other commenters offered 

other recommendations as to the 

TWAQS threshold for reducing 

minimum pricing increments, including 

a TWAQS threshold of $0.02 or less,256

a TWAQS threshold of $0.016 or less,257

and a TWAQS threshold of 0.015 or 

less.258

As discussed further below, the 

Commission is adopting the TWAQS 

threshold of $0.015 or less in order to 

identify NMS stocks that will be eligible 

for the $0.005 minimum pricing 

increment.259 This amendment will 

generally result in these NMS stocks 

having a bid-ask spread with one to 

three ticks, which will improve market 

quality.260 Data analysis supports that 

liquidity and market quality will 

improve if NMS stocks with a TWAQS 

of $0.015 or less are assigned to the 

$0.005 minimum pricing increment.261

Commenters provided analysis and 

cited studies that suggest that 2 to 4 

ticks intra-spread is optimal for trading, 

which is consistent with the results of 

the Commission’s analysis.262

Some commenters agreed that the 

TWAQS was the appropriate measure 

for determining the relevant minimum 

pricing increment.263 Several 

commenters stated that as many stocks 

as possible should be identified as 

eligible for a smaller tick size.264 Other 

commenters suggested that a multifactor approach be taken in evaluating 

whether to reduce the minimum pricing 

increment for certain NMS stocks.265

Commenters suggested that such factors 

include average quoted size,266 ratio of 


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and Offer (‘NBBO’) or a significant proportion of 

executions were occurring at sub-penny prices, this 

would be a clear indication of fierce order book 

competition and interest to tighten the spread and 

trade in smaller increments.’’); T. Rowe Price Letter; 

and Citadel Letter I. 

267See, e.g., Cboe Letter II at 3 (‘‘we started with 

the complete universe of NMS securities, and 

applied three constraints—quoted spread, quotedsize-to-trade-size ratio, and notional turnover 

ratio—to arrive at a group of securities that are 

quantifiably tick-constrained.’’) and BlackRock 

Letter. 

268See, e.g., BlackRock Letter at 5 (‘‘BlackRock 

recommends that in addition to the time weighted 

quoted spread, the Commission should incorporate 

other factors for designating tick sizes, such as the 

average quoted size, ratio of average quoted size to 

average traded size, daily traded volume, or stock 

price.’’); Optiver Letter; T. Rowe Price Letter; and 

Citadel Letter I. 

269See, e.g., T. Rowe Price Letter at 4 (‘‘Other 

factors that could be considered include queue 

length and quoted size at the top of the order book, 

turnover, and whether the stock is quoted on 

multiple exchanges.’’) and Citadel Letter I. 

270See, e.g., T. Rowe Price Letter at 4. 

271See, e.g., BlackRock Letter at 5 and Optiver 

Letter (‘‘[w]e recommend that the Commission 

undertake further analysis of the optimal level of 

tick granularity, leveraging price and volume to 

define appropriate tick sizes.’’). 

272See ICI Letter I at 11. See also Cambridge 

Letter at (stating that minimum pricing increments 

should be reduced for those stocks that have a 

TWAQS of $0.011 or less and ‘‘are reasonably 

liquid.’’) and Citigroup Letter at 4. 

273See, e.g., NYSE Letter I at 3. See also B. Riley 

Letter. 

274 Id. 

275See MMI Letter (stating that spread leeway. . . 

‘‘quantifies the extent to which bid-ask spreads are 

constrained by the minimum tick size . . . is equal 

to the average quoted spread divided by the 

minimum tick size. Prior studies have suggested a 

spread leeway of 3–9 as optimal for tick sizes to be 

neither too small, nor too large.’’). 

276 Id. at 5. 

277See Invesco Letter at 3. 

278See Cboe Letter I and Cboe Letter II at 3. See 

also Cboe, State Street, et al. Letter; State Street 

Letter at 3. 

279See Cboe Letter I at 2. 

280 Id. 

281See, e.g., SIFMA Letter II at 40; Tastytrade 

Letter at 18; and Themis Letter at 4. 

282See infra section VII.D.1.b.iii. for further 

discussions of alternative criteria. 

283See Proposing Release, supra note 11, at 

80274. 284See infra section VII.D.1.b.iii. 285See infra section VII.D.1.b.iii. 286See Angel Letter at 5. But see Harris Letter at 

8 (opposing suggestions that issuers should choose 

ticks). 

average quoted size to average traded 

size,267 daily traded volume,268 queue 

length,269 quotes on multiple 

exchanges,270 or stock price.271 One 

commenter recommended the inclusion 

of factors such as large quoted displayed 

size and a relatively high level of 

liquidity based on average daily trading 

volume.272

One commenter suggested that in 

addition to the TWAQS, ‘‘quote 

stability’’ should be measured.273

According to the commenter, quote 

stability would be measured by looking 

at a change in a stock’s quote after 

execution; if the quote widens after an 

execution, ‘‘the quoted liquidity may 

not be sufficient for the liquidity 

demanded, suggesting that the quote 

increment is not actually constraining 

quoting activity.’’ 274 Another 

commenter suggested that the 

Commission consider using ‘‘spread 

leeway,’’ which the commenter defined 

as equal to the average quoted spread 

divided by the minimum tick size.275

The commenter stated that spread 

leeway could ‘‘effectively quantify the 

extent to which bid-ask spreads are 

constrained by the minimum tick 

size.’’ 276 Another commenter suggested 

that in addition to a TWAQS of $0.011, 

there should be ‘‘balance or near 

equilibrium of multiple bids and offers 

at the top of the central order book’’ as 

this would ‘‘imply that market forces of 

supply and demand would naturally 

force the bid/ask spread tighter through 

market competition.’’ 277 One 

commenter that recommended a multifactor approach to identify NMS stocks 

suggested that in addition to average 

quoted spread, a high quoted size to 

traded size ratio and a high average 

daily notional turnover should be 

examined when identifying NMS stocks 

that are tick-constrained.278 According 

to the commenter, a high quoted size to 

traded size ratio is ‘‘an objective signal 

that shows even though there is an 

abundance of liquidity, the current 

$0.01 tick constraint disincentivizes 

investors to cross the spread due to high 

costs, resulting in a lack of trade 

executions.’’ 279 Further, the commenter 

stated that a high average daily notional 

turnover is ‘‘an objective signal because 

it focuses the tick reduction effort on 

high turnover securities that would 

benefit from the ability to be traded in 

finer increments.’’ 280 Other commenters 

supported this approach.281

After analyzing data to determine 

whether the suggested additional factors 

would be helpful in eliminating NMS 

stocks that could be harmed by a 

smaller minimum pricing increment,282

the Commission has concluded that 

TWAQS is the appropriate measure to 

determine whether an NMS stock 

should be eligible for a smaller 

minimum pricing increment. 

Specifically, TWAQS provides a 

transparent and objective basis to 

determine whether the $0.01 minimum 

pricing increment results in a quoted 

spread that is too wide for a particular 

NMS stock. Other possible factors, such 

as average quoted size, ratio of average 

quoted size to average trade size, the 

average daily traded volume, queue 

length, quotes on multiple exchanges or 

stock price, would add unwarranted and 

additional complexity that would be 

difficult and costly for market 

participants to monitor because some of 

these measures require the purchase of 

proprietary data. Supplementing 

TWAQS with quoted size, turnover 

calculations, quote stability, and the 

other recommend criteria would 

similarly add additional complexity and 

responsibilities to the primary listing 

exchanges assigned to calculating 

TWAQS.283 The additional criteria 

suggested by commenters are 

unnecessary because TWAQS is a 

sufficient, comprehensive and objective 

way to determine whether NMS stocks 

are experiencing issues of constraint 

related to the $0.01 minimum pricing 

increment for quotes and orders.284

Specifically, the Commission concluded 

that harm is unlikely to result if the 

other data factors suggested by 

commenters (e.g., price, volume, or 

depth-based criteria) are not 

included.285 Accordingly, the 

Commission is not adopting factors 

other than the TWAQS to measure 

which NMS stocks would be assigned a 

minimum pricing increment of $0.005. 

One commenter suggested that issuers 

should be able to select the minimum 

pricing increment for the quotes and 

orders of their stock.286 The 

Commission disagrees. Rule 612 is an 

important rule under Regulation NMS 

and serves to link the markets within 

the national market system by 

establishing uniform minimum pricing 

increments for all NMS stocks. This 

important linkage function would be 

undermined by allowing increments to 

be individually assigned to each NMS 

stock in a non-uniform manner. Rule 

612, as originally adopted and as 

amended, standardizes minimum 

pricing increments based on transparent 

and objective criteria in order to ensure 

that minimum pricing increments are 

applied uniformly. Introducing issuer 

choice would eliminate such 

standardization and enable individual 

issuers to choose different minimum 

pricing increments based on their 

specific, unique individual preferences 

which would likely result in random 

and inconsistent application of 

increments across NMS stocks that 

otherwise share several relevant trading 

characteristics. Minimum pricing 

increment for quotes and orders of NMS 

stocks priced greater than, or equal to, 

$1.00 per share based on unpredictable, 

opaque, non-standard criteria of 

individual issuers would result in 

unnecessary complication, such as 

varied minimum quoting increments 


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287See, e.g., IEX Letter I; Optiver Letter; NYSE 

Letter I; Pragma Letter; MMI Letter; FIA PTG Letter 

II; BlackRock Letter; SIFMA Letter II; T. Rowe Price 

Letter; Cboe Letter I and Cboe Letter II; UBS Letter; 

and JPMorgan Letter at 4. 

288See, e.g., IEX Letter I and NYSE Letter I 

(stating that the quarterly updates based on the last 

month of a quarter’s data would ‘‘ensure that the 

next quarter’s universe of tick-constrained names is 

selected using the most recent and relevant basis 

and allows for monitoring of other securities that 

are not yet tick-constrained but maybe starting to 

exhibit tick-constrained behavior.’’). IEX, however, 

recommended that the second month of a quarter 

be used for calculating the TWAQS. See also infra 

note 305 and accompanying text. See also Harris 

Letter at 7. 

289See, e.g., Optiver Letter at 2; MMI Letter at 6; 

FIA PTG Letter II at 2; and UBS Letter at 13. See 

also Cboe Letter I at 5 (stating that the framework 

for reevaluating the parameters for revising tick 

changes according to their proposed methodology 

should be quarterly or bi-annually so that the 

parameters ‘‘remain nimble to changing market 

conditions.’’). 

290See Optiver Letter at 2. 

291See FIA PTG Letter II at 2–3. See also MMI 

Letter at 6 (‘‘The evaluation period preceding the 

change should be at least one quarter to avoid 

capturing instances of market volatility, or events 

such as stock splits that may indirectly drive 

trading interest that cause the behavior and 

characteristics of a stock to depart dramatically 

from its history.’’). 

292See FIA PTG Letter II at 2–3. 

293See MMI Letter at 6. 

294See UBS Letter at 13. 

295See JPMorgan Letter at 4. 

296See Pragma Letter; UBS Letter; and BlackRock 

Letter. See also SIFMA Letter II. 

297See Pragma Letter at 1. 

298See id. 

299See BlackRock Letter at 10. See also SIFMA 

Letter II (commenting on three different elements— 

ticks, access fee caps and round lots—that would 

have to be updated and stating ‘‘[b]roker-dealers 

will be required under the Tick Size Proposal to 

update their systems to appropriately account for 

all three of these variable changes, which carries 

inherent risks (and costs) of inadvertent errors 

relative to today’s environment where each of these 

variables are static.’’). See also section V.B.3.b.iii for 

a discussion of the modifications to the round lot 

definition. 

300See UBS Letter at 12. 

301See infra section VII.D.1.d for additional 

discussion on the three-month period. 

302See supra note 290 and accompanying text. 

The suggestion that minimum pricing increments 

be updated on a monthly basis would raise these 

concerns. 

and investor confusion, to the national 

market system. Further, market 

participants would likely incur 

additional costs related to, for example, 

the monitoring and tracking of the 

minimum pricing increments for 

issuers. 

7. Rule 612(a)—Definitions 

As adopted, amended Rule 612(a) 

contains two definitions for purposes of 

the rule—‘‘Evaluation Period’’ and 

‘‘Time Weighted Average Quoted 

Spread.’’ The primary listing exchanges 

will use these definitions in identifying 

the required minimum pricing 

increments for NMS stocks. 

a. Evaluation Period 

The Commission proposed to define 

‘‘Evaluation Period’’ as the last month of 

a calendar quarter (March in the first 

quarter, June in the second quarter, 

September in the third quarter and 

December in the fourth quarter) of a 

calendar year during which the primary 

listing exchange shall measure the 

TWAQS of an NMS stock that is priced 

equal to, or greater than, $1.00 to 

determine the minimum pricing 

increment to be in effect for the next 

calendar quarter, as set forth by 

proposed paragraph (c). In other words, 

the minimum pricing increment for 

quotes and orders would have been 

evaluated every quarter based on one 

month’s worth of data and could have 

potentially changed once every quarter. 

After considering the comments, the 

Commission is adopting a revised 

definition of Evaluation Period. Rule 

612(a)(1) defines Evaluation Period as (i) 

the three months from January through 

March of a calendar year and (ii) the 

three months from July through 

September of a calendar year during 

which the TWAQS of an NMS stock 

shall be measured by the primary listing 

exchange to determine the minimum 

pricing increment for each NMS stock. 

The Commission received comments 

on the proposed definition of the 

Evaluation Period.287 Two commenters 

generally supported the definition as 

proposed.288

Several commenters stated that one 

month was too short a period for 

measuring and calculating TWAQS.289

One commenter stated that an analysis 

of one month’s data ‘‘has the potential 

to disproportionally weigh systemic and 

idiosyncratic events (including 

corporate actions) resulting in 

unrepresentative tick sizes.’’ 290 Another 

commenter stated that ‘‘longer 

evaluation periods will reduce the risk 

that short-term aberrations will have an 

outsized impact on market structure. 

Using too short of an evaluation period, 

especially during periods of heightened 

volatility, could lead to 

unrepresentative price variations that 

ultimately result in illogical minimum 

price increments.’’ 291 A few 

commenters recommended providing a 

longer period for conducting data 

analysis. Specifically, one commenter 

suggested that the time frame be 

‘‘coterminous with the time between 

tick size changes. In other words, if tick 

sizes are adjusted every quarter, then 

the evaluation period should be every 

quarter . . .’’ 292 Another commenter 

suggested that the Evaluation Period 

should be at least one quarter.293

Another commenter recommended that 

the Evaluation Period be performed on 

an annual basis so as to reduce costs 

and operational risks that may be 

created by needing to update relevant 

systems.294 Finally, one commenter 

suggested that the evaluation of NMS 

stocks be conducted on a semi-annual 

basis, based on six-months of data, to 

reduce variability and complexity.295

A few commenters provided 

suggestions as to the length of time 

between tick adjustments.296 One 

commenter stated that ticks should be 

adjusted on a monthly basis rather than 

a quarterly basis.297 The commenter 

stated ‘‘[w]e would expect more 

frequent smaller updates to reduce how 

often and how long a stock’s tick stays 

outside the optimal range.’’ 298 Another 

commenter, however, suggested that the 

Commission align tick adjustments with 

other elements in the proposal. 

Specifically, this commenter 

recommended that ‘‘the Commission 

reduce the frequency of changes and 

synchronize the intervals for revising 

market structure parameters by updating 

both round lots and tick sizes on a 

quarterly or semi-annual basis.’’ 299

Another commenter suggested an 

annual consideration as a means to 

reduce burdens on market participants 

and reduce operational risks.300

After considering the comments on 

the length of the Evaluation Period, the 

amended rule will require that the 

TWAQS be measured over a longer 

period of time than proposed, i.e., using 

three months’ worth of trading data 

instead of one month, and minimum 

pricing increments will be assigned on 

a less frequent basis, i.e., every six 

months instead of every three months. 

The Commission conducted analysis to 

evaluate the length of the data analysis 

for the TWAQS and the length of time 

between minimum pricing increment 

assignments.301 This revised definition 

balances the concerns raised by 

commenters that a TWAQS measured 

over too short a time frame could 

potentially be skewed by high volatility 

or unique events, such as corporate 

actions,302 but that a TWAQs measured 

over too long of a time period would 

increase the probability of assigning a 

stale minimum pricing increment for 

quotes and orders that does not reflect 

the prevailing trading characteristics. 

Further, an annual evaluation would 

potentially cause some NMS stocks to 

remain in a sub-optimal minimum 

pricing increment for too long, while a 

monthly evaluation of NMS stocks 

would raise concerns about investor 

confusion with frequent re-assignments 


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303See T. Rowe Price Letter and IEX Letter. 

304See T. Rowe Price Letter at 4. 

305See IEX Letter I at 7 (suggesting that the 

Commission provide ‘‘one month between the end 

of data collection and the beginning of trading with 

the reallocated tick sizes, in order to avoid any 

unanticipated disruptions.’’) and T. Rowe Price 

Letter. 

306See T. Rowe Price Letter at 4. 

307See Fidelity Letter at 13. 

308See Fidelity Letter at 13. See also Harris Letter 

at 7 (recommending mechanisms to ensure traders 

can determine relevant ticks). 

309See also infra section V.B.3.b.iv. 

310See SIFMA Letter I at 43. 

311See Rule 612(b)(3). 

312As discussed above, the Commission received 

comment on whether there should be factors in 

addition to the TWAQS for determining whether an 

NMS stock is tick-constrained. See supra section 

III.C.6. 

313See supra section III.C.7.a, for a discussion of 

the adopted Evaluation Period. 

314See supra note 303 and accompanying text. 

315See SIFMA Letter II at 42 and Virtu Letter II 

at 20. 

and increase operational risks due to the 

need for frequent systems updates. The 

adopted semiannual evaluation 

addresses the potential burdens and 

concerns of an Evaluation Period that is 

either too long or too short. 

Finally, two commenters 

recommended adding an 

implementation time period between 

the calculation of the TWAQS and the 

potential change to an NMS stock’s 

minimum pricing increment.303 One 

commenter stated that the proposed rule 

‘‘leaves little to no time for the industry 

to communicate the change and update 

systems to reflect the new tick sizes.’’ 304

Both commenters suggested that the rule 

should provide one month between the 

end of the data collection and the 

effectiveness of any new minimum 

pricing increments.305 One commenter 

stated that one month between the 

calculation of the TWAQS and the 

implementation of new tick sizes would 

‘‘give the industry adequate time to 

process changes and minimize 

errors.’’ 306 Another commenter stated 

that the quarterly changes with short 

transition time would raise operational 

risk in the market and at individual 

firms.307 This commenter also stated 

that ‘‘[f]requent changes to tick sizes 

will require considerable investor 

education.’’ 308 The Commission agrees 

with commenters’ suggestions and is 

also adopting an implementation period 

for introducing new minimum pricing 

increments after an Evaluation Period. 

As adopted, market participants will 

have one month to implement any new 

minimum pricing increments. This will 

reduce concerns about operational risk 

and will provide market participants 

with time to inform investors of any 

changes in placing orders. One month is 

an adequate time period for market 

participants to adapt and make any 

required systems change to reflect the 

change, if any, in minimum pricing 

increment of the quotes and orders of an 

NMS stock that is priced greater than, or 

equal to, $1.00 per share. A longer 

period could partially nullify the 

objectives of the adopted rule to 

ameliorate issues related to the 

constraint of stocks that are quoting at 

the $0.01 minimum pricing increment. 

As discussed below, the Commission 

has aligned the semiannual evaluation 

and implementation of minimum 

pricing increments and the dates for 

implementing any minimum pricing 

increments with the timing for changes 

to NMS stocks round lot assignment.309

The Commission agrees with 

commenters who recommended that 

these two evaluations and updates be 

conducted at the same time. This will 

lessen the burdens on the primary 

listing exchanges and market 

participants of implementing new 

minimum pricing increments and round 

lots. Further, it will lessen operational 

risks associated with frequent system 

updates. 

Rule 612(a)(1) also requires that the 

TWAQS be measured for all NMS stocks 

by the primary listing exchange. One 

commenter requested clarification as to 

what would occur in volatile situations 

‘‘where a low-priced stock (e.g., sub 

$1.00) suddenly jumps to a higher price 

(e.g., $8.00).’’ 310 This situation could 

occur under preexisting Rule 612 as the 

relevant minimum pricing increment is 

based on the price of the order or quote. 

However, because orders in an NMS 

stock can be submitted with prices at or 

above $1.00 and below $1.00 depending 

on its current market price, under the 

amended rule, each NMS stock must 

have its TWAQS measured so that a 

minimum pricing increment will be 

assigned for those orders that are priced 

at or above $1.00. Therefore, as 

amended, all NMS stocks will be 

assigned a minimum pricing increment 

based on its TWAQS and investors will 

be able to understand the relevant 

minimum pricing increment for their 

orders when priced at or over $1.00 and 

when priced under $1.00. Under the 

rule, as adopted, quotes and orders in 

NMS stocks that are priced less than 

$1.00 will continue to have a minimum 

pricing increment of $0.0001.311 The 

operation of the amended rule is 

consistent with how the preexisting rule 

operates in that quotes and orders for a 

particular NMS stock may be required to 

be priced in a $0.01 or $0.005 increment 

when the price of an order is equal to 

or greater than $1.00 and may also be 

priced in a $0.0001 increment when the 

price of an order is less than $1.00. 

b. Time Weighted Average Quoted 

Spread 

The Commission proposed to define 

TWAQS as the average dollar value 

difference between the NBB and NBO 

during regular trading hours where each 

instance of a unique NBB and a unique 

NBO is weighted by the length of time 

that the quote prevailed as the NBB or 

NBO. The Commission did not receive 

any comments on the definition of 

TWAQS.312 The definition in Rule 

612(a)(2) is adopted as proposed. 

8. Rule 612(b)(1)—Semiannual 

Operative Dates 

Rule 612, as adopted, contains 

amended paragraph (b)(1), which 

defines the operative dates for the 

minimum pricing increments assigned 

to each NMS stock and provides a 

month-long time period to implement 

potentially new minimum pricing 

increments at the end of each 

Evaluation Period. Specifically, 

minimum pricing increments for quotes 

and orders will be operative on the first 

business day of May following the 

Evaluation Period from January through 

March and the first business day of 

November following the Evaluation 

Period from July through September.313

In adopting these operative dates, the 

Commission seeks to reduce the risk 

that market participants may not be 

fully staffed during the time that 

technology changes are necessary to 

implement new minimum pricing 

increments. Further, in addition to 

providing market participants with 

adequate time to make necessary 

systems changes, the implementation 

period will also provide adequate time 

for investors to be notified about the 

minimum pricing increment for the 

quotes and orders of NMS stocks that 

are priced equal to or greater than 

$1.00.314

Two commenters requested 

clarification as to how stock splits 

would be handled.315 Once assigned 

under Rule 612(b)(1), minimum pricing 

increments will remain operative until 

the next operative date (i.e., May or 

November). Therefore, a stock split will 

not impact an NMS stock’s minimum 

pricing increment until the next cycle. 

In order to avoid the complexity and 

confusion that could occur if the 

minimum pricing increment of NMS 

stocks were reassigned at unpredictable 

times, minimum pricing increments will 


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316See SIFMA Letter II at 42; BlackRock Letter at 

10; Virtu Letter II at 18. 

317See SIFMA Letter II at 42; Virtu Letter II at 18. 

318See BlackRock Letter at 10. 

319See also section V.B.3.b.iii. 

320Preexisting Rule 600(b)(78) was subsequently 

renumbered to Rule 600(b)(89) by the Rule 605 

Amendments. See Rule 605 Amendments, supra 

note 10. 

321See rule 600(b)(24). 

322See MMI Letter at 6. 

323See MMI Letter at 6. 

324See MDI Adopting Release, supra note 10, at 

18729 for a description of the regulatory messages 

that are disseminated by the exclusive SIPs. 

325See Rule 600(b)(89)(iv). 

326Sections 11A(c)(1)(C) and 11A(c)(1)(D) and 

Rule 603(a). See MDI Adopting Release, supra note 

10, at 18684. 

327The SIP data format will be available at the 

SIP’s website, https://www.ctaplan.com/index. 

328The Commission also proposed to impose a 

minimum pricing increment for trades for quotes 

and orders priced less than $1.00 that would have 

been the same as the minimum pricing increment 

for quotes, i.e., $0.0001. See Proposing Release, 

supra note 11, at 80283. 

329See Proposing Release, supra note 11, at 

80268–69. 

330See Proposing Release, supra note 11, at 

80283. 

331See Proposing Release, supra note 11, at 

80283. 

332See Proposing Release, supra note 11, at 

80303. 

not be changed during the time between 

operative dates. 

9. Rule 612(c)—New NMS Stocks 

Commenters asked for clarification on 

how new NMS stocks would be handled 

under Rule 612.316 One commenter 

questioned how new NMS stocks and 

IPOs would be assigned minimum 

pricing increments and stated that 

allowing exchanges to assign different 

initial tick sizes could lead to ‘‘arbitrage 

of issuers choosing the exchange that 

offers the most favorable initial tick 

size.’’ 317 Another commenter stated that 

‘‘the simplest and most intuitive 

alternative would be to use 

specifications which were previously 

considered to be the standard unit, such 

as a $0.01 tick size.’’ 318 The 

Commission agrees. New NMS stocks 

will be assigned the same initial 

minimum pricing increment under Rule 

612(c), which requires all securities that 

become an NMS stock to be assigned to 

the minimum pricing increment of 

$0.01.319 Thereafter, the TWAQS of the 

NMS stock will be calculated during the 

next Evaluation Period to determine 

which minimum pricing increment will 

be required under Rule 612(b)(2). Subpenny increments are limited to quotes 

and orders priced $1.00 or more for 

those NMS stocks that have a 

demonstrated narrow TWAQS during 

the defined Evaluation Period; new 

NMS stocks that become eligible for 

trading during an operative period will 

not satisfy this requirement. New NMS 

stocks will have their TWAQS 

calculated during the next Evaluation 

Period after they start trading. 

10. Rule 600(b)(89)—Regulatory Data 

The Commission proposed to amend 

the definition of regulatory data in Rule 

600(b)(78) 320 to require the primary 

listing exchange for each NMS stock to 

calculate and provide to competing 

consolidators, self-aggregators, and the 

exclusive SIPs an indicator of the 

applicable minimum pricing increment 

required under Rule 612. The 

Commission is adopting the minimum 

pricing increment indicator, as 

proposed, under the definition of 

regulatory data in Rule 600(b)(89)(i)(F). 

A minimum pricing increment indicator 

will be useful to market participants, 

including investors, by providing 

important information about the 

relevant minimum pricing increment for 

each NMS stock. This indicator will 

help market participants, including 

investors, with submitting orders in the 

relevant increment. Because the 

minimum pricing increment can change 

on a semiannual basis depending on the 

TWAQS on an NMS stock, this indicator 

will enable market participants to trade 

in a more informed manner. The 

indicator will be included in SIP data 

that is disseminated by the exclusive 

SIPs and consolidated market data 321

disseminated by competing 

consolidators, which will help to ensure 

the wide availability of information 

about the applicable minimum pricing 

increment for each NMS stock. 

One commenter supported the 

minimum pricing increment indicator 

stating that it would make the new 

increments easier to implement.322 This 

commenter suggested that the exclusive 

SIPs publish the indicator every 

morning, in a machine-readable format, 

and free of charge.323

The exclusive SIPs currently provide 

certain information that comprises 

regulatory data as part of SIP data.324

Under the rule, the exclusive SIPs will 

be required to collect and disseminate a 

new regulatory data element, the 

minimum pricing increment indicator, 

and collect and disseminate this 

regulatory data element as part of SIP 

data.325 To the extent that the exclusive 

SIPs charge fees for this new regulatory 

data element, such fees will be required 

to be filed under rule 608 of Regulation 

NMS and must be fair and reasonable 

and not unreasonably discriminatory.326

The Commission has not required a 

specific format for SIP data, including 

regulatory data; such format will be 

developed by the Operating 

Committees’ for the Equity Data Plans 

consistent with regulatory 

requirements.327

D. Minimum Pricing Increment for 

Trades 

The Commission proposed to amend 

Rule 612 to introduce minimum pricing 

increments for trades of NMS stocks 

where the minimum pricing increment 

for trading NMS stocks priced at or 

above $1.00 would vary and correlate to 

one of the four proposed minimum 

pricing increments for quoting (i.e., 

$0.001, $0.002, $0.005 and $0.01), 

subject to proposed exceptions for 

midpoint trades and benchmark 

trades.328 The proposed minimum 

pricing increments for trades would 

have harmonized trading increments (1) 

with the proposed variable minimum 

pricing increments for quotes and orders 

(in this release, ‘‘Quote and Trade 

Harmonization’’), and (2) across all 

trading venues (in this release, ‘‘Venue 

Harmonization’’). Specifically, Quote 

and Trade Harmonization would have 

required all trading to occur in the same 

increments as those required of quotes 

and orders subject to certain exceptions 

for midpoint and benchmark trades. 

Venue Harmonization would have 

required all trading on exchanges, ATSs 

and OTC to occur in the same pricing 

increments. 

In the Proposing Release,329 the 

Commission stated that it was 

concerned about the competitive 

dynamic between exchanges, ATSs, and 

OTC markets and that a potential 

contributing factor was the ability of 

OTC market makers to execute orders in 

price increments that are smaller than 

the price increments that exchanges and 

ATSs can practically provide.330 The 

Commission stated that applying the 

minimum pricing increment to trades 

across all venues would promote equal 

regulation and fair competition among 

market participants such as exchanges, 

OTC market makers and ATSs, 

particularly as it relates to retail order 

flow; 331 and that it was ‘‘reasonable to 

assume that . . . [applying] a minimum 

pricing increment to trades . . ., could 

result in greater competition between 

exchanges and ATSs with other 

OTC market makers, including 

wholesalers . . .’’ 332 However, the 

Commission also stated that it could not 

anticipate how OTC market makers 

would adjust to increased competitive 

pressure and whether a market-wide 

trading increment would yield a 


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333See Proposing Release, supra note 11, at 

80326. 334See, e.g., Nasdaq Letter I at 17; Citadel Letter 

I at 31; State Street Letter at 4; Citigroup Letter at 

5; MFA Letter at 7, Letter from Nandini Sukumar, 

Chief Executive Officer, World Federation of 

Exchanges, dated Mar. 30, 2023 (‘‘World Federation 

of Exchanges Letter’’) at 5, STA Letter at 7, NYSE 

Letter I at 6; Nasdaq Letter I at 17, NYSE, Schwab, 

and Citadel Letter at 2, Brandes Letter at 2; Schwab 

Letter II at 6, Cambridge Letter at 6; B. Riley Letter 

at 1, Vanguard Letter at 5, Robinhood Letter at 40, 

55; JPMorgan Letter at 6. 

335See, e.g., Cboe Letter II at 9, IEX Letter I at 2, 

Nasdaq Letter I at 2, Citigroup Letter at 5, Pragma 

Letter at 1, Luke Peterson Letter; Chris Miller Letter, 

Amanda Kappes Letter. 

336See Citadel Letter I at 4 and Robinhood Letter 

at 28. 

337See Citigroup Letter at 5, Nasdaq Letter I at 16, 

World Federation of Exchanges Letter at 4, Better 

Markets Letter I at 13, Vanguard Letter at 4, IEX 

Letter III at 5, Drew Ferguson Letter at 1, Max 

Garrison Letter at 1, Lukas Boller Letter at 1, Trent 

Miller Letter at 1, Phillip Worts Letter at 1, James 

Letter at 1, Andrew Garley Letter at 1, Larry Douglas 

Letter at 1, Steve Sullivan Letter at 1, Luke Czarnota 

Letter at 1, Charles S Letter at 1, Melisa Virginillo 

Letter at 1, Melissa Hyer Letter at 1, Keagan 

Wethington Letter at 1, DH Letter at 1, Alex Riley 

Letter at 1, Trevor Capestany at 1, Marco Daeblitz 

at 1, Steven Sullivan Letter at 1. See also Patrick 

Sexton, EVP, General Counsel & Corporate 

Secretary, Cboe Global Markets, Inc., dated Aug. 23, 

2023 (‘‘Cboe Letter III’’) at 9. 

338See, e.g., SIFMA Letter II at 4, Citigroup Letter 

at 5, TradeStation Letter at 6, CCMR Letter at 27, 

Virtu Letter II at 7, Fidelity Letter at 13, BlackRock 

Letter at 9, Robinhood Letter at 20, JPMorgan Letter 

at 6, Morgan Stanley Letter at 4, TastyTrade Letter 

at 20 and Nasdaq Letter I at 18. 

339See, e.g., JPMorgan Letter at 5; ICI Letter I at 

17–18, Vanguard Letter at 5; IEX Letter I at 17 and 

BlackRock Letter at 9. 

340See, e.g., Cboe Letter III at 10–11, IEX Letter 

I at 17–18, JPMorgan Letter at 6, Ontario Teachers 

et al. Letter at 2, NYSE Letter I at 6. 

341See Proposing Release, supra note 11, at 

80339. 342See infra section VII.D.1.a. 

343See supra note 146. 

344See, e.g., NYSE Rule 7.44 and BX Rule 4780. 

345See, e.g., NYSE Arca Rule 7.44–E and IEX Rule 

11.232. 

346The Commission is not adopting the proposed 

5 mils access fee cap because it is not adopting the 

$0.001 minimum pricing increment. As proposed, 

all protected quotes in NMS stocks priced $1.00 or 

more that would have been assigned a minimum 

pricing increment other than $0.001 would have 

been subject to the proposed 10 mils access fee cap. 

The Commission is adopting this same model—all 

protected quotes in NMS stocks priced $1.00 or 

more will be subject to the 10 mils access fee cap. 

347See infra section VII.D.2.a. 

‘‘positive, negative or neutral’’ net effect 

on retail price improvement.333

The Commission received several 

comments on the proposal to establish 

minimum pricing increments for trades, 

including comments related to Quote 

and Trade Harmonization,334 Venue 

Harmonization,335 statutory 

authority,336 rationale,337 impact on 

price improvement,338 exceptions to 

minimum pricing increment for 

trades,339 and exchange RLP 

programs.340 After considering 

comments and in light of changes from 

the proposal that the Commission is 

making to amended Rule 612, the 

Commission has decided, consistent 

with one of the Reasonable Alternatives 

set forth in the Proposing Release,341 not 

to adopt a minimum pricing increment 

for trades. As described above, the 

Commission is amending Rule 612 to 

adopt one smaller minimum pricing 

increment for quotes and orders that 

primarily focuses on those NMS stocks 

that are experiencing constraint with the 

$0.01 minimum pricing increment. A 

secondary impact of the changes to the 

minimum quoting increment should be 

that it helps to partially address the 

concerns related to fair competition 

between exchanges, ATSs, and OTC 

markets that proposing a market-wide 

trading increment was designed to 

address. 

Amended Rule 612 will reduce the 

minimum pricing increment for quotes 

and orders to $0.005 for certain NMS 

stocks that are priced equal to, or greater 

than, $1.00 per share which in turn also 

effectively reduces the increment that 

such stocks are able to trade in. Under 

amended Rule 612, OTC markets will 

continue to be able to trade more readily 

in comparatively smaller increments 

(e.g., $0.001 or $0.0001) than exchanges 

and ATSs, however, exchanges and 

ATSs will now be able to trade more 

regularly at smaller increments (i.e., 

$0.005 or $0.0025), compared to 

preexisting Rule 612, for those NMS 

stocks that are assigned the $0.005 

minimum pricing increment. By 

effectively reducing the trading 

increment for such NMS stocks, which 

represent a significant amount of the 

daily trading volume (approximately 

58%) and dollar volume (approximately 

43%),342 the potential trade pricing 

discrepancy between exchanges, ATSs 

and OTC markets, while not 

harmonized, will be reduced. Market 

participants will be able to better 

compete based on the pricing of quotes 

and orders. Thus, because reducing the 

minimum quoting increment for a 

significant amount of volume of NMS 

stocks, whether measured by trading or 

dollars, also effectively reduces the 

trading increments for those stocks, the 

concerns related to the ability of OTC 

market makers to trade in comparatively 

finer increments raised by the 

Commission in the Proposing Release 

will be partially addressed so that the 

Commission has determined not to 

adopt the minimum pricing increment 

for trading. 

However, because the amendment to 

Rule 612 only partially addresses the 

competitive dynamic between OTC 

market makers and exchanges and ATSs 

described in the Proposing Release, and 

furthermore allows OTC market makers 

to continue to execute trades in 

comparatively finer increments, the 

Commission staff will continue to 

monitor sub-penny trading to evaluate 

whether further action is appropriate for 

the protection of investors and to assure 

‘‘fair competition among brokers and 

dealers, among exchange markets, and 

between exchange markets and markets 

other than exchange markets’’ in the 

national market system. 

The Commission’s simplified, 

incremental approach to amending Rule 

612 focuses on addressing issues that 

have developed regarding quoting 

constraints for certain NMS stocks 

because of the $0.01 minimum pricing 

increment. Further, the amendment to 

Rule 612 will facilitate the transition of 

market participants and investors to the 

new tick size regime and the wider use 

of sub-penny quoting. The amendment, 

as adopted, also reduces the anticipated 

implementation costs compared to the 

proposed amendments to Rule 612. 

Finally, under amended Rule 612: (1) 

RLPs 343 that operate pursuant to 

Commission exemptions that either 

permit certain quoting and trading in 

increments of $0.001,344 or aggregate 

order flow at the midpoint,345 will be 

able to continue to operate without 

interruption and without changes to 

exchange rules or the grant of further 

exemptive relief by the Commission; (2) 

sub-penny price improvement will 

continue to be permitted consistent with 

the requirements of the rule; (3) and 

investors will continue to be able to 

manage their order flow and implement 

trading strategies through the use of 

midpoint orders and benchmark trades. 

IV. Final Rule 610 of Regulation NMS— 

Fees for Access to Quotations 

The Commission is adopting 

amendments to Rule 610(c)(1)(ii) as 

proposed with technical modifications 

to remove the reference to the minimum 

pricing increment. The Commission is 

not adopting proposed Rule 610(c)(1)(i) 

because it is unnecessary.346 Further, 

the Commission is adopting 

amendments to Rule 610(c)(2) as 

proposed with modifications to align 

the access fee caps for protected 

quotations in NMS stocks priced below 

$1.00 and those priced $1.00 and 

above.347 Finally, the Commission is 

removing outdated references to the 

‘‘The Nasdaq Stock Market, Inc.’’ in 

Rule 610(c), as proposed, because the 

Nasdaq Stock Market is now a national 


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348See Proposing Release, supra note 11, at 

80292. 

349 17 CFR 242.600(b)(106). 

350The Commission also stated that by imposing 

a uniform fee limitation of $0.003 per share, Rule 

610(c) will promote equal regulation of different 

types of trading centers. See Regulation NMS 

Adopting Release, supra note 4, at 37595. 

351See Regulation NMS Adopting Release, supra 

note 4, at 37502. 

352See Regulation NMS Adopting Release, supra 

note 4, at 37545. 

353A trade-through occurs when a trading center 

executes an order at a price that is inferior to the 

price of a protected quotation that is displayed by 

another trading center. See 17 CFR 242.600(b)(105) 

for the definition of trade-through under Regulation 

NMS. 

354See Regulation NMS Adopting Release, supra 

note 4, at 37544 and 37595. 

355See Regulation NMS Adopting Release, supra 

note 4, at 37545. 

356See Regulation NMS Adopting Release, supra 

note 4, at 37498. 

357The access fee caps were calculated based 

upon the then current fees that were charged by 

certain trading venues. See Regulation NMS 

Adopting Release, supra note 4, at 37545 (stating 

‘‘the $0.003 fee limitation is consistent with current 

business practices, as very few trading centers 

currently charge fees that exceed this amount . . . 

[and those that do] do not account for a large 

percentage of the trading volume.’’). At the time the 

access fee caps were adopted, the minimum pricing 

increment for quotes and orders priced $1.00 or 

greater was $0.01 as Rule 612 was adopted at the 

same time as Rule 610(c). 

358See Proposing Release, supra note 11, at 

80289. See also Letter from John Ramsay, Chief 

Market Policy Officer, Investors Exchange LLC, 

dated Oct. 19, 2023 (‘‘IEX Letter IV’’) at 5–10; 

Nasdaq Letter I at 4. 

359See also Letter from Theodore R. Lazo, 

Managing Director & Associate General Counsel, 

SIFMA, to Brent J. Fields, Secretary, Commission, 

dated Mar. 29, 2017, at 8 (stating exchanges have 

developed order types primarily designed to avoid 

paying high fees, market participants implement 

complex routing strategies (consistent with their 

best execution obligations) to avoid paying high 

exchange access fees in favor of lower costs ATSs 

and the market place has seen a high level of 

fragmentation ‘‘driven by each exchange group’s 

desire to provide a variety of pricing models within 

the wide pricing range between 0 and 30 mils.’’) 

(‘‘SIFMA 2017 Letter’’). 

360See infra section VII.C.2, note 1107 and 

accompanying text and note 1457 (showing that the 

primary reason that access fees remain near 30 mils 

on most exchanges is to fund rebates) and Panel A 

of table 4, infra section VII.C.2.c. 

361See infra tables 4 and 5 showing within the 

large exchange groups multiple exchanges each 

with different fee and rebate models. See also e.g., 

SIFMA 2017 Letter, supra note 359 at 8 (stating ‘‘the 

high level of fragmentation . . . is in part driven by 

each of the exchange group’s desire to provide a 

variety of pricing models within the wide pricing 

range between 0 and 30 mils.’’). 

362For example, the EMSAC considered, among 

other things, whether the access fee cap should be 

modified. See EMSAC Archives, supra note 4. See 

also Concept Release on Equity Market Structure, 

supra note 59. 

securities exchange and the language is 

redundant.348

Specifically, under Rule 610(c), as 

amended, a trading center 349 will not be 

permitted to impose, or permit to be 

imposed, any fee or fees for the 

execution of an order against a protected 

quotation of the trading center or against 

any other quotation of the trading center 

that is the best bid or best offer of a 

national securities exchange or the best 

bid or best offer of a national securities 

association in an NMS stock that exceed 

or accumulate to more than $0.001 per 

share if the price of the protected 

quotation or other quotation is $1.00 or 

more, and the fee or fees will not be 

permitted to exceed or accumulate to 

more than 0.1% of the quotation price 

per share if the price of the protected 

quotation or other quotation is less than 

$1.00. 

The Commission is also adopting Rule 

610(d) as proposed to require that all 

exchange fees and rebates be 

determinable at the time of execution. 

For the reasons discussed below, these 

amendments to Rule 610 are appropriate 

for the modern national market system. 

A. Background 

Rule 610(c) was adopted in 

furtherance of the Congressional 

directives in section 11A of the 

Exchange Act and was designed to 

promote fair and non-discriminatory 

access to quotations displayed in the 

national market system.350 Rule 610(c) 

seeks to ensure the fairness and 

accuracy of displayed quotations by 

establishing an outer limit on the cost of 

accessing such quotations 351 and was 

designed to help to ensure that orders 

placed in the national market system 

reflect the best prices available. The 

access fee caps are necessary to achieve 

the purposes of the Exchange Act, 

including section 11A(c)(1)(B) of the 

Exchange Act, which authorizes the 

Commission to adopt rules assuring the 

fairness and usefulness of quotation 

information. The Commission has stated 

that for quotations to be fair and useful, 

‘‘there must be some limit on the extent 

to which the true price for those who 

access quotations can vary from the 

displayed price.’’ 352

Rule 610 was adopted at the same 

time as Rule 611, the Order Protection 

Rule, which established intermarket 

protection against trade-throughs 353 for 

all NMS stocks. Rule 610(c) was 

designed to preclude trading centers 

that posted protected quotations from 

raising their fees in an attempt to take 

improper advantage of the trade-through 

protections adopted under Rule 611.354

The Commission designed the access fee 

caps to preserve the benefits of the 

strengthened price protection under 

Rule 611 and more efficient linkages 

among trading centers that were 

developed under Regulation NMS to 

access protected quotations that could 

be disrupted if substantial fees were 

charged.355 At the time of adoption, the 

Commission recognized the importance 

of protecting the best displayed and 

accessible prices in promoting deep and 

stable markets that minimize investor 

costs. In this regard, the Commission 

stated that Rule 611 would help to 

minimize investor transaction costs, 

which is ‘‘the hallmark of efficient 

markets’’ and a ‘‘primary objective of 

the [national market system].’’ 356 Rule 

610 is an important component in 

supporting these goals. 

Market participants, including 

investors, need fair and efficient access 

to the best priced quotations in the 

national market system. Therefore, Rule 

610(c) remains an important part of the 

national market system to achieve the 

purposes of the Exchange Act, preserve 

the benefits of price protection, and 

help ensure that displayed quotations 

reflect something close to actual costs 

incurred for the transaction.357

B. Issues Raised in the Existing Market 

Structure and the Need for the 

Amendments 

The national market system of 2024 is 

significantly different than the national 

market system that existed when 

Regulation NMS was adopted in 

2005.358 Since Regulation NMS was 

adopted, new trading practices, order 

types, and routing strategies have 

developed that did not exist when Rule 

610 was adopted.359 In addition, 

exchanges have developed complex fee 

structures that charge the outer limits 

permitted for accessing protected 

quotations and use those fees to fund 

rebates, which have the effect of 

creating a discrepancy between 

displayed prices and net prices.360

Finally, the national market system has 

seen a proliferation of new exchanges, 

often within the same exchange group, 

that implement varied pricing models to 

attract specific market participants to 

their markets.361 The Commission has 

monitored these developments and 

engaged extensively with market 

participants about the impact of the 

modern fee structures on fair and 

efficient access to protected quotations 

as well as the usefulness and accuracy 

of such quotations.362

Market participants have considered 

and suggested reductions in the access 

fee caps for many years to address 

market distortions (as further discussed 


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363See, e.g., infra notes 371–376 and 

accompanying text and infra section IV.B.2 and 

IV.D. 

364See, e.g., Letter from Theodore R. Lazo, 

Managing Director & Associate General Counsel, 

SIFMA, to Brent J. Fields, Secretary, Commission, 

dated May 24, 2018, at 2 (commenting on File No. 

S7–05–18 ‘‘Transaction Fee Pilot for NMS Stocks’’) 

(stating ‘‘On several occasions, SIFMA has 

recommended that the Commission reduce the 

access fee cap to no more than five cents per 100 

shares because the cap has not been adjusted to 

reflect market developments since Regulation NMS 

was adopted more than a decade ago.’’) (‘‘SIFMA 

2018 Letter’’); Goldman 2018 Letter at 1 (stating ‘‘a 

reduction in the Fee Cap from $0.0030 to $0.0010 

per share could be supported today [2018] and 

would be better calibrated with the present-day 

trading and execution costs, which have decreased 

substantially since 2005’’); SIFMA 2017 Letter, 

supra note 359, at 3 (stating the Commission should 

consider ‘‘reducing the access fee cap to no more 

than $0.0005 for all securities’’ because ‘‘[s]ince 

Reg. NMS was adopted, spreads have narrowed and 

commissions have decreased, making the existing 

cap of access fees outsized relative to today’s 

market realities.’’); Letter from Theodore R. Lazo, 

Managing Director & Associate General Counsel, 

SIFMA, to Mary Jo White, Chair, Commission, 

dated May 24, 2015, at 2–3 (supporting reduction 

in access fee to ‘‘no more than five cents per 

hundred shares’’ because access fees are ‘‘an 

outsized element of transaction costs that in turn 

distorts price discovery and contributes to market 

complexity, both on- and off-exchange’’ and further 

stating ‘‘market participants regularly implement 

complex order routing strategies . . . that divide, 

route and re-route orders and parts of orders, when 

possible, to market centers that enable them to 

avoid paying excessive access fees’’ and also stating 

‘‘access fees have increased complexity on 

exchanges . . . through the proliferation of 

exchange order types designed to avoid access 

fees.’’); Letter from Daniel Keegan, Managing 

Director, Head of Americas Equities, Citigroup 

Global Markets Inc. to Elizabeth Murphy, Secretary, 

Commission, dated Aug. 7, 2014, at 5 (‘‘Citigroup 

2014 Letter’’) (commenting on Concept Release on 

Equity Market Structure and stating ‘‘[t]he SEC 

should explore the impacts on the overall markets 

of complex market structure issues such as maker/ 

taker pricing and access fees’’ and ‘‘[a]t a minimum, 

the cap on access fees should be reduced to below 

10 mils’’); Letter from Theodore R. Lazo, Director 

& Associate General Counsel, SIFMA, to Mary Jo 

White, Chair, Commission, dated Oct. 24, 2014, at 

2 (providing ‘‘Recommendations for Equity Market 

Structure Reforms’’ including ‘‘that exchange access 

fees be significantly reduced, to no more than five 

cents per 100 shares’’); NYT Dealbook OpEd: How 

to Improve Market Structure, Curt Bradbury, Chief 

Operating Officer, Stephen’s Inc. and Kenneth E. 

Bentsen, Jr., President and CEO, SIFMA (SIFMA 

Market Structure Task Force Recommendations), 

dated July 14, 2014 (stating ‘‘Access fees charged by 

exchanges and other venues should be dramatically 

reduced, if not eliminated. While brokers are legally 

required to route their orders to the exchange that 

is quoting the best price—so called ‘protected 

quotes’—the exchanges are permitted to charge 

relatively high fees for accessing these quotes: 

currently 30 cents for every 100 shares. These fees 

have distorted market pricing as they are a 

significant percentage of overall trading costs and 

are several times higher than the fees charged by 

off-exchange venues. As a result, brokers often 

avoid routing their orders to exchanges. Exchanges 

also rebate most of their access fee revenue through 

price structures such as ‘maker/taker.’ These 

developments have led to a proliferation of order 

types designed to avoid access fees and capture 

rebates, and that proliferation, in turn, adds 

complexity to the system, requires continuing 

technology changes and creates potential for market 

instability. The Securities and Exchange 

Commission should reduce the current cap on 

access fees to no more than 5 cents per 100 shares, 

and indeed should consider eliminating access fees 

altogether.’’); Bradley Hope & Scott Patterson, 

‘‘NYSE Plan Would Revamp Trading,’’ WALL ST. 

J. (Dec. 17, 2014), available at http://www.wsj.com/ 

articles/intercontinental-exchangeproposing-majorstock-market-overhaul-1418844900 (stating that 

since 2005, when the fee cap of $0.003 per share 

was chosen, competitive and technological 

advancements have led to decreased costs (spreads 

and commissions), and as a result, access fees have 

become a larger portion of overall transaction costs); 

ICE’s Six Recommendations for Reforming 

Markets,’’ WALL ST. J. (Dec. 18, 2014), available at 

http://blogs.wsj.com/moneybeat/2014/12/18/icessix-recommendations-for-reformingmarkets/ 

(recommending reduction in the access fee cap to 

$0.0005 in conjunction with adoption of a ‘‘trade 

at’’ rule, ‘‘eliminating maker-taker pricing’’ and 

stating ‘‘[w]ith myriad different make-take and takemake pricing models in existence today, we believe 

the potential conflicts and complexity that ensue 

from the maker-taker models outweigh any 

perceived benefits. We believe there are better 

options available to incentivize market-makers to 

maintain two-sided quotes and reduce intraday 

volatility’’ including incentive programs that would 

obligate market makers to provide liquidity); Joe 

Ratterman, Chief Executive Officer, & Chris 

Concannon, President, BATS, ‘‘Open Letter to U.S. 

Securities Industry Participants Re: Market 

Structure Reform Discussion,’’ at 1 (Jan. 6, 2015), 

available at http://cdn.batstrading.com/resources/ 

newsletters/OpenLetter010615.pdf (stating access 

fee cap ‘‘requires a substantial reduction and 

restructuring’’ and further stating the cap ‘‘has 

remained unchanged for far too long and has never 

been reevaluated for potential market distortions 

given the substantially altered broker models and 

reductions in commissions since the 

implementation of Regulation NMS.’’). 365See IEX Letter IV at 8. See also e.g., Letter 

from Paul M. Russo, Managing Director, Goldman 

Sachs & Co. LLC, to Brent J. Fields, Secretary, 

Commission, at 3 (May 24, 2018), available at 

https://www.sec.gov/comments/s7-05-18/s70518- 

3711788-162473.pdf (‘‘Goldman 2018 Letter’’) 

(commenting on File No. S7–05–18 ‘‘Transaction 

Fee Pilot for NMS Stocks’’) at 2 (stating in 2018 ‘‘In 

the thirteen years since the Commission adopted 

the Fee Cap, spreads have considerably narrowed 

and commission rates have contracted. However, 

the Fee Cap has remained unadjusted. There is a 

well-developed, general consensus among market 

participants that a [30 mil] per share Fee Cap is an 

outdated benchmark for execution costs in today’s 

trading environment. As a limit, it creates an upperrange that is simply too high and far from 

representative of true prices in the marketplace.’’). 

366See infra section VII.D.2.a. 

367See SRO fee schedules, which are available on 

each SRO’s website. See also infra section VII.C.2.c, 

table 4. This discussion focuses on exchange fees 

because, currently, exchanges are the only trading 

centers that display protected quotations. If an ATS 

or OTC market maker displayed a protected 

quotation, its fees would be subject to the access fee 

caps under Rule 610(c). 

368A few exchanges have adopted a ‘‘takermaker’’ pricing model (also called an inverted 

model), in which they charge a fee to the provider 

of liquidity and pay a rebate to the taker of 

liquidity. See, e.g., Nasdaq BX fee schedule 

available at http://www.nasdaqtrader.com/ 

trader.aspx?id=bx_pricing (as of Feb. 2024); NYSE 

National fee schedule available at https://

www.nyse.com/publicdocs/nyse/regulation/nyse/ 

NYSE_National_Schedule_of_Fees.pdf (as of Jan. 1, 

2024); Cboe BYX fee schedule available at https:// 

www.cboe.com/us/equities/membership/fee_

schedule/byx/ (as of Feb. 2024); and Cboe EDGA fee 

schedule available at https://www.cboe.com/us/ 

equities/membership/fee_schedule/edga/ (as of 

Feb., 2024). See also infra section VII.C.2.c, table 4. 

For taker-maker exchanges, the amount of the 

maker fee charged to the provider of liquidity is not 

bounded by the Rule 610(c) access fee cap because 

such fee is not a charge to access the market’s best 

bid/offer for NMS stocks, but such fees typically are 

no more than $0.0030. 

below) 363 and better reflect evolutions 

in the market since Regulation NMS was 

adopted.364 One commenter stated that 

‘‘[d]igital innovations and efficiencies 

since 2005 have undoubtedly reduced 

the costs of collecting, storing, 

processing, and transmitting 

information’’ and that ‘‘despite reduced 

costs, increased efficiency, and all the 

new data and computing power 

available, the access fee cap has 

remained fixed at an inflated level that 

reflects the technology capabilities of 

2005.’’ 365

1. Amendments to Rule 612 

As discussed above, the Commission 

is adopting a smaller minimum pricing 

increment of $0.005 for certain NMS 

stocks. Because the Commission is 

adopting the smaller $0.005 increment, 

it is also amending the preexisting 

access fee caps in Rule 610(c) to prevent 

introducing new pricing distortions in 

the market.366 For protected quotations 

priced $1.00 or more, the Commission is 

adopting a 10 mil access fee cap and has 

decided that this level is appropriate 

based on several additional 

considerations, as discussed in the 

following sections. 

2. Exchange Fee Models 

The exchange fee structures in the 

national market system that have 

developed under Rule 610 are complex 

and consist of fees charged and rebates 

paid to market participants. As stated 

above, exchanges using a ‘‘maker-taker’’ 

pricing model, pay a rebate to a ‘‘maker’’ 

or provider of liquidity, which is funded 

by the fees charged to a ‘‘taker’’ of 

liquidity.367 The exchange earns as 

revenue the difference between the fee 

paid by the taker and the rebate paid to 

the provider or maker.368 For makertaker exchanges, the amount of the taker 

fee is limited by the access fee caps 

imposed by Rule 610(c). The Rule 610(c) 

access fee caps apply to the fees 

assessed on an incoming order that 

executes against a resting protected 

quote, but do not apply to the rebates. 

However, the Rule 610(c) access fee 

caps indirectly limit the average amount 

of the rebates that an exchange offers to 

about $0.0030 per share in order to 

maintain net positive transaction 

revenues. Thus, an exchange may 

charge higher access fees to fund higher 


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369This was one of the concerns the Commission 

identified when it approved the access fee caps. See 

Regulation NMS Adopting Release, supra note 4, at 

37545. (‘‘[T]he fee limitation is necessary to achieve 

the purposes of the Exchange Act. Access fees tend 

to be highest when markets use them to fund 

substantial rebates to liquidity providers, rather 

than merely to compensate for agency services.’’). 

370See, e.g., Letter from Patrick Sexton, EVP, 

General Counsel & Corporate Secretary, Cboe Global 

Markets, Inc., dated Apr. 5, 2024 (‘‘Cboe Letter IV’’) 

at 2–5; Letter from Brett Kitt, Vice President, 

Deputy General Counsel, Nasdaq, Inc., dated Mar. 

25, 2024 (‘‘Nasdaq Letter IV’’) at 3–5; Nasdaq Letter 

III at 2–5. 

371See, e.g., Letter from Richard Steiner, Global 

Equities Liaison to Regulatory & Government 

Affairs, RBC Capital Markets, to Elizabeth Murphy, 

Secretary, Commission, at 2–3 (Nov. 22, 2013), 

available at https://www.sec.gov/comments/s7-02- 

10/s70210-411.pdf (‘‘RBC Capital Letter’’) 

(commenting on potential equity market structure 

initiatives). 

372See, e.g., Larry Harris, ‘‘Maker-Taker Pricing 

Effects on Market Quotations,’’ at 24–25 (Nov. 14, 

2013). 373See, e.g., Curt Bradbury, Market Structure 

Task Force Chair, Board of Directors, SIFMA, and 

Kenneth E. Bentsen Jr., President and Chief 

Executive Officer, SIFMA, Opinion, ‘‘How to 

Improve Market Structure,’’ N.Y. Times (July 14, 

2014), available at http://dealbook.nytimes.com/ 

2014/07/14/how-to-improve-market-structure/?_r=0 

(stating that the ‘‘proliferation of order types 

designed to avoid access fees and capture rebates 

. . . adds complexity to the system, requires 

continuing technology changes and creates 

potential for market instability’’ and recommending 

access fees charged by exchanges be ‘‘dramatically 

reduced, if not eliminated’’); RBC Capital Letter at 

2; and Letter from Haim Bodek, Managing Principal 

and Stanislav Dolgopolov, Regulatory Consultant, 

Decimus Capital Markets, LLC, dated Apr. 25, 2016, 

at 3 and 11 (‘‘Decimus 2016 Letter’’); Vanguard 

Letter at 6. 

374See, e.g., Menkveld, Albert J., Bart Zhou 

Yueshen, and Haoxiang Zhu, ‘‘Shades of darkness: 

A pecking order of trading venues.’’ Journal of 

Financial Economics 124, no. 3 (2017) at 503–534, 

available at https://www.mit.edu/∼zhuh/ 

MenkveldYueshenZhu_2017JFE_dark.pdf; RBC 

Capital Letter at 2. 

375See, e.g., RBC Capital Letter at 2–4; Letter from 

Mehmet Kinak, Vice President—Global Head of 

Systematic Trading & Market Structure, and 

Jonathan Siegel, Vice President—Senior Legal 

Counsel (Legislative & Regulatory Affairs), T. Rowe 

Price, to Brent J. Fields, Secretary, Commission, 

dated June 12, 2018, at 2, available at https://

www.sec.gov/comments/s7-05-18/s70518-3832746- 

162769.pdf (sec.gov) (commenting on File No. S7– 

05–18 ‘‘Transaction Fee Pilot for NMS Stocks). 

376See, e.g., Stanislav Dolgopolov, ‘‘The MakerTaker Pricing Model and its Impact on the 

Securities Market Structure: A Can of Worms for 

Securities Fraud?’’ 8 Va. L. & Bus. Rev. 231, 270 

(2014), available at http://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=2399821 (retrieved from 

SSRN Elsevier database). 

377See infra section VII.C.2.c and table 4 therein 

for additional analysis and discussion of the 

complexity of fee and rebate schedules. 

liquidity rebates.369 Some exchanges 

state that rebates are necessary in order 

for them to attract trading volume.370

In recent years, a variety of concerns 

have been stated about the prevailing 

maker-taker fee model, and particularly 

the rebates paid by the exchanges. 

Those include that the fee/rebate 

models: (1) undermine market 

transparency since displayed prices do 

not account for exchange transaction 

fees or rebates and therefore do not 

reflect the net economic costs of a 

trade; 371 (2) serve as a way to effectively 

quote in sub-penny increments on a net 

basis when the effect of a maker-taker 

exchange’s sub-penny rebate is taken 

into account even though the minimum 

quoting increment is expressed in full 

pennies; 372 (3) introduce unnecessary 

market complexity through the 

proliferation of new exchange order 

types (and new exchanges) designed 

solely to take advantage of pricing 

models; 373 (4) drive orders to nonexchange trading centers that do not 

display quotes as market participants 

seek to avoid the higher fees that 

exchanges charge to subsidize the 

rebates they offer to attract liquidity; 374

and (5) benefit sophisticated market 

participants like market makers and 

proprietary traders at the expense of 

other market participants.375 Further, 

the prevailing access fee structure 

creates potential conflicts of interest for 

broker-dealers, who must provide the 

best execution to their customers’ orders 

while facing potentially conflicting 

economic incentives to avoid fees or 

earn rebates from the trading centers to 

which they direct those orders for 

execution.376

a. Transparency 

The chart below illustrates with a 

hypothetical example the Commission’s 

concern that exchange fee/rebate models 

can undermine price transparency. 

While some investors may invest 

heavily to fully map out the fee 

schedules, these schedules are complex 

and thus doing so would be costly, 

consequently it is likely that not all 

investors fully map out fee schedules.377

The Commission examined data for 

NMS stocks to demonstrate the price 

variations that can occur under the 

exchange fee and rebate schedules. The 

chart above shows a common scenario 

for a hypothetical stock, with four 

exchanges all displaying the same best 

bid of $20.56. However, due to differing 

fee schedules, each of the four 

represents a different net bid to market 

participants. Furthermore, due to 

volume-based price fee tiers, some 

exchanges’ net bids differ for different 

market participants. The fee schedules 

used to create this example are taken 


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Exchange D (Maker-Take,-, volume 

tiers} 
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81647 

378See also infra section VII.B.3. 

379See, e.g., Letter from John A. Zecca, Executive 

Vice President, Global Chief Legal, Risk and 

Regulatory Officer, Nasdaq, Inc., dated Aug. 9, 2023 

(‘‘Nasdaq Letter II’’) at 5–6; Larry Harris, ‘‘MakerTaker Pricing Effects on Market Quotations,’’ at 5 

(Nov. 14, 2013), available at https://encoller.tau.ac.il/sites/nihul_en.tau.ac.il/files/media_

server/Recanati/management/seminars/account/ 

Maker.pdf; Letter from Richie Prager, Managing 

Director, Head of Trading and Liquidity Strategies, 

BlackRock, Inc., to Mary Jo White, Chair, SEC, at 

2 (Sept. 12, 2014), available at https://www.sec.gov/ 

comments/s7-02-10/s70210-419.pdf; Michael 

Brolley & Katya Malinova, ‘‘Informed Trading and 

Maker-Taker Fees in a Low Latency Limit Order 

Market,’’ at 2 (Oct. 24, 2013), available at http://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=2178102. 

380As discussed throughout, these concerns 

include, for example, undermining price 

transparency, introducing unnecessary complexity 

through the proliferation of new exchange order 

types and order routing strategies, added market 

fragmentation, creating or exacerbating potential 

conflicts of interest between brokers and their 

customers, and in NMS stocks that are tick 

constrained, assessing a higher cost to liquidity 

demanders. 

381See also infra sections VII.B.3 and VII.C.2. 

382See also infra sections VII.B.3 and VII.C.2. 

383See, e.g., Concept Release on Equity Market 

Structure, supra note 59 (evaluating broadly the 

performance of market structure since Regulation 

NMS, particularly for long-term investors and for 

businesses seeking to raise capital, and soliciting 

comment on whether regulatory initiatives to 

improve market structure are needed). 

384See infra section VII.A and infra notes 1733 

and 1734 and accompanying text. 

385See infra note 1005. 

386See Proposing Release, supra note 11, at 

80292. See also infra note 1005 and accompanying 

text. 

387See infra section VII.D.2. 

388See infra note 1005 and accompanying text. 

389See infra sections IV.D.1.b and VII.D.2.c. See 

also Proposing Release, supra note 11, at 80330. 

390See, e.g., Vanguard Letter at 6. 

391See infra section VII.D.2.d. 

392Examples of such complex order types include 

post-only orders or add-liquidity only orders that 

seek to only provide liquidity to gain a rebate and 

will not upon entry, execute against a resting order 

on the other side of the market so as to avoid paying 

a transaction fee. See, e.g., BZX Rule 11.9(c)(6) 

(defining a BZX Post Only Order); MEMX Rule 

11.16(i)(6) (defining Post Only); Nasdaq Equity, 

Rule 4702(4)(A)(defining a Post-Only Order); NYSE 

Rule 7.31(e)(2) (defining an ALO Order); NYSE Arca 

Rule 7.31(e)(2) (defining an ALO Order). See also 

Staff Report on Algorithmic Trading in the U.S. 

Capital Markets (Aug. 5, 2020), available at https:// 

www.sec.gov/files/Algo_Trading_Report_2020.pdf. 

from various exchange fee schedules as 

of June 2024. Exchange A charges the 

maximum allowed access fee of 30 mils, 

and so market participants that trade 

with the Exchange A bid receive a net 

price of $20.557 per share ($20.56 

minus a $0.003 fee). Exchange B has an 

inverted ‘‘taker-maker’’ fee schedule and 

so pays a rebate to participants who 

remove liquidity, with differing rebates 

based on volume tiers. In this example, 

a market participant that trades with the 

bid on Exchange B receives a net price 

of $20.5616 if in the best tier ($20.56 

plus a $0.0016 rebate). Exchange C 

charges an access fee of 29.5 mils, 

meaning that a market participant that 

trades with the Exchange C bid would 

receive a net price of $20.55705 per 

share ($20.56 minus the $0.00295 fee). 

Lastly, Exchange D charges an access fee 

of 29 mils to those in the best tier, so 

such a participant trading with 

Exchange D receives a net price of 

$20.5571. Despite all four exchanges 

showing the same bid of $20.56, the 

bids net of fees vary from a low of 

$20.557 to a high of $20.5616, a 

substantial difference of $0.0046 per 

share (nearly half the current minimum 

pricing increment). 

b. Liquidity and the NBBO 

The price of liquidity for investors in 

terms of buying and then later selling a 

security is the spread between the best 

bid and the best offer, which is reflected 

by the NBBO. For those market 

participants that provide liquidity, such 

as market makers, this spread similarly 

represents the market price for 

providing those liquidity services at any 

given point in time. More recently, 

trading center models that pay rebates to 

liquidity providers (which rebates are 

funded on a transaction basis by 

charging an access fee to the taker of 

liquidity) pay an additional return to the 

liquidity provider separate from what 

would be captured though the spread, 

which may then lead those liquidity 

providers to lower the spread (that is, 

the implicit price for their liquidity 

provision services) more than they 

would otherwise.378 These prices are 

reflected in the NBBO, which is 

disseminated in the national market 

system. 

Others have stated that the makertaker model has positive effects by 

enabling exchanges to compete with 

non-exchange trading centers and by 

narrowing quoted spreads through 

subsidizing posted prices,379 but these 

potential benefits should be balanced 

against the market distortions associated 

with the fee and rebate models 

mentioned above.380 Further, rebates 

paid to liquidity providers under makertaker fee schedules may narrow 

displayed spreads in some securities by 

subsidizing liquidity providers (i.e., by 

allowing a maker to post a more 

aggressive price than it may have in 

absence of a rebate), and these prices 

may not reflect the underlying 

economics for the NMS stock.381 In 

turn, that displayed liquidity may 

establish the NBBO,382 which is often 

used as the benchmark for marketable 

order flow, including retail order flow, 

that is executed off-exchange by either 

matching or improving upon those 

distortive prices.383 Accordingly, 

rebates may distort quotation prices that 

are displayed in the national market 

system.384

High rebates also incentivize 

excessive intermediation,385 especially 

in very liquid securities, to the extent 

rebates induce or exacerbate an 

oversupply of liquidity at the best bid or 

offer.386 As discussed below, some 

stocks will trade with a quoted spread 

one tick wide, whether the tick size is 

$0.01 or $0.005. In those cases, quoted 

spread is unable to adjust lower due to 

the tick size, so the rebate paid to 

liquidity providers, which is funded by 

an access fee paid by liquidity takers, 

acts as a wealth transfer from liquidity 

takers to liquidity providers. This 

wealth transfer in turn unnecessarily 

incentivizes the provision of liquidity 

(i.e., encourages providing liquidity in 

order to earn the rebate), thereby 

creating an environment with too much 

liquidity supplied relative to liquidity 

demanded and leading to rebates for 

faster liquidity suppliers and a higher 

cost to liquidity takers.387 In other 

words, excessive quoting in tickconstrained securities to earn rebates 

undermines price transparency because 

displayed prices and the associated size 

at those prices do not reflect the 

underlying economics of supply and 

demand, but rather reflect the impact of 

fees or rebates.388

c. Potential Conflicts of Interest 

As more fully discussed below and in 

the Economic Analysis, access fees and 

rebates create potential broker-dealer 

conflicts of interest in order routing, 

particularly to the extent the fees and 

rebates are not passed through to the 

customer.389 For example, this structure 

can create an incentive for a brokerdealer that fully absorbs transaction 

costs or rebates potentially to route 

customer orders to an exchange in order 

to avoid fees that are paid by the brokerdealer or to receive the highest rebate 

paid.390 Lowering the access fees caps 

will help alleviate potential conflicts of 

interest.391

d. Market Complexity 

Exchange fee and rebate models under 

preexisting Rule 610(c) have also led to 

the development of a variety of complex 

order types, including those that allow 

market participants to avoid paying 

access fees or to ensure that rebates are 

collected.392 Further, exchange fee and 

rebate models are another way 

exchanges differentiate themselves from 

each other and from other trading 

centers to attract order flow. The 


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393See infra note 1081 and accompanying text. 

394See supra note 361 and infra note 1764. 

395See Proposed Rule 610(c); Proposing Release, 

supra note 11, at 80269. 

396See Proposed Rule 610(c); Proposing Release, 

supra note 11, at 80269. 

397See Proposing Release, supra note 11, at 

80290. See also infra notes 1423–1424 

accompanying text and sectionVII.D.2.a. As 

discussed in greater detail below, the amendments 

to Rule 612 do not include the proposed $0.001 

minimum pricing increment, as proposed. 

Therefore, although the Commission proposed a 5 

mil access fee cap to correspond to the $0.001 

minimum pricing increment, the 5 mil access fee 

cap is not necessary because the Commission is not 

adopting the proposed $0.001 minimum increment. 

See infra section IV.D.1.a. 

398See infra section VII.D.2.a. 

399See infra sections IV.D.1.c and VII.D.2.b. 

400See infra sections IV.D.1.c. and IV.D.1.d. 

401See Proposing Release, supra note 11, at 

80288. See also infra sections IV.D.1.b.and 

VII.C.2.c, specifically table 4. While Rule 610(c) 

limits the fees assessed against an incoming order 

that executes against a resting protected quote, it 

does not address the rebates that may be paid. 

402See infra section VII.D.2.a. 

403See infra note 1096 and adjacent text and 

section VII.C.2.c, table 4 (analyzing fee and rebate 

schedules and stating the current structure of fees 

and rebates is complex and constantly changing). 

404See infra section VII.D.2.d. 

405See, e.g., Better Markets Letter I at 16; Brandes 

Letter at 3; Ontario Teachers et al. Letter at 1–2; IEX 

Letter IV at 7–8; Verret Letter III at 5–6; Letter from 

John Ramsay, Chief Market Policy Officer, Investors 

Exchange LLC, dated Apr. 19, 2024 (‘‘IEX Letter 

VI’’) at 4. See also supra IV.D.1 (discussing 

comment letters). 

406See infra section VII.D.2.d. 

variability of fee and rebate models 

(often within the same exchange group) 

introduces additional market 

complexity and fragmentation because it 

encourages the creation of new 

exchanges that offer different pricing 

structures to attract different types of 

market participants or trading strategies. 

Moreover, the drive to establish novel 

and competitive fee schedules results in 

frequent fee schedule changes (typically 

on a monthly basis), which adds 

uncertainty and complexity to the 

marketplace because market 

participants must continually update 

their routing tables to reflect these price 

changes.393 A higher cap allows for a 

wider range of possible access fees (i.e., 

$0–$0.0030) and more variability in 

exchange fees, which introduces 

additional complexity to the market.394

C. Proposal To Amend 610(c) 

To accommodate the amendments to 

Rule 612 and to address the issues that 

have developed with the fee schedules 

for protected quotes under Rule 610(c), 

the Commission proposed to amend 

Rule 610(c) by reducing the level of the 

access fee caps for all protected 

quotations in NMS stocks. For protected 

quotations in all NMS stocks priced 

$1.00 or more, the proposal introduced 

two lower access fee caps to 

accommodate the proposed minimum 

pricing increments under proposed Rule 

612 for quotations priced equal to or 

greater than $1.00 per share.395

Specifically, for all protected quotations 

in NMS stocks priced $1.00 or more per 

share and assigned a proposed 

minimum pricing increment greater 

than $0.001, the Commission proposed 

a 10 mil access fee cap; and for all 

protected quotations in NMS stocks 

priced $1.00 or more per share and 

assigned the proposed $0.001 minimum 

pricing increment, the Commission 

proposed a 5 mil access fee cap. For all 

protected quotations in NMS stocks 

priced less than $1.00 per share, the 

Commission proposed to reduce the 

access fee cap to 0.05% of the quotation 

price.396

The Commission received many 

comments on the proposed amendments 

to Rule 610(c). The comments are 

discussed more fully below. 

D. Final Rule 610(c) 

The amended access fee caps reflect 

several considerations by the 

Commission as well as input from 

commenters. For protected quotations 

priced $1.00 or more, the Commission is 

adopting a 10 mil access fee cap. This 

level is appropriate based on several 

considerations. First, because the 

Commission is adopting the $0.005 

increment for certain NMS stocks under 

amended Rule 612, it is also reducing 

the level of the preexisting access fee 

caps in Rule 610(c) in order to prevent 

the price distortions that would occur if 

access fees were able to be set at more 

than half of the minimum pricing 

increment (i.e., a protected quotation 

with an access fee that exceeds half the 

minimum pricing increment 

economically would be represented at 

the next less aggressive pricing 

increment).397 A 10 mil access fee cap 

is sufficiently below the smallest 

minimum pricing increment (i.e., 

$0.005) so as to not create new pricing 

distortions.398

Second, in adopting the 10 mil access 

fee cap, the Commission also considered 

the impact of the reduction on the 

agency market business model. A 10 mil 

access fee cap is at a level that will 

allow the exchanges to maintain their 

current net capture for executions of 

NMS stocks priced $1.00 or greater.399

The 10 mil access fee cap also should 

help to reduce distortions and 

complexities under the fee structures 

that have developed under the 

preexisting access fee caps levels.400 As 

discussed above, under the preexisting 

access fee caps, many exchanges charge 

access fees at or near the highest 

permitted levels under preexisting Rule 

610(c) as a means to fund rebates.401

Access fees charged at the highest level 

permitted under the preexisting rule 

and the rebates they fund harm price 

transparency because the displayed 

price does not accurately reflect the 

underlying economics of a decision to 

post a protected quotation at a particular 

price (i.e., the market participant’s 

assessment of the price of liquidity for 

the security is distorted by the subsidy 

provided by the rebate), or to access a 

protected quotation at a particular price 

(i.e., the displayed price does not reflect 

the additional cost of the access fee).402

The negative impact on price 

transparency is exacerbated when 

various exchanges have different fees 

and rebates and make frequent updates 

to those rates, making the comparison of 

net prices unnecessarily complex and 

difficult.403

Further, reducing the level of the 

access fee caps to the adopted levels 

will reduce complexity in the market 

because it will (1) reduce the incentives 

to use certain complex order types that 

are designed to avoid high fees/garner 

large rebates, (2) potentially reduce the 

number of fee changes in the market and 

accompanying frequent changes to 

complex order routing strategies, and (3) 

may discourage further market 

fragmentation.404 Reducing the amount 

of rebates by reducing the access fee 

caps to 10 mils also will reduce the 

magnitude of potential conflicts of 

interest in the market. 

Finally, in determining to adopt the 

10 mil access fee cap, the Commission 

has considered input from commenters, 

including market participants. 

Commenters stated that the reduced 10 

mil access fee cap will better reflect 

current market rates and the increased 

efficiencies from electronic trading and 

other market structure changes, all of 

which have reduced trading costs since 

Rule 610 was originally adopted.405

In addition, the Commission is 

retaining the uniform access fee cap 

structure whereby the access fee caps 

are assigned based solely upon the price 

of the protected quotation. In other 

words, the Commission is adopting the 

10 mil access fee cap for all protected 

quotes priced $1.00 or more. 

Maintaining the preexisting uniform 

structure of the access fee caps helps 

ensure that the requirements under Rule 

610(c) do not increase the fee structure 

complexity or introduce unintended 

consequences (such as oscillations) that 

would create additional costs for market 

participants.406


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407See infra section VII.D.2.c. 

408See generally, Regulation NMS Adopting 

Release, supra note 4. 

409Section 11A(c)(1)(B) of the Exchange Act. See 

Regulation NMS Adopting Release, supra note 4, at 

37545. 

410See infra section VII.D.2.b. As discussed 

below, the level of the adopted access fee cap for 

protected quotes in NMS stocks priced $1.00 or 

more is consistent with the current level charged by 

some trading centers that do not post protected 

quotes and therefore are not subject to the 

preexisting access fee caps under Rule 610(c). 

Specifically, the fees charged by some ATSs for 

execution services are often in the range of 10 mils 

for access to their liquidity. See infra note 1118 and 

accompanying text and infra section VII.C.2. This 

level reflects a competitive rate for providing access 

to liquidity, and hence represents a reasonable level 

for amending the access fee caps for protected 

quotes. See also e.g., Goldman 2018 Letter at 4 

(stating ‘‘a reduction of the Fee Cap to $0.0010 per 

share is reasonable and would be better calibrated 

with today’s market pricing.’’). According to one 

commenter, while the ‘‘overwhelming proportion of 

transaction volume executed on national stock 

exchanges is subject to the maximum access fee of 

30 mils. . .volume executed on ATS’s and other 

venues outside of exchanges is typically subject to 

substantially lower costs of access, in the range of 

ten mils and lower.’’). IEX Letter IV at 8. 

411See also infra sections VII.C.2 and VII.D.2, and 

table 14. As discussed below, the Commission 

estimates for purposes of this release that exchange 

net capture is 2 mils while also recognizing that net 

capture can range from approximately 2 to 6 mils. 

See infra note 1103. 

412See infra section IV.D.1.c. See also Proposing 

Release, supra note 11, at 80290–91. 

413See infra section VII.D.2. See also Proposing 

Release, supra note 11, at 80292 and at 80309 

(stating because ‘‘compensation is above what 

would exist in a competitive market there is an 

increased incentive to provide liquidity via limit 

orders, so queues of limit orders tend to be longer, 

wait times to get a limit order executed also tend 

to be longer, and, thus the likelihood that the 

market moves away from an investor’s limit order 

increases, leading to lower overall fill rates for limit 

orders’’) and at 80329 (stating ‘‘[t]he primary 

beneficiaries of the reduction in the access fee cap 

would be liquidity demanders. For stocks with 

narrow spreads such as tick-constrained stocks, a 30 

mil access fee can increase the cost of demanding 

liquidity by as much as 60%. Consequently, 

reducing the access fee significantly reduces the 

cost of demanding liquidity in the predominant 

maker-taker trading environment. This effect 

coupled with the expected decrease of liquidity 

suppliers can be expected to decrease competition 

to provide liquidity. Less competition to provide 

liquidity means that queue lengths could decrease 

and fill rates increase because it would be easier to 

get to the front of the order book. This effect could 

allow non high frequency traders more opportunity 

to fill orders using liquidity-providing instead of 

liquidity-demanding transactions.’’). See also IEX 

Letter IV at 2, 6–8. 

414See, e.g., IEX Letter IV at 1; IEX Letter VI at 

1; Better Markets Letter II at 1; We The Investors 

Letter dated Mar. 30, 2023 at 2; Letters from Chris 

Robinson, dated Mar. 3, 2023; William Bledsoe, Jr., 

dated Feb. 28, 2023; Ryan Macarthur, dated Feb. 24, 

2023; Julio Tello, dated Feb. 24, 2023; David Genco, 

Jr., dated Feb. 24, 2023; John, dated Feb. 23, 2023; 

Citigroup Letter at 3; BlackRock Letter at 10–11; 

Better Markets Letter I at 16; ASA Letter at 5; 

Vanguard Letter at 2; Invesco Letter at 2; JPMorgan 

Letter at 6; Ontario Teachers et al. Letter at 1–2; 

Budish Letter at 1; Mark Rogers Letter, dated Mar. 

30, 2023; Grant Medford Letter, dated Mar. 30, 2023 

; Jared Albert Letter, dated Mar. 28, 2023; Steven 

Tripari Letter (‘‘Tripari Letter’’), dated Mar. 28, 

2023; Peter McKornack Letter, dated Mar. 29, 2023; 

Verret Letter III at 26. 

415See, e.g., Julio Tello, dated Feb. 24, 2023; Ryan 

Macarthur, dated Feb. 24, 2023; David Genco, Jr., 

dated Feb. 24, 2023; John, dated Feb. 23, 2023; 

Budish Letter at 1. 

416 Julio Tello, dated Feb. 24, 2023. 

417See, e.g., Ontario Teachers et al. Letter at 2; 

Brandes Letter at 3; Boston Partners, Calamos 

Advisors, Glenmede Investment, and Janus 

Henderson Letter. 

418See, e.g., Grant Medford Letter, dated Mar. 30, 

2023; Verret Letter III at 24; BlackRock Letter at 10– 

11. 

419See, e.g., Budish Letter at 1; Boston Partners, 

Calamos Advisors, Glenmede Investment, and Janus 

Henderson Letter. 

420See, e.g., IEX Letter IV at 1; MEMX Letter at 

22; Biotechnology Innovation Organization Letter at 

1; Brandes Letter at 3; Letter from Allison Bishop, 

President, Proof Services LLC, dated Mar. 31, 2023 

(‘‘Proof Letter’’) at 1; BlackRock Letter at 10–11; 

Verret Letter I at 1, 2 and 4; MFA Letter at 13. 

421SIFMA Letter II at 39; Invesco Letter at 4; 

Nasdaq Letter I at 19; Better Markets Letter II at 3– 

4. 

422 IEX Letter IV at 1; IEX Letter I at 6 and 21; 

Better Markets Letter I at 16; Better Markets Letter 

II at 4; Ontario Teachers et al. Letter at 2; Brandes 

Letter at 3; Boston Partners, Calamos Advisors, 

Glenmede Investment, and Janus Henderson Letter 

(supporting Brandes’ Letter); Healthy Markets Letter 

I at 24; Themis Letter at 7–8; Letter from Andrew 

Hartnett, President and Deputy Commissioner, Iowa 

Insurance Division, North American Securities 

Administrators Association, Inc., dated Mar. 31, 

2023 (‘‘NASAA Letter’’) at 1 and 9; ASA Letter at 

5; Vanguard Letter at 6; JPMorgan Letter at 6; 

Capital Group Letter at 4; Pragma Letter at 7; 

Invesco Letter at 4; Verret Letter I at 8; XTX Letter 

at 5; Letter from Jeffrey P. Mahoney, General 

Counsel, Council of Institutional Investors, dated 

Mar. 30, 2023 (‘‘Council of Institutional Investors 

Letter’’) at 3; BMO Letter at 3; and BlackRock Letter 

at 10–11. 

Further, the Commission is also 

reducing the level of the access fee cap 

for NMS stocks priced under $1.00 to 

0.1% of the quotation price in order to 

maintain the preexisting structure as 

well as to harmonize that cap with the 

adopted 10 mils cap for NMS stocks 

priced at $1.00 or more. The 

harmonization will prevent different 

fees on quotes above and below $1.00 

that could negatively impact price 

formation.407 These considerations are 

consistent with the analysis and 

rationale the Commission used when it 

adopted the access fee caps in 2005.408

Lowering the access fee caps to these 

levels and maintaining the preexisting 

uniform structure will promote the 

statutory objectives of fair and efficient 

access to protected quotes and will help 

to ensure the fairness and usefulness of 

protected quotations 409 because the 

amended access fee caps will lead to 

transaction pricing that is better aligned 

with today’s market dynamics.410

Recalibrating the level of the caps will 

yield savings for investors and help to 

address distortions in the markets while 

maintaining the ability of the trading 

centers that display protected 

quotations to continue to provide 

execution services, innovate and 

compete because they will be able to 

retain the same fees (net of any rebates) 

for executions that are priced $1.00 or 

more,411 notwithstanding the reduction 

of the fee cap to 10 mils.412 The 

Commission has balanced the 

competing interests of reducing the cap 

to address the amendments to Rule 612 

and market distortions associated with 

the fee/rebate models that have 

developed under the preexisting fee 

caps, with the importance of preserving 

the viability of multiple agency market 

business models. The amended 10 mils 

access fee cap will lead to improved 

market quality because it will reduce 

distortions in the market and preserve 

the integrity of displayed prices, which 

will support sufficient price discovery, 

and will reduce costs for investors.413

1. Comments on Proposed Rule 610(c) 

Many comments from a broad cross 

section of market participants supported 

the need to reduce the access fee caps 

in preexisting Rule 610(c).414 Many 

individual commenters stated that the 

reduced access fee caps would help to 

reduce trading costs.415 One individual 

commenter stated ‘‘[a]s a retail trader, I 

have experienced the high costs of 

access fees, which can be a significant 

portion of my trading costs. The 

proposed reduction in access fee caps 

will help to lower my costs, which will 

allow me to take advantage of more 

trading opportunities and ultimately 

benefit from a more efficient 

market.’’ 416 Other commenters also 

stated that a reduction in the access fee 

caps would reduce trading costs for 

investors.417

Some commenters stated that the 

proposal would enhance 

transparency 418 and would reduce 

complexity.419 As discussed above, the 

reduced access fee caps will enhance 

transparency of protected quotes and 

reduce complexity in the market by 

reducing the need for complex order 

types that have developed to 

accommodate the fee/rebate models. 

Among the commenters that 

supported a reduction in the access fee 

caps,420 several stated that the 

amendments to Rule 612 to reduce tick 

sizes would necessitate a reduction in 

the access fee caps for those securities 

assigned a smaller tick,421 while many 

others stated that the preexisting access 

fee cap should be lowered to 10 mils per 

share for protected quotations in all 

NMS stocks priced at $1.00 or more 

regardless of whether there was a 

reduction in tick size.422 As discussed 


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423See, e.g., IEX Letter IV at 5; Brandes Letter at 

3; Citigroup Letter at 5; BlackRock Letter at 10–11; 

DOJ Letter at 5; Harris Letter at 1; BMO Letter at 

4. 424 IEX Letter IV at 5. See also IEX Letter III at 

5. 425Brandes Letter at 3. 426See, e.g., Tripari Letter, dated Mar. 28, 2023; 

Francisco Gil, dated Mar. 28, 2023; We The 

Investors Letter dated Mar. 30, 2023 at 7; Adam 

Abreu, dated Apr. 30, 2023 at 2; Michael Dudek, 

dated Mar. 31, 2023 at 4; Larry Douglas, dated Apr. 

1, 2023 at 1 and 3; We The Investors Letter I dated 

Mar. 15, 20234; Betty Waters Letter, dated Mar. 31, 

2023; Harris Letter at 1 & 4. 

427See Cboe Letter II at 2 and 8; Angel Letter at 

7. 

428Cboe Letter II at 2 and 8. See also Angel Letter 

at 7. 429See Angel Letter at 7. 430See Regulation NMS Adopting Release, supra 

note 4, at 37544–45 (stating the Commission 

considered market participants’ views stating that 

agency markets must be allowed to charge access 

fees for their services, as well as those that stated 

that access fees distort quotation prices and should 

be banned. In adopting the 30 mil access fee cap, 

the Commission recognized that ‘‘agency trading 

centers perform valuable agency services in 

bringing buyers and sellers together, and that their 

business model historically has relied, at least in 

part, on charging fees for execution of orders against 

their displayed quotations.’’ The Commission 

concluded that ‘‘prohibiting access fees entirely 

would unduly harm this business model.’’). See 

infra sections VII.C.2.b and VII.D.2.b. 

431 Id. See also infra section IV.D.1.c. 

432See Regulation NMS Adopting Release, supra 

note 4, at 37545. 

433See Regulation NMS Adopting Release, supra 

note 4, at 37502–37503 (stating ‘‘protecting the best 

displayed prices against trade-throughs would be 

futile if broker-dealers and trading centers were 

unable to access those prices fairly and 

efficiently.’’) See also IEX Letter V at 2 (stating 

proposal is designed to ‘‘prevent high fees from 

undermining Regulation NMS’s price protection 

privileges afforded to exchanges’’). 

434See Regulation NMS Adopting Release, supra 

note 4, at 37501. 

435See Regulation NMS Adopting Release, supra 

note 4, at 37501. 

436See supra note 355 and accompanying text. 

437See, e.g., Steven Tripani, dated Mar. 28, 2023; 

Michael Dudek, dated Mar. 31, 2023 at 4; Betty 

Waters Letter dated Mar. 31, 2023. One commenter 

suggested that the Commission should prohibit or 

restrict the use of CADV-tiers. We the Investors 

Letter, dated Mar. 30, 2023 at 7. As discussed 

below, the Commission is adopting Rule 610(d) as 

proposed which will enhance the transparency of 

fees and rebates, including fees that may be tiered. 

The Commission notes that it continues to assess 

volume-based exchange transaction pricing. See 

Securities Exchange Act Release No. 98766 (Oct. 18, 

2023), 88 FR 76282 (Nov. 6, 2023) (proposing new 

rule 6b-1 under the Exchange Act, which would 

prohibit exchanges from offering volume-based 

transaction pricing in connection with the 

execution of agency or riskless principal orders in 

NMS stocks) (‘‘Fee Tiers Proposal’’). As discussed 

below, Rule 610(d) will provide certainty regarding 

the amount of the fee to be assessed and the rebate 

to paid at the time of the time of the trade, which 

is separate and distinct from the Commission’s 

consideration of other regulatory action regarding 

volume-based transaction pricing. See infra section 

IV.E. 

below, the Commission has decided to 

maintain the uniform access fee cap 

structure and continue to apply the caps 

to all protected quotes based on price. 

The Commission has decided that 

reducing the caps for all protected 

quotes, not just those that may be 

assigned the smaller $0.005 minimum 

pricing increment, is appropriate to 

address the distortions that exist in the 

national market system. Further, 

maintaining the uniform structure will 

help to ensure that the rule does not 

increase complexity in the national 

market system. 

Several commenters stated that 

modifications to reflect the significant 

evolution in market conditions since the 

caps were established almost two 

decades ago are long overdue.423 One 

commenter stated that the current 

access fee caps are ‘‘antiquated.’’ 424

Another commenter stated that the 

access fee caps are ‘‘outdated’’ and 

‘‘counter to the interests of long term 

investors.’’ 425 The Commission is 

reducing the access fee caps to 

accommodate the amendments to Rule 

612. Further, retaining a uniform access 

fee cap structure will benefit the market 

by introducing less complexity and help 

to address market distortions that have 

arisen under the current fee caps. The 

current market structure has 

experienced significant changes in 

trading dynamics and operates under a 

fee structure that is different from when 

Rule 610(c) was adopted and 

problematic for the reasons articulated 

throughout this release. As discussed 

above and in the Economic Analysis, 

the amendment modernizes Rule 610(c) 

to reflect current trading dynamics and 

mitigate distortions associated with the 

preexisting caps while preserving its 

original objectives. 

Some individual commenters 

recommended that the proposal be 

modified to go further to address 

distortions in the market related to the 

current fee and rebate models.426 A few 

commenters stated that the access fee 

caps should be eliminated entirely.427

One commenter stated that ‘‘competitive 

forces should inform access fees.’’ 428

Another commenter stated that the 

‘‘solution is to let brokers take fees into 

consideration in their order routing . . . 

and route to the market with the best 

all-in costs,’’ which would obviate the 

need for the Commission to ‘‘get into the 

price control business.’’ 429

While some commenters suggested 

that access fees be further reduced or 

eliminated altogether, the Commission 

is not eliminating fees for access to 

protected quotes. Rule 610(c) establishes 

limits on the amount of fees that can be 

charged for access and when the 

Commission adopted Rule 610(c), the 

Commission recognized that agency 

market trading centers have historically 

relied, at least in part, on charging fees 

for access. Eliminating or prohibiting 

access fees entirely would unduly harm 

the business model of agency market 

trading centers by not allowing them to 

collect fees for the execution services 

they provide.430 As discussed below, 

the national securities exchanges are the 

only trading centers at this time that 

display protected quotations and they 

should be able to continue to charge for 

the execution services they provide.431

However, while recognizing the 

importance of the agency market 

business model to the national market 

system, in adopting the access fee caps 

the Commission also was mindful that 

‘‘[a]ccess fees tend to be highest when 

markets use them to fund substantial 

rebates to liquidity providers, rather 

than merely to compensate for 

execution services’’ and artificially high 

access fees (i.e., those that are used 

primarily to fund rebates) can 

undermine price discovery because ‘‘the 

published quotations of such markets 

would not reliably indicate the true 

price that is actually available to 

investors or that would be realized by 

liquidity providers.’’ 432

Further, notwithstanding 

commenters’ statements to the contrary, 

the access fee caps continue to be 

necessary in order to support the 

objectives of fair and efficient access to 

protected quotations, which ‘‘is 

necessary to support the integrity of the 

price protection requirement established 

by the adopted the Order Protection 

Rule.’’ 433 In adopting Rule 611, the 

Commission stated that strong 

intermarket price protection offers 

greater assurance that investors who 

submit market orders will receive the 

best readily available prices for their 

trades.434 Rule 611 was designed to 

‘‘strengthen the protection of displayed 

and automatically accessible quotations 

in NMS stocks.’’ 435 The Commission 

recognized that such objectives could be 

undermined if ‘‘outlier’’ markets could 

charge high fees to market participants 

who would be required to pay such high 

fees to access a protected quotation 

because of Rule 611. The comments that 

suggest eliminating the access fee caps 

and allowing a consideration by brokers 

of all-in costs or relying solely on 

competition, do not address the concern 

that led to the adoption of the access fee 

caps, namely that outlier markets would 

take advantage of Rule 611 by imposing 

high fees for access.436 The access fee 

caps remain necessary for the reasons 

they were adopted. 

Some commenters stated that the 

Commission should act to prohibit 

rebates.437 While in many cases rebates 


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438See supra section IV.B.2. See also infra section 

IV.D.1.b. 

439See infra note 590 and accompanying text. 

440See infra section VII.C.2. 

441See infra section IV.D.1.b and VII.D.2. 

442See Harris Letter at 1 and 4. 

443See Harris Letter at 4. 

444National securities exchanges establish and 

amend their fee schedules by filing proposed fee 

rule changes, pursuant to section 19(b) of the 

Exchange Act and rule 19b–4 thereunder, for 

Commission review. See 15 15 U.S.C. 78f(b)(4) and 

(5)(requiring the rules of the exchange provide for 

the equitable allocation of reasonable dues, fees, 

and other charges among members, and issuers and 

other persons using its facilities and not be 

designed to permit unfair discrimination). 

445See, e.g., Healthy Markets Letter I at 24; 

Vanguard Letter at 6. See also supra note 422. 

446See Vanguard Letter at 6. 

447Cboe Letter III at 1–2. 

448See, e.g., SIFMA Letter II at 39 (stating ‘‘the 

Commission appropriately recognized that tick 

sizes and access fees are linked with each other’’); 

Nasdaq Letter I at 19 (‘‘support[ing] adjusting the 

access fee cap to accommodate new tick sizes’’); 

Better Markets Letter II at 3–4; MEMX Letter at 22 

(‘‘access fees and tick sizes are inherently linked’’). 

449Better Markets Letter II at 3–4. 

450See, e.g., Invesco Letter at 4; NASAA Letter at 

9; JPMorgan Letter at 6; Better Markets Letter II at 

4; Healthy Markets Letter I at 22; Pragma Letter at 

7; Budish Letter at 6; AIMA Letter at 4. 

451Pragma Letter at 7. 

452Budish Letter at 6. 

453See, e.g., MEMX Letter at 22; SIFMA Letter II 

at 39; Better Markets Letter II at 3–4; Nasdaq Letter 

I at 19. See also infra section VII.D.2. 

454See infra section VII.D.2.a. 

455See infra section VII.D.2.a. 

456See id. 

457See id. 

458See id. 

are funded by the access fees that are 

collected, Rule 610(c) does not apply to 

rebates.438 The Commission is adopting 

amendments to Rule 610(c) to reduce 

the access fee caps for the reasons 

discussed herein, but is not expanding 

its application to apply to rebates or to 

eliminate them.439 The adopted 

amendments to Rule 610(c) maintain 

fidelity to the original objectives of the 

rule, but recalibrate the fee cap amounts 

to reflect current market structure. As a 

practical matter, however, the reduced 

access fee caps in amended Rule 610(c) 

will likely reduce the rebates paid 440

and, as a result, the amended access fee 

caps will reduce the distortions created 

by the existing fee structures that use 

access fees as a means to fund the 

payment of rebates in the market.441

One commenter stated that the 

Commission should require the 

exchanges to ‘‘revert to traditional fees 

imposed on buyers or sellers or both 

without regard to the maker-taker 

status.’’ 442 Rule 610(c) does not require 

any particular fee structure, like a flat 

fee structure suggested by a 

commenter.443 Instead, the access fee 

caps set an upper limit on the amount 

of fees that can be charged for access to 

protected quotations. Within this 

construct, trading centers can continue 

to develop fee structures that are 

consistent with Rule 610 as well as any 

other regulatory requirements that may 

be relevant to a particular trading 

center.444

a. Access Fees and Minimum Pricing 

Increments 

Several commenters stated the 

Commission should lower the access fee 

caps regardless of whether any changes 

are made to the minimum pricing 

increments and stated that such changes 

are warranted even if the Commission 

elects not to proceed with the proposed 

tick changes.445 One commenter stated 

‘‘the current harms associated with the 

$0.003 access fee cap and maker-taker 

pricing models exist at the current tick 

sizes. Accordingly, the Commission 

should consider reducing the access fee 

cap even if it ultimately decides not to 

proceed with the proposed tick size 

changes.’’ 446 Another commenter, 

however, ‘‘strongly disagreeing’’ with 

commenters’ suggestion that regulatory 

reform of exchange fees could proceed 

independently, stated that ‘‘[c]alls for 

regulatory mandated reductions in 

exchange access fee caps fail to 

recognize that exchange access fee caps 

were adopted and justified to facilitate 

effective intermarket linkages.’’ 447

Other commenters stated that the 

levels of the access fee caps and the 

minimum pricing increments are 

connected.448 One commenter stated 

‘‘[a] reduction in the minimum tick size 

without reducing access fees could 

permit fees to become a higher 

percentage of the minimum pricing 

increment, which would almost 

certainly undermine price 

transparency.’’ 449 Commenters stated 

that the access fee caps should be 

reduced to help ensure that access fees 

do not become an outsized portion of 

displayed quotes in light of proposed 

changes to the minimum pricing 

increments.450 One commenter stated 

that it was ‘‘recommend[ing] keeping 

fees strictly less than 1⁄2 of the tick size’’ 

in order to prevent ‘‘price instability 

and quote flickering’’ and stated ‘‘[i]f 

fees reach 1⁄2 the tick size, it means that 

the same effective price point can be 

achieved multiple ways on an all-in 

basis with different nominal prices (e.g., 

an offer at 10.000 with a $0.0005 rebate, 

or a bid of 10.001 with a $0.0005 

rebate).’’ 451 Another commenter stated 

‘‘if the access fee cap were to exceed 

half of the tick size, the paper trail can 

be not only confusing but can literally 

misrank trades.’’ 452

As recognized by several commenters, 

access fees and tick sizes are related in 

certain instances.453 Specifically, an 

access fee that is too high when 

compared to the tick size can create 

pricing distortions.454 Therefore, 

because the Commission is reducing the 

minimum pricing increments for certain 

NMS stocks as set forth in Rule 612, the 

Commission is also reducing the Rule 

610(c) access fee caps to prevent 

introducing pricing distortions that can 

occur if an access fee is greater than 

one-half of the tick. Maintaining an 

access fee cap that is less than one-half 

of the tick size will preserve 

coherence 455 and result in lower 

transaction costs for investors.456

Further, lowering the access fee cap to 

10 mils for those NMS stocks assigned 

a lower tick will address the 

distortionary effect on price 

transparency that would result absent 

adjustment to the access fee cap.457 To 

illustrate, if the access fee cap remained 

at $0.003, which would fund rebates at 

a similar level, and the tick size was 

adjusted to $0.005, the effect on the 

price of a stock could be as follows. An 

executed trade could be displayed at a 

price of $10.005 followed by another 

executed trade at a price of $10.010. 

Many investors would interpret this as 

a sign that a stock was increasing in 

value. However, with an access fee of 

$0.003, the net price of the first order if 

it represents a market order to buy 

would be $10.008 (the buyer pays 

$10.005 and pays $0.003 in fees), 

whereas the net price of the second 

order if it is a market order to sell would 

be $10.007 (the seller receives $10.010 

and pays $0.003 in fees). In this 

example, the price has fallen, not risen. 

Lowering the access fee cap to 10 mils 

will mitigate this problem.458

The Commission also agrees that the 

access fee caps should be lowered for all 

NMS stocks regardless of whether a 

stock is assigned the lower pricing 

increment of $0.005 or retains a $0.01 

minimum pricing increment to address 

market distortions attributable to the fee 

structures that have developed under 

the access fee caps and align the fee 

caps with current market dynamics. The 

Commission is reducing the access fee 

caps for all NMS stocks and maintaining 

the structure that was originally 

adopted, i.e., assigning an access fee cap 

based on the price of the protected 

quotation. And, as discussed above, 

maintaining a uniform access fee cap 

structure will help to ensure that the 

requirements under Rule 610(c) do not 

increase the fee structure complexity. 

Some commenters were generally 

supportive of an access fee cap 


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459See, e.g., AIMA Letter at 4; Cambridge Letter 

at 6; ICI Letter I at 16; STA Letter at 8. 460See, e.g., Pragma Letter at 7; MFA Letter at 13; 

Schwab Letter II at 6 and 36; SIFMA Letter II at 45; 

MEMX Letter at 22; Jefferies Letter at 2; NYSE Letter 

I at 7; Nasdaq Letter I at 29; NYSE, Schwab, and 

Citadel Letter at 1–2. 

461See, e.g., FIA PTG Letter II at 3; Hudson River 

Letter at 4; MMI Letter at 7; Robinhood Letter at 46, 

56–59. See also MEMX at 22. 

462See, e.g., JPMorgan Letter at 6; MFA Letter at 

13. 

463See, e.g., Fidelity Letter at 14–15; Cambridge 

Letter at 6; NYSE, Schwab, and Citadel Letter at 2; 

MEMX Letter at 23; Jefferies Letter at 2; Schwab 

Letter II at 6. 

464See Nasdaq Letters I and II; NYSE Letter I; and 

Cboe Letters I–IV. 

465Nasdaq Letter I at 2 and 19. 

466Nasdaq Letter I at 2, 19 and 29. See also NYSE 

Letter I at 7. 

467Nasdaq Letter I at 2. 

468Nasdaq Letter I at 20. 

469Better Markets Letter I at 16. See also e.g., 

Better Markets Letter II at 4; Brandes Letter at 3; 

BlackRock Letter at 11; JPMorgan Letter at 6; 

Invesco Letter at 4. 

470See, e.g., JPMorgan Letter at 6; Brandes Letter 

at 3. 

471Brandes Letter at 3. 

472Capital Group Letter at 4. 

473See, e.g., IEX Letter VI at 2. 

474 IEX Letter VI at 2. 

475See, e.g., T. Rowe Price Letter at 4; BlackRock 

Letter at 10–11; Citigroup Letter at 5–6; Letter from 

Phil Mackintosh, Nasdaq, Inc., dated May 7, 2024, 

at 2 (‘‘Nasdaq Letter V’’). 

476Morgan Stanley Letter at 3. 

477Morgan Stanley Letter at 3–4. 

478See Cboe Letter IV at 2. 

479See Cboe Letter IV at 2. 

reduction because of the changes to the 

minimum pricing increment, but offered 

no or few specifics as to the amount or 

percentage of the reduction.459 Other 

commenters urged the Commission to 

reduce the access fee caps in a manner 

that is proportionate to any reduction in 

the tick (e.g., for a $0.005 tick, the 

access fee cap should be 15 mils).460

Some commenters stated that the 

access fee caps should be 30% of the 

minimum pricing increment in order to 

remain consistent with the percentage 

level under the preexisting rule.461

These commenters recommended 

maintaining the current 30% ratio 

between tick size and access fee cap 

because they were primarily concerned 

that the proposal would result in access 

fees that were 50% of the tick (an 

increase in fee to tick ratio) for the 

smallest proposed tick size (i.e., the 

proposed $0.001 tick would have been 

assigned a 5 mils access fee cap). Other 

commenters expressed concern 

regarding application of a two-tiered 

access fee cap structure to a four-tiered 

reduction in minimum pricing 

increments.462 These commenters’ 

concerns regarding both the increase in 

fee to tick ratio and asymmetrical 

structure of the proposal, however, have 

been obviated because the Commission 

is neither adopting the $0.001 tick, nor 

the corresponding 5 mils cap. 

Other commenters stated that the 

access fee caps should be reduced only 

for NMS stocks that are assigned a 

smaller minimum pricing increment 

and only in proportion to the amount of 

a stated corresponding decrease in the 

tick size, i.e., NMS stocks that were 

assigned a smaller $0.005 tick size 

would be subject to a 15 mils access fee 

cap.463 Similarly, several exchange 

groups commented on the proposal and 

offered alternative approaches to modify 

Rule 610(c) to reflect the change in 

minimum pricing increments.464 One 

exchange group commenter supported 

the need to adjust the access fee caps to 

accommodate the proposed new tick 

sizes, but stated its view that the 

proposal went ‘‘far beyond what is 

needed’’ to achieve that purpose ‘‘to the 

detriment of market quality and the 

NBBO’’ because reducing the caps 

would implicitly reduce rebates, which 

would impede exchanges’ ability to 

attract liquidity and encourage tighter 

spreads.465 As an alternative to the 

proposal, the commenter recommended 

the Commission adopt a fee cap of 15 

mils for NMS stocks assigned to a 

$0.005 minimum pricing increment and 

retain the preexisting 30 mils access fee 

cap for NMS stocks that retain the $0.01 

minimum pricing increment.466

According to this commenter, this 

alternative ‘‘would cut access fees by 

half for securities in the $0.005 tick 

bucket, while preserving room for 

exchanges to continue [to] offer rebates 

that are needed to bolster market quality 

and the NBBO.’’ 467 This commenter 

further stated that although the 

Commission intends the proposal to 

help the exchanges compete for retail 

order flow by reducing the cost for 

broker-dealers to access liquidity on the 

exchange, compressing the access fee 

caps would make it more expensive to 

provide liquidity to the exchanges and 

thus any benefit would be 

undermined.468

Several commenters stated that there 

should be a uniform fee cap to ‘‘avoid 

any additional market complexity.’’ 469

Some commenters stated that the 

proposed tiered access fee caps and the 

proposed variable minimum pricing 

increments would add unnecessary 

complexity.470 One commenter stated 

that it ‘‘strongly favor[ed] a single, 

consistent standard, rather than 

multiple caps tied to different ticks, 

which would create unnecessary 

complexity.’’ 471 Another commenter 

stated that applying a uniform cap 

across all NMS stocks would help to 

address market distortions such as 

routing conflicts arising from the makertaker fee model.472 Another commenter 

stated that continuing to apply a 

uniform cap will more effectively 

achieve the objectives of Rule 610 

because absent such adjustment, ‘‘the 

ability of exchanges to abuse their status 

as protected markets will be no less for 

stocks that are assigned a higher tick 

increment.’’ 473 One commenter stated 

that setting different fee caps based on 

tick size would ‘‘allow exchanges to 

impose a ‘penalty fee’ for participants 

looking to access quotes in stocks that 

are less actively traded’’ and further 

stated that ‘‘there is no justification in 

logic or regulatory purpose to make that 

distinction.’’ 474 However, other 

commenters disfavored a ‘‘one-size-fitsall’’ model.475 One commenter 

suggested the Commission consider a 

‘‘dynamic tick size approach with the 

access fee cap proportionally tied to 

both smaller and larger tick sizes’’ 476

and recommended the access fee caps 

be a certain percentage of the minimum 

pricing increment, but did not propose 

a particular percentage that should be 

adopted.477

Other commenters disagreed that the 

level of the access fee cap should be tied 

to the pricing increment assigned. One 

exchange commenter stated that the 

‘‘original justification for access fee caps 

had nothing to do with tick sizes’’ and 

instead ‘‘centered around ensuring that 

transaction fees did not unduly distort 

the price of a quote that the Commission 

was protecting by rule [611].’’ 478 This 

commenter also stated that 

‘‘[m]odifications to access fee caps 

should only be discussed in the context 

under which they were conceived’’ 

which was ‘‘to ensure that market 

centers displaying the best price did not 

impose access fees that compromised 

the value of the better price.’’ 479

The Commission agrees that one of 

the purposes of the access fee cap was, 

and remains, to help to ensure that 

transaction fees do not unduly distort 

the price of protected quotations. 

However, the Commission does not 

agree that goal is best achieved by 

adopting certain commenters’ 

recommendation to reduce the access 

fee caps proportionally (i.e., to 15 mils) 

and only for those NMS stocks that are 

assigned a smaller minimum pricing 

increment. A proportional reduction for 

a limited universe of NMS stocks would 

allow higher access fees and rebates 

along with related market distortions to 

continue for the NMS stocks that retain 

the $0.01 increment and would 

perpetuate unwarranted complexity 

(e.g., complex orders types, market 


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480See infra section VII.D.2. 

481See infra section VII.D.2.d. 

482 IEX Letter V at 7. 

483See infra section VII.F.2.a. 

484See supra note 405 and accompanying text 

(discussing trading efficiencies due to technology 

changes and reduced costs), infra note 598, and 

infra section IV.D.1.d. 

485See infra section IV.D.1.d. 

486See, e.g., IEX Letter IV at 2–4; Better Markets 

Letter I at 16. 

487Better Markets Letter I at 16. See also IEX 

Letter VI at 7; NASAA at 9. 

488 IEX Letter VI at 7. 

489See Proposing Release, supra note 11, at 80348 

(stating ‘‘the access fee cap should not be greater 

than 1⁄2 of the tick size in order to preserve 

coherence between net and nominal price rankings 

of trading venues. This would not be possible with 

an access fee cap of $0.001 and a lowest possible 

proposed tick size of the same amount, as would 

be the case for the smallest tick size tier from the 

proposal.’’). 

490See Proposing Release, supra note 11, at 80267 

& 80289–90 (stating ‘‘[a] reduction in the minimum 

pricing increment without reducing the access fee 

caps could permit fees to become a higher 

percentage of the minimum pricing increment, 

which could potentially undermine price 

transparency and exacerbate the other concerns 

with maker-taker fees.’’). 

491See, e.g., Schwab Letter II at 6 and 36; SIFMA 

Letter II at 45; Citadel Letter I at 23; Hudson River 

Letter at 4; AIMA Letter at 4; Robinhood Letter at 

57–58. 

492Hudson River Letter at 4. 

493See supra section III.C and supra note 346. 

494This approach is consistent with some 

commenters’ recommendations. See, e.g., Better 

Markets Letter I at 16 (stating ‘‘the Commission 

should just dispense with the $0.001 tick size 

altogether’’ because doing so would eliminate ‘‘the 

need for a separate [5 mil] access fee cap.’’ This 

commenter stated that proceeding in this manner 

would maintain a single uniform cap for all stocks 

and avoid introducing additional complexity). 

495See supra note 346. 

496Several commenters expressed support for 

expanding the application of the access fee caps in 

certain ways. See, e.g., infra notes 614–616. 

Expanding or altering the structure of the cap 

would add complexity to the national market 

system. As discussed above, in response to 

commenters, amended Rule 610(c) introduces fewer 

variables and less complexity into the national 

market system. Expanding the application of Rule 

610(c) and/or modifying its structure as these 

commenters suggest would be inconsistent with 

this approach. 

497See Regulation NMS Adopting Release, supra 

note 4, at 37595. 

498See IEX Letter IV at 18–19, 22; Themis Letter 

at 8; Better Markets Letter I at 16; BMO Letter at 

3–4; ASA Letter at 5. 

fragmentation, complex fee and rebate 

schedules and frequent changes to 

complex order routing strategies to 

adjust to fee changes) to the current 

market structure.480 Applying a uniform 

10 mil access fee cap to access protected 

quotations in all NMS stocks priced 

$1.00 or greater will avoid injecting 

complexity 481 in the market and will 

continue to guard against ‘‘outlier’’ 

markets undermining the objectives of 

Rule 611. 

While the Commission agrees with 

commenters that tick size and access 

fees are relational in so far as the access 

fee cannot be more than half of the 

minimum pricing increment (for the 

reasons discussed above), maintaining 

the current proportionality of the access 

fee to tick could perpetuate distortions 

in the market. As stated by one 

commenter, ‘‘when the cap was set in 

2005, neither the Commission nor 

commenters ever suggested that the cap 

should be exactly equal to a fixed 

proportion of the tick size.’’ 482

Further, lowering the access fee cap 

for only those NMS stocks that are 

assigned a lower minimum pricing 

increment (i.e., those NMS stocks that 

are constrained by the $0.01 minimum 

pricing increment) and maintaining the 

preexisting (30 mils) fee cap for all other 

NMS stocks priced $1.00 or greater 

could increase the probability that some 

stocks will oscillate from one tick size 

to another rather than settling on an 

appropriate tick. This oscillation creates 

additional cost for market participants, 

introduces complexity in the markets 

and creates operational risk.483 In 

addition, continuing to apply a 30 mil 

access fee cap to those NMS stocks that 

continue to be assigned a $0.01 pricing 

increment would ignore the efficiencies 

in trading 484 that have been realized in 

the intervening 19 years since the caps 

were adopted and would not address 

the distortive effects of access fee 

structures that assess access fees at or 

near the current cap in order to 

maximize the amount of the rebate that 

can be offered.485

In addition, as discussed below, and 

supported by some commenters, fees 

and rebates which are currently 

benchmarked against the 30 mil cap 

have a negative impact on price 

transparency and routing practices.486

According to one commenter, ‘‘there is 

evidence that exchanges that pay the 

highest rebates often provide worse 

execution quality.’’ 487 Another 

commenter provided data it said 

demonstrates that ‘‘poor execution 

quality is directly linked to high access 

fees.’’ 488

Lowering the cap to 10 mils for all 

NMS stocks, both those that are 

assigned a $0.005 tick and those that 

retain the $0.01 tick, will benefit market 

participants, including investors, by 

lessening the incentives to route to a 

market in order to receive a rebate. 

The Commission proposed a two-level 

access fee cap structure for access to 

protected quotes in NMS stocks priced 

at $1.00 or more to accommodate the 

proposed variable minimum pricing 

increment structure and specifically to 

prevent the access fee caps from 

creating pricing distortions with the 

smallest proposed minimum pricing 

increment (i.e., 5 mils access fee cap for 

NMS stocks that would have been 

assigned a $0.001 pricing increment and 

10 mils cap for NMS stocks that would 

have been assigned a pricing increment 

greater than $0.001).489 Specifically, the 

proposed 5 mil access fee cap was 

necessary to accommodate the proposed 

lowest $0.001 minimum pricing 

increment because imposing the 

proposed 10 mil access fee cap on the 

$0.001 minimum pricing increment 

would have created distortions in 

quoting and negatively impact pricing 

transparency.490

Several commenters raised concerns 

about the proposed 5 mil access fee cap 

and its ratio as compared to the 

minimum pricing increment.491 One 

commenter stated that ‘‘[a]t 50% of the 

minimum pricing increment, a round 

trip buy and sell trade could result in 

access fees equal to the spread’’ and 

expressing concern that ‘‘at 50% of the 

spread, rebates of greater than half of the 

minimum pricing increment could lead 

to market distortion.’’ 492 Because the 

amendment to Rule 612 does not 

include the $0.001 minimum pricing 

increment, the Commission is not 

adopting the 5 mils access fee cap. 

Specifically, with the elimination of the 

proposed $0.001 minimum pricing 

increment,493 the proposed 5 mil access 

fee cap is unnecessary.494 Accordingly, 

the Commission is adopting the 

proposed 10 mils access fee cap as 

proposed.495 The Commission is 

removing the proposed tiered approach 

to the access fee caps and instead 

maintaining the preexisting single, 

uniform access fee cap structure for 

protected quotes priced $1.00 or 

more.496 The amendment will introduce 

fewer variables, less complexity and 

lower cost and operational risk as 

compared to the proposed two-level 

access fee cap structure.497 More 

specifically, as is the case today, there 

will be one access fee cap for NMS 

stocks priced at $1.00 or more and a 

separate access fee cap that applies to 

NMS stocks priced below $1.00. 

b. Impact on Liquidity and the NBBO 

Some commenters stated that 

lowering the access fee cap to 10 mils 

would not impinge on the exchanges’ 

ability to offer incentives and attract 

liquidity and instead stated that 

reducing the caps would likely draw 

liquidity back to the exchanges.498

According to one commenter, ‘‘ATSs 

and other off-exchange venues generally 

charge rates much lower than the access 


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499 IEX Letter IV at 18. 

500 IEX Letter IV at 18–19. 

501Healthy Markets Letter I at 21. 

502 IEX Letter IV at 6. See also ASA Letter at 5. 

503 IEX Letter IV at 6. 

504Better Markets Letter I at 16. See also IEX 

Letter VI at 1. 

505See IEX Letter IV at 10–11, 16; Themis Letter 

at 7. 

506Themis Letter at 7. See also IEX Letter IV at 

16; Verret Letter III at 11, 13–14. 

507BMO Letter at 4. See also Tripari Letter; Verret 

Letter III at 13; Proposing Release, supra note 11, 

at 304. 

508See, e.g., BMO Letter at 4; Brandes Letter at 

3; Healthy Markets Letter I at 21; Themis Letter at 

7; Council of Institutional Investors Letter at 3. See 

also infra section VII.D.2 (discussing market 

distortions). 

509Healthy Markets Letter I at 21. 

510BlackRock Letter at 10–11. 

511 Id. at 10. 

512 IEX Letter IV at 5. 

513 Id. 

514 IEX Letter IV at 5. 

515 IEX Letter IV at 5. 

516See, e.g., World Federation of Exchanges 

Letter at 4; Virtu Letter II at 8, 16–17; Citadel Letter 

I at 22. 

517See, e.g., State Street Letter at 4, Interactive 

Brokers Letter at 5, Nasdaq Letter I at 23, Nasdaq 

Letter II at 5–6, Letter from Brett Kitt, Associate 

Vice President, Principal Associate General 

Counsel, Nasdaq, Inc., dated Feb. 14, 2024 (‘‘Nasdaq 

Letter III’’) at 5, Cboe Letter III at 8. 

518Nasdaq Letter III at 5. 

519See, e.g., Cboe Letter II at 8–9; Cboe Letter III 

at 8; Nasdaq Letter I at 2; Nasdaq Letter I at 22. 

520See, e.g., CCMR Letter at 27, Interactive 

Brokers Letter at 5. 

521Fidelity Letter at 14. 

522State Street Letter at 4. See also CCMR Letter 

at 27; Interactive Brokers Letter at 5; Nasdaq Letter 

I at 23; Nasdaq Letter II at 5–6; Nasdaq Letter III 

at 5. 

523Fidelity Letter at 14. See also e.g., Nasdaq 

Letter II at 6; State Street Letter at 4. 

fees imposed by most exchanges. 

Because their cost of access is so much 

higher than on other venues, exchanges 

become the venue of ‘last resort.’ ’’ 499

This commenter further stated that 

‘‘modernizing the access fee cap and 

bringing exchange access fees in line 

with off-exchange trading venues will 

reduce the need for exchange avoidance 

and naturally result in a better 

experience for liquidity providers, one 

that will not need to be ‘offset’ by rebate 

payments.’’ 500 Another commenter 

stated that ‘‘[b]rokers’ avoidance of 

these fees is a significant contributor for 

brokers often choosing to internalize or 

first route to ATSs or OTC market 

makers, rather than to exchanges with 

their customers’ orders.’’ 501 Another 

commenter stated that ‘‘the 30-mil cap 

is among the factors driving the shift 

away from displayed trading.’’ 502 One 

commenter stated ‘‘reduced displayed 

trading is a problem because it impedes 

the fair and transparent distribution of 

pricing and transaction information that 

Congress directed the Commission to 

protect . . . [and] the 30-mil cap is 

among the factors driving the shift away 

from displayed trading.’’ 503 And 

another commenter stated that lower 

access fees will impose lower costs on 

investors, ‘‘removing a disincentive for 

trading on exchanges.’’ 504

Other commenters stated that 

lowering the access fee caps would 

address other concerns regarding market 

distortions associated with the payment 

of high rebates.505 One commenter 

stated that ‘‘[r]ebates distort supply and 

demand and harm the price discovery 

process.’’ 506 One commenter stated that 

reducing the cap to 10 mils would 

‘‘provide ample room for exchanges to 

create incentives, charge premium or 

discounted prices, and earn a profit, all 

while lowering the distortive effects 

they have on the equity market.’’ 507 In 

addition, some commenters stated that 

reducing the cap would alleviate the 

potentially distortive effects of the 

maker-taker pricing model.508

According to one commenter, ‘‘the 

current fee levels foster and enable 

significant market distortions in today’s 

marketplace’’ and ‘‘the fees charged by 

exchanges often serve as powerful 

disincentives for market participants to 

access that liquidity.’’ 509 Another 

commenter ‘‘recognize[d] that access 

fees and the rebates that they fund serve 

an important function in incentivizing 

liquidity provision for thinly-traded 

securities and compensating market 

makers for adverse selection,’’ but also 

stated that ‘‘[p]rudent regulation must 

appropriately . . . balance the 

beneficial effect of access fees on 

liquidity against the potential for market 

distortions’’ associated with 

maintaining the 30 mil cap.510

According to this commenter, ‘‘lowering 

fees would mitigate the detrimental 

effect of access fees on order routing, 

price transparency, and market quality 

in many securities.’’ 511 Further, another 

commenter stated that when the 

Commission adopted the preexisting 

caps, ‘‘its focus was on limiting the 

distortive impact of disproportionate 

access fees, not on facilitating the ability 

of markets to pass them through as 

rebates.’’ According to this commenter, 

the only way in which the Commission 

viewed access fees and rebates as 

related was that ‘‘a fee limit was needed 

to avoid distortive pricing of the type 

that occurs when access fees are 

primarily passed through to other 

participants in the form of rebates.’’ 512

This commenter further stated that the 

‘‘bulk of executions against displayed 

quotes pay the maximum fee, with the 

overwhelming share of that revenue 

being passed through as rebates.’’ 513

Finally, one commenter stated ‘‘the 

pricing distortions the Commission was 

concerned about when it adopted 

Regulation NMS have become acute 

today due to changed market 

conditions’’ resulting in brokers being 

incentivized to ‘‘route orders away from 

best-displayed exchange quotes in order 

to avoid the high fees—precisely the 

result the Commission sought to avoid 

when it first adopted the cap.’’ 514 This 

commenter also stated that ‘‘the 

introduction of ‘inverted’ venues that 

pay rebates to access rather than provide 

displayed orders, and the use of highlyskewed rebate tiers, has created even 

more price distortion and misaligned 

incentives.’’ 515

Other commenters opposed any 

changes to the existing access fee caps 

because they stated that reducing the 

caps would limit the exchanges’ ability 

to offer rebates to incentivize liquidity 

providers, as access fees typically fund 

such rebates and this could negatively 

impact liquidity on exchange 

markets.516 Some commenters stated 

that the reduction in the access fee caps, 

which would reduce rebates, would 

result in wider spreads, and less quoted 

size which would increase trading 

costs.517 One commenter stated that the 

‘‘cost of widening spreads that would 

result from removing fees and rebates 

would cost retail investors . . . as much 

as $687 million per year.’’ 518 Some 

commenters stated that the reduction of 

rebates would impact spreads, which 

(according to those commenters) 

suggests that rebates have an impact on 

displayed pricing.519 Other commenters 

stated that the reduction in rebates 

would have a negative impact on market 

liquidity.520 One commenter stated that 

the current access fee cap levels ‘‘help[ ] 

improve liquidity and provide narrower 

quotes than otherwise would be 

available in the marketplace.’’ 521

Similarly, another commenter stated 

support for further ‘‘examining changes 

to the access fee cap,’’ but cautioned 

‘‘that wholesale reductions, particularly 

when combined with other changes . . . 

will disincentivize liquidity provision, 

reduce market maker support, widen 

bid-ask spreads, and increase volatility 

in thinly-traded securities.’’ 522 Some 

commenters stated that certain 

securities may ‘‘require rebates larger 

than 10 mils to incentivize tight 

quotes.’’ 523 However, another 

commenter stated that claims of 

‘‘hidden costs to investors, in the form 

of worse NBBO prices, wider spreads, 

higher costs for retail investors, in the 


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524See IEX Letter IV at 22. 

525See Cboe Letter II at 8–9; Cboe Letter III at 8; 

Nasdaq Letter I at 2; Nasdaq Letter I at 22. See also 

e.g., Virtu Letter II at 8; Citadel Letter I at 22. 

526See Cboe Letter II at 8. See also Cboe Letter 

IV at 2; Nasdaq Letter I at 22–29; Nasdaq Letter IV 

at 8. 

527Cboe Letter III at 4. See also Cboe Letter IV at 

3; Nasdaq Letter I at 20. 

528Cboe Letter IV at 3. 

529Nasdaq Letter II at 7. See also Nasdaq Letter 

I at 19; Nasdaq Letter III at 5–6. But see IEX Letter 

IV at 10–11 (stating ‘‘[t]here is ample evidence that 

maintaining the access fee cap at its current level 

has led to distortions the Commission sought to 

avoid.’’). 

530Nasdaq Letter I at 20; Nasdaq Letter II at 6– 

7. 

531Nasdaq Letter I at 2, 22. 

532Nasdaq Letter I at 22. 

533Nasdaq Letter I at 22 

534Nasdaq Letter I at 22. 

535Nasdaq Letter IV at 8. 

536Nasdaq Letter I at 21. 

537Cboe Letter III at 5–6. 

538Nasdaq Letter VI at 1. 

539Nasdaq Letter VI at 2. 

540See, e.g., IEX Letter IV at 3; Letter from J.W. 

Verret, Associate Professor, George Mason 

University, dated Aug. 27, 2024 (‘‘Verret Letter IV’’). 

541 Verret Letter IV at 2. 

542See supra section IV.A. See also sections I and 

I.B. 

543 15 U.S.C. 78k–1(c)(1)(B). Section 23 of the 

Exchange Act also authorizes the Commission ‘‘to 

make such rules and regulations as may be 

necessary or appropriate to implement the 

provisions’’ of the Act. 15 U.S.C. 78w(a)(1). 

544See supra notes 2–3 and accompanying text. 

545Nasdaq Letter VI at 1 and Nasdaq Letter I at 

2. 

546Nasdaq Letter I at 2. 

form of worse NBBO prices, wider 

spreads, higher costs for retail investors 

and less liquidity for thinly-traded 

securities’’ did not have a factual basis 

and did not account for the ‘‘tangible 

cost reductions that would arise from 

lower access fees.’’ 524

Certain exchanges also opposed any 

changes to the access fee caps, stating 

that reducing the access fee caps would 

impede their ability to offer competitive 

rebates and meaningful price 

differentiation, hindering their ability to 

attract liquidity and compete with offexchange trading venues for order 

flow.525 One commenter stated that 

‘‘[c]ompressing the caps further . . . 

[would] introduce additional concerns 

with implications for competition and 

market quality.’’ 526 In addition, this 

commenter stated that rebates, which 

are funded by access fees, are 

‘‘innovative and critically important 

tools that enhance market depth, 

promote tighter bid-ask spreads, and 

encourage order flow to be routed to lit 

exchanges’’ and any diminution in the 

access fee caps would ‘‘in fact disrupt 

current business practices and 

competitive dynamics.’’ 527 This 

commenter also stated that reducing the 

access fee caps could ‘‘have significant 

revenue consequences,’’ 528 but 

provided no specifics. Another 

commenter stated that reducing rebates 

‘‘discourages on-exchange market 

making,’’ which could deteriorate the 

NBBO as it ‘‘would be drawn from a 

smaller and less representative pool of 

displayed liquidity.’’ 529 According to 

this commenter, although the proposal 

might make it cheaper for broker-dealers 

to access liquidity, costs for liquidity 

providers and market makers would 

increase, and spreads would widen, 

which in turn would result in higher 

‘‘all-in’’ costs for investors.530 Further, 

one commenter stated that the proposal 

‘‘risks weakening the NBBO by 

restricting exchanges’ ability to offer 

meaningful rebates to encourage more 

liquidity and tighter spreads that 

underpin the NBBO’’ 531 and stated that 

the NBBO is ‘‘comprised exclusively of 

trading interest displayed on public 

exchanges. . . [and] limit[ing] 

exchanges’ ability to gather liquidity 

. . . would weaken the public reference 

price.’’ 532 According to this commenter, 

‘‘rebates are essential to market quality 

as they encourage market participants to 

act as market makers and provide twosided quotes that make the equity 

markets function soundly.’’ 533 This 

commenter further stated that rebates 

provide ‘‘integral value to the operation 

of well-functioning, fair, and orderly 

equity markets’’ because they serve to 

cushion market makers against the risks 

of adverse selection and price volatility, 

thereby incenting them to continue to 

make markets, even in thinly-traded or 

volatile securities, and to do so with 

tighter spreads than they would 

otherwise.’’ 534 According to the same 

commenter, a reduction in rebates 

would lead to greater market 

complexities because there would be 

more ‘‘speedbump or ‘quote protection’ 

markets’’ and a ‘‘[g]reater focus on 

segmentation.’’ 535 This commenter also 

stated that the proposal would 

‘‘potentially undermine the competitive 

positions of the exchanges and the 

market makers that quote on them by 

seeking to limit their ability to charge 

fees and collect rebates for their 

respective services.’’ 536 Another 

commenter stated that ‘‘it is entirely 

inappropriate to experiment with 

exchange pricing models for fear of 

broker failings’’ and ‘‘exchange fees are 

extremely transparent . . . and receive 

a significant amount of SEC review.’’ 537

Finally, one commenter ‘‘question[ed] 

the Commission’s authority to reduce 

the fee cap beyond what is needed to 

accommodate the new, smaller tick 

sizes, thereby with the implicit aim of 

limiting the ability of exchanges to 

provide meaningful rebates to market 

participants.’’ 538 According to this 

commenter, the Commission ‘‘lacks the 

authority to enact radical changes to 

exchange access fees without explicit 

congressional mandate’’ and ‘‘the 

Commission’s charge to establish a 

national market system evidences no 

express intent for the Commission to 

impose price controls upon exchanges 

as a means of promoting 

competition.’’ 539

Other commenters stated that the 

Commission had clear statutory 

authority to adopt Rule 610 and to make 

subsequent adjustments to the access fee 

caps.540 One commenter stated that ‘‘a 

plethora of items in the 34 Act, the 

SEC’s prior 50 years of regulation of the 

National Market System, and related 

constitutional precedent regarding the 

private non-delegation doctrine specific 

to self-regulatory organizations (SROs)— 

not only give the SEC sufficient 

delegation of authority to adopt the 

pending NMS proposal, they compel the 

SEC to exercise its authority that 

oversees a dynamically changing 

national market system.’’ 541

As discussed above,542 section 

11A(c)(1)(B) of the Exchange Act 

authorizes the Commission to adopt 

rules assuring the fairness and 

usefulness of quotation information.543

Further, Congress explicitly granted the 

Commission ‘‘broad authority to oversee 

the implementation, operation, and 

regulation of the national market 

system’’ and the ‘‘clear responsibility to 

assure that the system develops and 

operates in accordance with 

Congressionally determined goals and 

objectives’’ which requires balancing 

different, and often competing, interests 

and components of the complex 

national market system.544 The access 

fee caps in preexisting Rule 610(c) were 

adopted through rulemaking pursuant to 

the Exchange Act, including section 

11A, and recalibration of the levels of 

the access fee caps falls squarely within 

the Commission’s statutory authority. 

The commenter that questioned the 

Commission’s authority to reduce the 

level of the access caps to 10 mils 

acknowledged the Commission’s 

authority to reduce the access fee caps 

‘‘to accommodate the new, smaller tick 

sizes’’ 545 and in an earlier comment 

letter stated it ‘‘supports adjusting the 

access fee cap to accommodate new tick 

sizes.’’ 546 The Commission’s authority 

set forth in the Exchange Act is not 

circumscribed in the manner suggested 


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547See Regulation NMS Adopting Release, supra 

note 4, at 37498. As was the case when the 

Commission adopted the preexisting fee caps, the 

rulemaking process has required the Commission to 

‘‘grapple with many difficult and contentious issues 

that have lingered unresolved for many years’’ and 

after examining these issues and assessing the 

views of commenters, particularly those that 

disagree with the proposal, ‘‘decisions must be 

made and contentious issues must be resolved so 

that the markets can move forward with certainty.’’ 

Id. While the Commission always seeks to achieve 

a consensus, ‘‘consensus can mean indefinite 

gridlock that ultimately could damage the 

competitiveness of the U.S. equity markets [ ]. [T]he 

time has come to make the difficult decisions 

necessary to modernize and strengthen the national 

market system.’’ Id. 

548See, e.g., Cboe Letter III at 6–7; World 

Federation of Exchanges Letter at 4; Virtu Letter II 

at 8, 16–17; Citadel Letter I at 22. 

549See Regulation NMS Adopting Release, supra 

note 4, at 37503. 

550See id. at 37596. 

551 Id. 

552See Regulation NMS Adopting Release, supra 

note 4, at 37545. 

553See Regulation NMS Adopting Release, supra 

note 4, at 37545. See also IEX Letter V at 3 (stating 

‘‘there is an obvious and direct connection between 

high access fees and the extent to which displayed 

prices deviate from the true prices at which 

participants are prepared to trade.’’). 

554See Regulation NMS Adopting Release, supra 

note 4, at 37502. 

555See infra section VII.C.2 and section VII.B.3 

(stating most exchanges charge the maximum fee (in 

the range of 30 mils) and provide the maximum 

rebate (in the vicinity of 30 mils) and stating that 

the primary reason that access fees remain near 30 

mils on most exchanges is to fund rebates) and infra 

section VII.C.2.c, table 4. 

556See infra section VII.B.3. 

557Regulation NMS Adopting Release, supra note 

4, at 37502. See also IEX Letter IV at 4 and 15 

(stating ‘‘[t]he purpose [for capping access fees] is 

not, and has never been, to allow exchanges to 

maintain rebate payments at current high levels.’’). 

558Regulation NMS Adopting Release, supra note 

4, at 37545 (stating that establishing the $0.003 cap 

to ‘‘limit the outlier business model [and] plac[ing] 

all markets on a level playing field in terms of the 

fees they can charge and the rebates they can pass 

on to liquidity providers. Some markets might 

choose to charge lower fees, thereby increasing their 

ranking in the preferences of order routers. Others 

might charge the full $ 0.003 and rebate a 

substantial proportion to liquidity providers. 

Competition will determine which strategy is most 

successful.’’). See also Proposing Release, supra 

note 11 at 80348 (stating ‘‘The Commission 

recognizes that an access fee cap of 10 mils for 

stocks . . . would provide exchanges with enough 

pricing freedom to continue to offer economically 

meaningful rebate-tiering.’’). One commenter stated 

that ‘‘diminished reliance on the maker-taker 

economics would encourage a variety of alternative 

market models for providing liquidity,’’ which in 

this commenter’s view would be consistent with the 

outcome the Commission anticipated in 2005, but 

which has not been realized. Decimus 2016 Letter 

at 11. 

559Regulation NMS Adopting Release, supra note 

4, at 37545. 

560 Id. See also Better Markets Letter II at 3 

(lowering access fees would ‘‘ensure that the fees 

charged to access a protected quotation do not 

distort the true price that is available to investors.’’). 

561See Proposing Release, supra note 11, at 80292 

n.317 and accompanying text and 80290 n.302. See 

also infra section VII.A. 

562See infra section VII.B. 

by this commenter. Congress granted the 

Commission broad authority to oversee 

the national market system and ensure 

that it is meeting the investment needs 

of the public. The reductions in the 

access fee caps adopted herein are 

designed to improve market quality for 

market participants accessing protected 

quotations in all NMS Stocks, not just 

those that will be assigned a new 

minimum pricing increment. As 

discussed throughout, the adjusted level 

of the caps also will allow trading 

centers to retain their net capture for 

transactions of protected quotations 

priced $1.00 or more and therefore 

trading centers who wish to use rebates 

to attract liquidity may continue to do 

so. Accordingly, the Commission has 

considered and balanced policy 

objectives in this complex area and 

reached an appropriate policy 

decision.547

Although some commenters stated 

that rebates are essential to attract 

liquidity on exchanges,548 the access fee 

caps were not established to support 

trading centers’ ability to offer rebates or 

to ensure a particular level of rebate 

payment; they were developed as a 

means to help ensure fair, efficient, and 

ready access to protected quotes, to 

preserve the integrity of displayed 

prices and to ensure that the objectives 

of Rule 611 would not be undermined 

by trading centers who might seek to 

charge exorbitant fees to those now 

required to access their protected 

quotations.549 The Commission 

disagrees that rebates are essential to 

attract liquidity on national securities 

exchanges or the only means of 

attracting liquidity.550 The Commission 

stated in 2005 that markets have 

‘‘significant incentives to be near the top 

in order-routing priority’’ 551 and 

displaying the best protected quotation 

will attract liquidity to a market. The 

adopted amendments will continue to 

allow for trading centers to develop 

different fee models while also 

preserving the objectives of Rule 610(c). 

Further, market participants that post 

non-marketable orders are able to price 

their orders to accommodate the risk of 

adverse selection and rebates are not 

necessary for compensating this risk. 

Reducing the access fee caps will help 

to alleviate the distortive effects of the 

preexisting level of access fees and the 

rebates they fund. The access fee caps 

were designed to protect limit orders 

and to assure that orders could be 

routed to those markets that were 

displaying the best-priced quotations.552

As the Commission stated when it 

adopted the access fee caps, ‘‘[a]ccess 

fees tend to be highest when markets 

use them to fund substantial rebates to 

liquidity providers, rather than merely 

to compensate for execution services. If 

outlier markets are allowed to charge 

high fees and pass most of them through 

as rebates, the published quotations of 

such markets would not reliably 

indicate the true price that is actually 

available to investors or that would be 

realized by liquidity providers.’’ 553 The 

Commission also discussed the 

potential distortionary effect of high fees 

and rebates on displayed quotes and 

sought to assure that displayed prices 

were within a limited range of net 

prices.554

In the current national market system, 

fees for access to protected quotes are 

typically charged at the highest amount 

allowed under Rule 610(c) and the vast 

majority of the fees collected are paid 

out as rebates.555 This practice results in 

displayed quotations prices that are not 

reflective of underlying economics of 

liquidity supply and demand, but rather 

displayed quotations prices that have 

been calculated to account for the 

receipt of a rebate.556 The Commission 

is concerned that this structure impairs 

the fairness and accuracy of displayed 

quotations. 

The access fee caps set an outer limit 

on the cost of accessing protected 

quotations to ‘‘assure[ ] order routers 

that displayed prices [are] within a 

limited range, true prices.’’ 557 In setting 

the maximum level for the access fees 

trading centers could charge market 

participants to access a protected 

quotation in 2005, the Commission 

specifically recognized that ‘‘some 

markets might choose to charge lower 

fees, thereby increasing their ranking in 

the preferences of order routers. . . 

while [o]thers might charge the full 

$0.003 and rebate a substantial 

proportion to liquidity providers.’’ 558

The Commission left it to the markets 

and competition to determine what 

strategies would be successful in 

attracting order flow, subject to the 

maximum access fee cap.559 Without an 

access fee cap, the Commission was 

concerned that certain markets would 

charge high fees and pass most of them 

through as rebates, which would 

undermine price discovery and price 

transparency.560 The Commission’s 

concerns when it adopted Regulation 

NMS, that access fees might gravitate to 

the highest level permitted by Rule 610 

and the impact on price transparency, 

have been realized to the detriment of 

investors.561

As discussed below, the reduction in 

the access fees will improve market 

quality.562 For those NMS stocks that 


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563See infra section VII.D. 

564See infra section VII.D.2.c. 

565See infra section VII.D.2.c. 

566See infra section VII.D.2. 

567See infra note 1469, and accompanying text. 

568See infra section VII.D.2.c. 

569See, e.g., Proof Letter at 1; RBC Letter at 4; 

Ontario Teachers et al. Letter at 2; NASAA Letter 

at 9; Vanguard Letter at 6; BlackRock Letter at 10; 

Capital Group Letter at 4; Themis Letter at 7. 

570RBC Letter at 4. 

571Proof Letter at 1. 

572Capital Group Letter at 4. 

573Nasdaq Letter I at 2 (stating ‘‘It would be 

arbitrary and capricious for the Commission to 

proceed with the Proposal in the absence of 

evidence that the current fee cap is actually harmful 

to the market and without meaningfully weighing 

the costs and benefits of those reductions.’’); 

Nasdaq Letter III at 6 (stating the Commission ‘‘did 

not cite any new research conducted subsequent to 

the Transaction Fee Pilot to support the SEC’s 

change of position that access fees and rebates are 

actually harmful.’’). 

574Cboe Letter III at 5–6. 

575Cboe Letter III at 5–6. 

576See, e.g., IEX Letter IV at 2; Better Markets 

Letter I at 16. 

577Better Markets Letter I at 16. 

578 IEX Letter VI at 7. 

579For example, in 2018, one market participant 

stated that the preexisting level of the access fee cap 

may ‘‘create misaligned incentives and potential 

conflicts of interest for broker dealers’ routing and 

execution decisions . . . because broker dealers 

may elect to post non-marketable limit orders on 

market venues offering the highest rebate and 

bypass those venues where there is greater 

likelihood of execution, but a higher fee.’’ Goldman 

2018 Letter at 3–4. This market participant went on 

to state that ‘‘[b]y maintaining the Fee Cap at the 

level adopted in 2005 as spreads have narrowed 

and commissions have decreased over the past 13 

years, these misaligned incentives and potential 

conflicts of interest have grown.’’ Id. at 4. 

According to this market participant, adjusting the 

access fee cap to 10 mils ‘‘would reduce the effect 

of these misaligned incentives and the potential 

conflicts of interest.’’ Id. Further, a decade ago, one 

commenter stated ‘‘[a] reduction in the cap [to 10 

mils] . . . would naturally move more executions 

back to exchanges.’’ Citigroup 2014 Letter at 7. 

Another commenter stated in 2015 that a reduction 

in the access fee cap to 5 mils (half of the amended 

level adopted) would ‘‘still allow room for 

exchanges to provide rebates to market participants 

in order to incentivize liquidity, while at the same 

time significantly reducing the market distortions 

and unnecessary complexity that access fees have 

caused.’’ Letter from Theodore R. Lazo, Managing 

Director & Associate General Counsel, SIFMA, to 

Mary Jo White, Chair, Commission, dated May 24, 

2015, at 2–3 (stating its support for BATS’ 2015 

Petition for Rulemaking to, among other things, 

reduce the baseline access fee cap to 5 mils). 

580See Proposing Release, supra note 11, at 80270 

n.35 (stating ‘‘[a]gency market trading centers are 

those that bring together buyers and sellers and 

typically charge a fee for their execution services.’’). 

See also Regulation NMS Adopting Release, supra 

note 4, at 37545. 

581See, e.g., Citadel Letter I at 22–23; Schwab 

Letter II at 36; SIFMA Letter II at 39–40. 

582SIFMA Letter II at 39–40. 

583Schwab Letter II at 36. See also Virtu Letter 

II at 17–18. 

are not experiencing a constraint on the 

quoted spread due to the minimum 

pricing increment, transaction costs will 

remain largely unchanged under the 

amendments as spreads will adjust on 

average to offset the reduction in access 

fees and rebates.563 For those NMS 

stocks that do experience constraint on 

the quoted spread due to the preexisting 

minimum pricing increment, 

transaction costs for liquidity seekers 

will go down and the oversupply of 

liquidity will be reduced, which will 

allow for shorter queues and higher fill 

rates.564 For these NMS stocks, the 

access fee functions as a tax on liquidity 

demand.565 Reducing the access fee in 

these constrained stocks will result in 

savings for investors.566

Further, while some commenters 

stated that exchange volume would 

decline and that OTC trading would 

increase if the access fee caps were 

reduced, as discussed below,567 analysis 

indicates that liquidity providers would 

not be deterred from quoting on 

exchange because they will be able to 

widen their quote to reflect the reduced 

rebate, thereby receiving the same 

economic profit as they received with 

the rebate. Liquidity demanders would 

not be worse off because the reduction 

in access fee would offset, or, in the case 

of stocks with an economic spread of 

less than a tick, more than offset, the 

increase in spread.568

Some commenters stated that the 

reduced access fee caps would help to 

address potential conflicts of interest in 

routing decisions that may harm 

execution quality of customer orders.569

One commenter stated that ‘‘lowering 

the access fee cap would lead to a 

reduction in broker conflicts of 

interests.’’ 570 Another commenter 

stated that the proposal ‘‘will help to 

reduce the extent of the conflict of 

interest in agency routing decisions.’’ 571

Another commenter stated ‘‘[w]e have 

long supported the Commission 

addressing the conflict faced by brokers 

related to incentives created by access 

fees and rebates in the maker/taker 

model’’ and that ‘‘a simple reduction of 

access fees across all venues to $0.001 

would go a long way in mitigating order 

routing conflicts.572

Another commenter, however, stated 

that the Commission did not provide 

any new data to support its position that 

access fees and rebates are ‘‘actually 

harmful to the market’’ and further 

stated that ‘‘the Commission’s 

supposition that rebates present harmful 

conflicts-of-interest to brokers is not 

supported with evidence, and it ignores 

the countervailing benefits associated 

with rebates, which are essential tools 

for gathering the displayed quotes that 

form the NBBO.’’ 573 Another 

commenter stated that ‘‘half of the 

rebates on Cboe accrue to non-agency 

market-making activity—thus, there is 

no real or perceived conflicts of 

interest’’ and for agency order flow, 

some of that flow is ‘‘‘directed’ meaning 

clients give specific instructions for the 

order to be routed to a particular venue 

for execution’’ and thus there similarly 

is no conflict.574 This commenter 

further stated, ‘‘brokers have a duty of 

best execution regardless of the pricing 

model used by the exchange.’’ 575

The Commission disagrees with those 

commenters that questioned the 

existence of potential conflicts of 

interest. The Commission has received 

comments from market participants that 

have stated that potential conflicts of 

interest are a concern because of the fee/ 

rebate models. Some commenters stated 

that fees and rebates that are currently 

benchmarked against the 30 mil cap 

have a negative impact on routing 

practices 576 and one commenter offered 

evidence that ‘‘exchanges that pay the 

highest rebates often provide worse 

execution quality.’’ 577 Another 

commenter provided data it said 

demonstrates that ‘‘poor execution 

quality is directly linked to high access 

fees.’’ 578 Moreover, the Commission has 

heard similar concerns about potential 

conflicts of interest created by the fee 

and rebate schedules and their impact 

on market quality for many years.579

The 10 mils access fee cap is 

appropriate because it will mitigate the 

potential conflicts of interest associated 

with the current fee and rebate models, 

while still allowing exchanges to use 

rebates to attract liquidity. 

c. Agency Market Business Model 

Several commenters stated that the 

Commission should not consider 

whether the proposed lowered access 

fee caps would unduly impair current 

agency market business models 580 as a 

factor in its analysis.581 According to 

one commenter, ‘‘setting access fee caps, 

or designing any aspect of market 

structure, specifically to preserve or 

protect existing exchange fee models is 

an inappropriate policy rationale.’’ 582

Similarly, another commenter stated 

that it ‘‘is not the Commission’s role to 

ensure that trading centers ‘maintain 

their current net capture rate.’ ’’ 583

Further, one commenter stated that 

while, in its opinion, it would be 

appropriate for the Commission to 

‘‘assess the impact of the proposed 

access fee cap on market participants’ 

varying business models,’’ it must ‘‘then 

account for the impact of the proposed 

access fee cap on all market participants 

and attempt to create the most 


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584 Virtu Letter II at 18. 

585See Regulation NMS Adopting Release, supra 

note 4, at 37545 (‘‘stating ‘‘the adopted [30 mils] fee 

limitation will not impair the agency market 

business model.’’). 

586The Commission used these same estimates to 

determine the changes in the amount that liquidity 

demanders would pay and the amounts that 

liquidity providers would receive. See Proposing 

Release, supra note 11, at section V.D.3 (discussing 

impact of the proposed lower access fee caps on 

exchanges’ net capture). 

587See Proposing Release, supra note 11, at 

80290–91 (proposing new caps designed to ‘‘allow 

current business practices to continue while 

adjusting access fee levels to align with the 

proposed lower minimum pricing increments as 

well as reflect market innovations and technological 

efficiencies that have driven transaction costs down 

since rule 610(c) was adopted.’’). 

588See Regulation NMS Adopting Release, supra 

note 4, at 37584. 

589See infra sections VII.C.2 and VII.D.2.b and 

notes 1101–1103 and accompanying text. 

590See Regulation NMS Adopting Release, supra 

note 4, at 37545. For the reasons discussed, the new 

access fee caps will continue to ‘‘provide the 

necessary support for the proper functioning of the 

Order Protection Rule, and private linkages, while 

leaving trading centers otherwise free to set fees 

subject only to other applicable standards (e.g., 

prohibiting unfair discrimination.’’). Id. 

591See infra section VII.D.2.b. As discussed 

below, the fees charged by ATSs for execution 

services are often in the range of 10 mils. See infra 

section VII.C.2, note 1118 accompanying text. 

592Rule 610(c) imposes the access fee caps on 

trading centers, which are defined to include other 

types of entities that can display protected quotes, 

including ATSs, OTC market makers and any 

broker or dealer that executes orders internally. 17 

CFR 242.600(b)(106). 

593Securities Exchange Act Release No. 73639 

(Nov. 19, 2014), 79 FR 72252 (Dec. 5, 2014) at 72277 

(Final Rule ‘‘Regulation Systems Compliance and 

Integrity’’). 

594See, e.g., supra notes 460, 463, 466 

(recommending a reduction in fee cap to $0.0015). 

595See, e.g., ASA Letter at 5 (strongly supporting 

10 mils access fee cap for all NMS stocks); Better 

Markets Letter I at 16; BlackRock Letter at 10–11; 

BMO Letter at 3–4; Brandes Letter at 3; Boston 

Partners, Calamos Advisors, Glenmede Investment, 

and Janus Henderson Letter; Budish Letter; Capital 

Group Letter at 4; Council of Institutional Investors 

Letter at 3; IEX Letter IV at 1; Healthy Markets 

Letter I at 24; Ontario Teachers et al. Letter at 1– 

2; Themis Letter at 7–8; Vanguard Letter at 2 & 6; 

Invesco Letter at 2 and 4; JPMorgan Letter at 6; 

NASAA Letter at 9; Pragma Letter at 7; XTX Letter 

at 5; and Verret Letter II. See also supra note 422. 

596See, e.g., Ontario Teachers et al. Letter at 2; 

ASA Letter at 5; Council of Institutional Investors 

Letter at 3; Better Markets Letter I at 16. 

597 IEX Letter VI at 1–2. 

competitive and effective environment 

on an overall basis, rather than doing so 

exclusively for exchanges.’’ 584

In considering whether to adjust the 

level of the access fee caps, and if so, 

by what amount, the Commission has 

considered the impact of such 

modifications on market participants to 

help ensure that all investors will 

continue to have fair and nondiscriminatory access to protected 

quotations and the Commission has not 

prioritized exchange revenues over 

other considerations. When the 

Commission adopted the access fee caps 

in Regulation NMS, it considered the 

impact of the caps on the agency market 

business model, as it has done in this 

release as well.585 Agency market 

trading centers have historically charged 

transaction fees for their agency services 

in bringing together buyers and sellers 

to execute transactions. The 

Commission is not prohibiting agency 

market trading centers from continuing 

to assess fees for providing execution 

services to access protected quotations. 

As discussed above, it was appropriate 

and consistent with its responsibilities 

under the Exchange Act for the 

Commission to consider the impact of 

the original access fee caps on the 

ongoing viability of different trading 

centers. Because of the important role 

agency market trading centers continue 

to play in the national market system, it 

is similarly consistent with the 

Exchange Act for the Commission to 

undertake a similar analysis today in 

adjusting the level of the caps. 

The Proposing Release estimated the 

effect on exchange net capture because 

exchanges are the only trading centers 

that impose fees for access to protected 

quotations at this time and, therefore, 

are subject to the access fee caps.586

Further, the Commission’s analysis in 

the Proposing Release appropriately 

considered the impact of proposed 

changes to Rule 610(c) on entities 

employing an agency market business 

model because Rule 610(c) applies to 

those entities and the Commission was 

cognizant of not compressing the access 

fee caps so far as to effectively eliminate 

such business models.587 As discussed 

above, the Commission stated that if 

markets are allowed to charge high 

access fees and pass most of them 

through as rebates, the published 

quotations of such markets will not 

reliably indicate the true price that is 

available and investors may be 

overcharged for taking liquidity.588 As 

discussed below, the Commission 

estimated the current net capture of the 

exchanges at approximately 2 to 6 mils 

and anticipates that will remain the 

same under amended Rule 610(c).589

As was the case with the original 

access fee caps, the amended fee caps 

will preserve the agency business model 

because trading centers will continue to 

be able to assess fees for transaction 

services at a level that will result in the 

same net capture as they earn today if 

they so choose. In this manner, the 

amended fee cap for protected stocks 

priced $1.00 and above has been 

‘‘drafted to have minimal impact on 

competition and individual business 

models while furthering the objectives 

of the Exchange Act by preserving the 

fairness and usefulness of 

quotations.’’ 590 In determining the new 

levels of the access fee caps, the 

Commission has considered many 

factors, including allowing for a 

diversity of business models.591 The 

amendments to Rule 610(c) will 

continue to allow the exchanges to 

provide execution services using their 

current business models, innovate and 

compete for order flow, while also 

reducing the costs to investors who 

must access protected quotations 

because access fees are being reduced to 

amounts above the exchanges’ net 

capture rates. 

Exchanges are the only trading centers 

that currently display protected quotes 

in the national market system, and they 

play an important role in bringing 

together multiple buyers and sellers of 

securities.592 Exchanges are also 

responsible for certain important 

processes in the national market system, 

including openings, re-openings, and 

closings on the primary listing market; 

trading halts; initial public offerings and 

exclusively listed securities. The 

exchanges, along with FINRA, are also 

responsible for producing data for the 

consolidated market data feeds as well 

as the operation of the exclusive SIPs. 

In addition, the Commission has 

recognized these functions as ‘‘critical’’ 

to the operation of the securities 

markets for purposes of imposing 

requirements under Regulation SCI, 

which established a regulatory 

framework for oversight of the core 

technology of the U.S. securities 

markets.593 Therefore, it continues to be 

appropriate to consider the impact on 

this business model, i.e., the agency 

market business model, when 

considering amendments to the access 

fee caps. 

d. Comments on the Proposed 10 Mils 

Access Fee Cap 

There was divergence of opinion 

around the appropriate level of the 

access fee cap for protected quotations 

priced at $1.00 or greater.594 A number 

of commenters viewed 10 mils as the 

appropriate level.595 Commenters stated 

that a reduction in the level of the 

access fee cap to 10 mils is warranted 

because, among other reasons, it will 

result in lower costs to investors to 

access protected quotes; 596 align access 

fees with other elements of investor 

transaction costs (all of which have 

decreased); 597 recalibrate the access fee 

cap levels to reflect increased 

efficiencies, technological 


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598See, e.g., Ontario Teachers et al. Letter at 1– 

2; Brandes Letter at 3; Invesco Letter at 4; Vanguard 

Letter at 6; Verret Letter I at 5; Verret Letter III at 

4–5; Letter from John Ramsey, Chief Market Policy 

Officer, IEX, dated Feb. 23, 2024 (‘‘IEX Letter V’’) 

at 2–3; IEX Letter VI at 4. 

599See, e.g., Proof Letter at 1; BMO Letter at 4; 

Verret Letter I at 9; Ontario Teachers et al. Letter 

at 1–2; Verret Letter III at 22. 

600See, e.g., RBC Letter at 4; BlackRock Letter at 

11; Verret Letter I at 7; Verret Letter III at 4–5; IEX 

Letter V at 5; IEX Letter VI at 5. But see Letter from 

Kevin R. Edgar, Partner, Baker & Hostetler LLP, 

dated Feb. 7, 2024, (‘‘Equity Markets Association 

Letter’’) at 2 (stating ‘‘alleg[ations] . . . that access 

fees are excessive, both in an absolute sense and 

relative to ATSes’’ are improper and further stating 

there is ‘‘no basis for such conclusions other than 

by making bald assumptions about exchanges’ costs 

. . . .[N]et transaction fees are far lower on 

exchanges than they are on ATSes.’’); Nasdaq Letter 

III at 3 (stating commenters’ analysis of ATS-Ns 

revealed ‘‘large variations among ATS fees and 

some of them are similar or higher than exchange 

fees . . . including fees as high as $0.06); Nasdaq 

Letter IV at 7–8 (providing data regarding range of 

ATSs minimum/maximum fees and stating ATS 

fees are highly variable and 10 mils is not 

representative of transaction fees on- or offexchanges). 

601BlackRock Letter at 11. 

602RBC Letter at 4. 

603ASA Letter at 5. 

604See Verret Letter I at 9; Verret Letter III at 22. 

But see Letter from Barbara Comstock, Executive 

Director, American Consumer and Investor 

Institute, dated June 1, 2023 (‘‘ACII Letter I’’) at 6 

(commenting generally that fundamental changes to 

existing market structure could roll back 

innovations that have ‘‘opened up today’s markets 

to millions of new and diverse investors.’’); NASP 

Letter at 2 (commenting generally that proposed 

NMS changes could harm retail investors by 

‘‘making the process of buying and selling stock 

more difficult and potentially reinstating barriers to 

entry’’); Nasdaq Letter II at 2–3 (stating ‘‘the cost of 

access fees has actually fallen since 2005 by onethird’’ and ‘‘the burden of access fees relative to the 

all-in trading costs of participants has not grown 

over time; instead, it has remained relatively flat.’’). 

605See, e.g., Council of Institutional Investors 

Letter at 3; Ontario Teachers et al. Letter at 2; 

Themis Letter at 8; IEX Letter IV at 13, 23; Better 

Markets Letter I at 16. 

606See, e.g., STA Letter at 7–8; ICI Letter I at 16; 

Nasdaq Letter I at 2 and 19. 

607See supra notes 362 and 364. 

608See infra section VII.D.2. 

609See supra note 595. 

610See Goldman 2018 Letter at 1–2 (stating 

commenter’s support for reducing the access fee cap 

to $0.0010 because a 10 mil cap would be calibrated 

with then-present-day [2018] trading and execution 

costs, would better ensure displayed prices reflect 

the actual economic costs of an execution, and 

would allow exchanges to continue maintain their 

current net capture rates, while also choosing to 

offer rebates to incentivize liquidity provision if 

they chose to do so). Further, the EMSAC also 

considered, among other things, whether the access 

fee cap should be modified. See supra note 4. 

611See infra section VII.D.2. 

612See infra note 1118. The Commission 

acknowledges variability within the rates assessed 

by ATSs, with some transactions subject to fees 

above 10 mils and some below 10 mils based on 

attaining certain levels of volume as well as other 

variability within the fee schedules. Commenters 

have stated that the fees they experience are often 

in the range of 10 mils, which is informative in 

considering an appropriate level of the access fee 

caps because such statements reflect the current 

market rate paid for execution services as reported 

by participants. See infra notes 658–659 and 

accompanying text. 

613See, e.g., BlackRock Letter at 10–11; T. Rowe 

Price at 4–5; Citigroup Letter at 5–6. 

614See, e.g., MEMX Letter at 3 and 24–28; Nasdaq 

Letter I at 19; William O’Brien, Former CEO, Direct 

Edge, dated Apr. 13, 2023 (‘‘O’Brien Letter’’) at 5; 

Optiver Letter at 3. 

615See, e.g., Citadel Letter I at 25; FIA PTG Letter 

II at 3. 

616MEMX Letter at 3, 24–28. 

617 IEX Letter VI at 3. This commenter further 

stated that the ‘‘benefits that exchanges have 

received from technological advances and increased 

efficiencies in determining their own costs to 

process orders . . . apply exactly in the same way 

for trading in all classes of securities’’ and therefore 

retaining a uniform, lower ‘‘fee cap across all stocks 

(priced greater than $1.00 per share) avoids further 

complexity to trading decisions from fees that can 

vary for the same stock based on changes in the 

applicable tick size.’’ Id. 

advancements and structural changes in 

the markets since Rule 610(c) was 

adopted; 598 continue to allow for 

competitive business models and 

innovation; 599 and align on-exchange 

pricing more closely with off-exchange 

venues such as ATSs.600 One 

commenter stated a 10 mil cap ‘‘would 

have the added benefit of aligning 

exchange fees with prevailing ATS fees 

and creating a more equitable 

competitive landscape across trading 

venues’’ 601 and another stated that 

‘‘[t]he economic difference to a broker 

between routing to an . . . ATS [ ] 

versus an exchange would be much 

smaller than it is today, if a $.0005– 

$.0010 access fee cap replaces the 

current $.0030 mil cap.’’ 602 According 

to one commenter, lowering the cap to 

10 mils should ‘‘(1) lead to an increase 

in investor interaction with displayed 

quotes, (2) provide an economic reason 

for all participants to submit displayed 

quotes to an exchange, and (3) end the 

corrosive and discriminatory nature of 

the current exchange fee and rebate 

system.’’ 603 Another commenter stated 

that reducing the level of the cap from 

30 mils to 10 mils would ‘‘remove 

barriers to entry for new market 

participants,’’ especially smaller trading 

firms and retail investors.604 Further, 

commenters stated that the proposed 

reduction of the access fee caps would 

be beneficial to retail investors, as well 

as institutional investors and long-term 

investors.605

Several commenters stated their 

support for reducing the amount of the 

access fee caps, but cautioned that 

further analysis is necessary to 

determine the appropriate amount and 

parameters of any reduction to avoid 

unintended consequences.606 The 

Commission disagrees for a number of 

reasons. Further delay is not warranted 

because the access fee caps have been 

extensively considered for many 

years.607 In addition, the Commission 

has weighed several factors in 

determining to reduce the access fee 

caps to 10 mils and, as discussed further 

below in the Economic Analysis, 

concludes that this reduced level 

appropriately accommodates various 

competing interests.608 The adopted 

level of 10 mils for access to protected 

quotes priced $1.00 or more reflects the 

views of many commenters to the 

Proposing Release 609 and has been 

suggested by market participants in 

other contexts.610 Further, as discussed 

above, a 10 mil cap strikes an 

appropriate balance between reducing 

the cap to help to address distortions in 

the market associated with the 

preexisting fee caps, while also 

preserving the ability of the national 

securities exchanges to continue to 

operate with their current net capture 

rates.611 Finally, the Commission has 

reviewed the fees charged by trading 

centers that do not have protected 

quotes so do not have an incentive to 

charge excessive fees to market 

participants required to access protected 

quotes and 10 mils is consistent with 

the range of rates assessed by such 

trading centers.612

Other commenters recommended 

applying different access fee caps 

depending on the liquidity profile of a 

particular security.613 Further, some 

commenters suggested specific 

alternative models and/or levels of 

access fee caps.614 A few commenters 

stated that the access fee caps should be 

expanded to cover full depth-of-book 

quotations 615 or auctions.616 However, 

one commenter disagreed with these 

concerns and stated that ‘‘the fee cap 

has been equally applied to all stocks 

regardless of price, spread, or trading 

volume since it was enacted’’ and 

further stated that ‘‘[e]xchange 

processing costs are exactly the same’’ 

regardless of these varying 

characteristics.617

As discussed above, the access fee 

caps under Rule 610 establish the upper 

limit for fees that trading centers can 

charge for access to protected 

quotations. The access fee caps do not 

apply to depth-of-book quotations or 

auctions because these are not protected 

quotations. As discussed throughout, 

the access fee caps are designed to 

preserve fair and efficient access to 

protected quotations, regardless of the 

liquidity profiles of NMS stocks. 

Trading centers are able to develop 

different fee structures within this 

construct and in a manner that is 

consistent with the Exchange Act. The 

Commission is not setting the access fee 

caps to a specific percentage of the 


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618See supra section III.A and section III.C.1. 

619See infra section VII.D.2.a and notes 1419 and 

1425. 

620See also note 351. 

621Nasdaq Letter III at 2. 

622See Nasdaq Letter I at 21; Nasdaq Letter II at 

4. This commenter stated that ‘‘determining such 

costs and setting appropriate rates based upon those 

costs are inherently difficult’’ and further stated 

that ‘‘a government agency like the Commission is 

ill-suited to tackle [such a task]’’ and should refrain 

from doing so. Nasdaq Letter I at 22. See also Cboe 

Letter III at 5; Nasdaq Letter III; Equity Markets 

Association Letter at 2. 

623Nasdaq Letter II at 4–5. 

624Nasdaq Letter II at 4. See also Nasdaq Letter 

III at 2; Nasdaq Letter I at 22. 

625Nasdaq Letter II at 4. See also Nasdaq Letter 

III at 2. 

626Nasdaq Letter II at 4–5. 

627Nasdaq Letter I at 21; Nasdaq Letter II at 4. 

628Cboe Letter II at 8. 

629 IEX Letter IV at 8. See also Better Markets 

Letter I at 16 (‘‘There is certainly no economic 

justification in terms of defraying the exchanges’ 

costs of processing and matching trades, as those 

costs have dropped with the advent of advances in 

technology.’’); Verret Letter III at 13 (‘‘Access fees 

charged to broker-dealers and other market 

participants simply to access liquidity on certain 

exchanges often greatly exceed the actual costs 

associated with providing that liquidity access.’’). 

630 IEX Letter IV at 8. See also Goldman Sachs 

2018 Letter at 1–2. 

631See IEX Letter IV at 6. 

632 IEX Letter IV at 8. 

633See, e.g., supra section IV.B.2. 

634See Proposing Release, supra note 11, at 80290 

n.293. 

635Nasdaq Letter I at 21. See also Nasdaq Letter 

II. 

636See generally, Regulation NMS Adopting 

Release, supra note 4. 

637See supra note 608 and surrounding text. 

638See infra section VII.D.2.c (analyzing the 

effects of rebates for providing liquidity). 

639Several commenters stated that access fees 

under the preexisting caps have become a larger 

portion of overall transaction costs because such 

costs have decreased significantly since the access 

fee cap levels were established almost two decades 

ago. See, e.g., infra notes 1438–1441 and 

accompanying text and supra 364 and 365 and 

supra notes 597–598 (describing reasons why costs 

have decreased). The Commission has considered 

costs, and specifically commenters’ concerns 

relating to costs, as one of several factors in its 

analysis and determination that a 10 mils access fee 

cap is appropriate. As the Commission stated in 

2005, reaching appropriate policy decisions in a 

complex area such as fees for access to the best 

quotations displayed in the national market system 

requires balancing policy objectives that sometimes 

may not point in precisely the same direction. See 

Regulation NMS Adopting Release, supra note 4, at 

37498. 

640See supra section IV.D.1.c. and infra section 

VII.D.2.b. 

641See supra section IV.D.1.c. and infra sections 

VII.C.2 and VII.D.2.b and notes 1101—1103 and 

minimum pricing increments in part 

because they address different 

regulatory objectives. An important 

objective of an access fee cap (to 

preserve access to protected quotes) is 

distinct from an objective of tick size 

(e.g., to prevent stepping ahead of 

displayed orders).618 However, as 

discussed above, because the 

Commission is reducing the minimum 

pricing increment under Rule 612, it is 

also reducing the levels of the access fee 

caps to prevent the distortions that 

would occur if an access fee is more 

than one half of the tick.619

Further, amending Rule 610 to adopt 

variable caps to reflect different 

liquidity profiles of different stocks 

would expand and change the objective 

of the rule, which is to ensure the 

fairness and accuracy of protected 

quotations by establishing an outer limit 

on the cost of accessing such 

quotations.620 The access fee caps were 

not designed to establish fees for 

executions, they were designed to limit 

the amount of fees that can be charged 

for access to the best priced quotes in 

the national market system. Trading 

centers may adopt fees (and rebates) to 

incentivize trading in NMS stocks with 

different liquidity profiles in a manner 

consistent with the Exchange Act, 

including the limits imposed by the 

access fee caps. 

Another commenter stated that there 

is no valid basis to support a claim that 

the current fee cap is excessive.621 This 

commenter stated that the Commission 

did not substantiate reduced costs as a 

justification for lowering the access fee 

caps.622 This commenter also stated 

that, ‘‘the Commission present[ed] no 

cost-based methodology for arriving at 

the levels of access fee caps it 

proposes’’ 623 and therefore the 

proposed caps are ‘‘arbitrary and 

capricious’’ because the caps do not 

‘‘bear a reasonable relationship to the 

actual costs of executing trades on the 

exchanges.’’ 624 The commenter further 

stated that ‘‘[t]echnology costs, and 

improvements thereto, are not 

significant determinants of access fee 

levels.’’ 625 Further, this commenter also 

stated that ‘‘exchange platform costs’’ 

(i.e., the constellation of related services 

of which transaction services are only 

one part) to market participants have 

‘‘remained competitive over time.’’ 626

Finally, according to this commenter, 

‘‘access fees and rebates represent more 

than the simple economic costs to an 

exchange of effecting a trade; they also 

reflect the value of the information that 

quotes provide to the market, and the 

value to participants of having access to 

those quotes.’’ 627 Another commenter 

stated that the current cap was ‘‘rather 

arbitrarily selected’’ and in its view has 

‘‘resulted in continued industry 

disagreement.’’ 628

However, another commenter 

disagreed, stating ‘‘the current access 

fees are unreasonably high when taking 

into consideration the lower exchange 

costs stemming from increased 

efficiencies and technology 

advancements that have occurred since 

2005.’’ 629 Although other trading costs 

have decreased, access fees have not 

and, according to this commenter, such 

fees ‘‘now represent an outsized portion 

of transaction costs.’’ 630 The commenter 

further stated it was appropriate for the 

Commission to rely on reduced costs to 

justify the reduction in the access fee 

cap.631 The commenter stated because 

‘‘the 30-mil cap exceeds the typical cost 

to trade on non-protected venues, it 

encourages investors to seek alternatives 

to accessing displayed quotes’’ which 

drives order flow to off-exchange 

venues.632

As discussed throughout this 

release,633 market participants have 

stated that the access fee caps are 

outdated and no longer reflect the 

current market structure. One 

commenter stated that the Commission, 

by identifying that the markets have 

changed due to market innovations and 

technological efficiencies and that 

transaction and trading costs had been 

reduced, and providing statements of 

market participants to support this 

statement,634 was suggesting that the 

access fee cap ‘‘no longer bears a 

reasonable relationship to the actual 

costs of a trade.’’ 635 This misconstrues 

the Commission’s statement recognizing 

that the markets are different than they 

were in 2005. Under the preexisting 

access fee caps, fee and rebate structures 

have developed such that access fees are 

predominantly used to pay rebates to 

liquidity providers and these structures 

have resulted in distortions in the 

market. 

The Commission considered many 

factors and the views of commenters, 

and balanced competing factors when it 

adopted the original fee caps in 2005.636

Likewise, as discussed above, the 

Commission again has considered and 

balanced many factors,637 including the 

effects on liquidity and trading costs for 

market participants 638 in coming to the 

determination that the 10 mils access 

fee cap is appropriate for all protected 

quotations priced $1.00 or more.639 As 

discussed throughout this release, the 

Commission has reduced the caps to a 

level that is sufficient to mitigate the 

market distortions associated with the 

fee schedules that have been developed 

under preexisting access fee caps and to 

accommodate the new minimum pricing 

increments under amended Rule 612, 

while also preserving the viability of the 

agency market business model.640

Most exchanges provide access to 

protected quotations and retain an 

estimated net capture of 2 mils.641


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accompanying text. As discussed below in the 

Economic Analysis, the Commission estimates for 

purposes of this release that exchange net capture 

is 2 mils, while also recognizing that net capture 

can range from approximately 2 to 6 mils. See infra 

note 1103. 

642See id. 

643See id. 

644See infra note 357 and discussion below. 

645See supra section IV.B.2.b. See also infra 

section VII.D.2.c and note 1458 and accompanying 

text. 

646See infra notes 1116–1118 and accompanying 

text. 

647Nasdaq Letter IV at 8. 

648Nasdaq Letter IV at 8. 

649 Id. 

650Nasdaq Letter IV at 7. This commenter further 

stated ‘‘nothing beyond anecdotal reports suggests 

that 10 mils is a representative fee for accessing 

liquidity off exchange.’’ Id. 

651See, e.g., IEX Letter VI at 5 (stating ‘‘ATSs that 

accept and process orders for NMS stocks in the 

same way as exchanges do characteristically charge 

in the range of 10 mils per share.’’); BlackRock 

Letter at 11 (stating that 10 mil cap ‘‘would have 

the added benefit of aligning exchange fees with 

prevailing ATS fees and creating a more equitable 

competitive landscape across trading venues’’); 

Verret Letter I at 7 (lowering access fee cap from 

30 mils to 10 mils would be ‘‘more in line with the 

fees charged by most ATS platforms,’’); IEX Letter 

V at 5 (stating because ATS fees ‘‘are affected by 

market forces and not pegged by regulation, they are 

highly relevant to the question of where to set an 

updated fee cap.’’). See also Letter from Stacey 

Cunningham, President, NYSE, to Brent Fields, 

Secretary, Commission, dated Oct. 2, 2018 

(commenting on File No. S7–05–18 ‘‘Transaction 

Fee Pilot for NMS Stocks’’) (stating reducing the 

access fee cap to 10 mils will bring the access fees 

exchanges charge to remove liquidity in line with 

the rates charged by ATSs). 

652 IEX Letter VI at 5–6; IEX Letter V at 5–6. 

653 IEX Letter VI at 5 (referencing public data 

showing ATS access fees in the range of 10 mils and 

below). See also IEX Letter V at 5–6. 

654 IEX Letter VI at 5 (stating 10 mils is the 

relevant comparative rate charged by ATSs). 

655 IEX Letter IV at 6. But see Nasdaq Letter V at 

2 (stating ‘‘ATSes enjoy advantages [including the 

ability to segment order flow] that would persist, 

and likely increase, with a lower cap on access 

fees.’’). 

656See infra sections VII.C.2.b and VII.D.2, note 

1118 and accompanying text. See also Proposing 

Release, supra note 11, at 80314 (stating a review 

of form ATS-Ns on which ATSs provide a range of 

the fees charged shows such fees are often in the 

range of 10 mils). 

657See supra note 651. 

658See, e.g., IEX Letter I at 22–23; IEX Letter IV 

at 14–15; IEX Letter V at 5–6; BlackRock Letter at 

11; Verret Letter II at 4. See also Letter from Stacey 

Cunningham, President, NYSE, to Brent Fields, 

Secretary, Commission, dated Oct. 2, 2018 

(commenting on File No. S7–05–18 ‘‘Transaction 

Fee Pilot for NMS Stocks’’) (stating reducing the 

access fee cap to 10 mils will bring the access fees 

exchanges charge to remove liquidity in line with 

the rates charged by ATSs). According to one 

commenter, ‘‘the rates charged by ATSs to access 

liquidity allow comparison to market-based prices 

that are not affected by prices imposed by 

exchanges to access protected quotes . . . [and] an 

informal survey of ATS operators indicates that the 

standard access fee charged by most ATSs is 

approximately 10 mil.’’). See also supra note 651 

and accompanying text. 

659See Letter from Theodore R. Lazo, Managing 

Director & Associate General Counsel, SIFMA, to 

Brent J. Fields, Secretary, Commission, dated Mar. 

9, 2017, at 8 (stating ‘‘a significant portion of access 

fees are used to subsidize rebates with the 

exchanges’ net capture reflecting today’s market 

norms for accessing liquidity, which is 

approximately 3–5 cents per 100 shares traded . . . 

or 3–5 mils.).’’ 

However, as discussed below,642 a net 

capture of 2 mils is not uniform across 

all exchanges and some have an 

estimated net capture that is higher than 

2 mils.643 This suggests that the 

preexisting levels of the access fee caps 

are higher than necessary to preserve 

the viability of the agency market 

business models. The adopted level of 

10 mils for access to protected quotes 

priced $1.00 or more is appropriate 

because it will allow trading centers to 

continue to provide access to protected 

quotations and retain a net capture to 

fund their transaction services. 

Recalibrating the level of the cap with 

a consideration of current market rates 

to provide execution services is 

appropriate and consistent with how the 

Commission set the preexisting rates.644

Finally, as stated above, the access fee 

caps were not developed as a means to 

enable the payment of rebates. However, 

under the preexisting access fee caps, 

access fees are predominantly used to 

fund the rebates paid to liquidity 

providers. As also stated above and 

discussed further below, liquidity 

providers are able to post bid and offer 

prices that account for the risk of 

displaying protected quotations without 

needing the payment of a rebate.645

In deciding to adopt a single 10 mil 

fee cap for all protected quotes in NMS 

stocks priced $1.00 or more, the 

Commission has also considered the 

rates charged by other agency markets 

for access to non-protected quotation 

liquidity because such trading centers 

are not subject to the preexisting 30 mils 

access fee cap and therefore the rates for 

execution services established by such 

markets are subject to competitive 

market forces that are not capped.646

One commenter stated that ATS fees 

are not a good benchmark to determine 

the appropriate level of exchange access 

fees because, in their view, exchange 

access fees should be higher than offexchange venues’ access fees.647 This 

commenter stated that ‘‘[e]xchange 

access fees compensate for the risk 

associated with posting lit quotes as 

well as the value associated with 

accessing immediate liquidity.’’ 648 In 

addition, according to this commenter, 

exchange pricing is ‘‘designed to attract 

quotes, whereas ATS pricing is designed 

only for trades’’ and ATSs ‘‘leverage lit 

quotes’’ produced by exchanges to 

determine ATS’s transaction pricing.649

Finally, this commenter stated that the 

rates charged by off-exchange venues 

‘‘vary significantly in structure, 

functionality, and fees’’ to the extent 

they are actually known publicly and 

disagreed with the conclusion that ‘‘10 

mils is a representative fee for accessing 

liquidity off exchange.’’ 650

Other commenters disagreed.651

According to one commenter, certain 

ATSs provide specialty services such as 

block trading and the ability to use 

conditional order types to achieve 

certain trading strategies, and typically 

charge higher than 10 mils for such 

specialized services.652 However, 

according to this commenter, ATSs that 

operate a continuous book market are 

similar to exchanges that provide 

similar services and those ATSs charge 

‘‘a maximum rate of 10 mils’’ for such 

services and such venues collectively 

represent approximately 42% of all ATS 

volume during 2023.653 According to 

this commenter, ‘‘this data is strong 

evidence that the standard comparative 

rate for immediate access to liquidity in 

NMS stocks on ATSs that offer this 

[continuous book] service is, in fact, 10 

mils per share.’’ 654 This commenter 

further stated that exchanges are ‘‘able 

to charge higher prices than other 

markets, precisely because of the 

‘protected quote’ status’’ which is ‘‘what 

the SEC sought to prevent in 2005, in 

furtherance of the statutory goal of fair 

distribution of quotation 

information.’’ 655

The fees charged by many ATSs that 

provide execution services similar to 

exchanges are often reflected in a range 

and sometimes are based on volume 

transacted, and ATSs typically do not 

pay rebates.656 As stated above, several 

commenters stated that a 10 mils access 

fee cap would be consistent with the 

access fees charged by ATSs.657 These 

statements are informative in 

considering an appropriate level of the 

access fee caps because they reflect the 

current market rate paid for execution 

services as reported by market 

participants.658 This, in concert with the 

net capture rates discussed above, 

suggests that the current access fee caps 

may not be consistent with current 

market rates for providing execution 

services.659

Considering the rates charged by 

trading centers is consistent with the 

analysis the Commission conducted to 

determine the appropriate level of the 

preexisting access fee caps when it 

adopted them. Specifically, the 

Commission considered the access fees 

charged by ECNs and other types of 

trading centers, including selfregulatory organizations (‘‘SROs’’), 

when it adopted the preexisting 30 mil 


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660See Regulation NMS Adopting Release, supra 

note 4, at 37545. 661See Regulation NMS Adopting Release, supra 

note 4, at 37545 (stating that the $0.0030 per share 

cap largely codified the then-prevailing fee level set 

through competition among the various trading 

centers). 662See supra note 357 and infra section VII.D.2. 663Cboe Letter II at 9. The Commission conducted 

similar analysis when it adopted preexisting Rule 

610(c), and as discussed below, having different 

access fee caps apply to a bid that is priced under 

$1.00 and an offer that is priced over $1.00 in the 

same NMS stock would create pricing distortions. 

See infra section VII.D.2.c. 664Cboe Letter II at 9. 665Cboe Letter II at 9. 

666Cboe Letter II at 9. 

667Better Markets Letter I at 16. 

668Themis Letter at 7. 

669See infra section VII.D.2.c. As the price of a 

stock moves across the $1.00 cutoff, its access fee 

would not experience a discontinuous jump 

because 0.1% of $1.00 is 0.1 cents, i.e., 10 mils. 

Such alignment prevents the anomalous result that 

could occur if the NBB was priced under $1.00 and 

the NBO was priced over $1.00 and each protected 

quote would be subject to a different access fee. 

670See also infra section VII.D.2.c. 

671See also infra section VII.E.2.b. 

672See also infra section VII.D.2.c. 

673See table 14, infra section VII.D.2.b. 

674See infra note 1433 and accompanying text. 

675See, e.g., Citigroup Letter at 6; NASAA Letter 

at 9; MEMX Letter at 41; Nasdaq Letter I at 2; and 

Nasdaq Letter IV at 12. 

676NASAA Letter at 9. 

677See, e.g., STA Letter at 8; State Street Letter 

at 5; CCMR Letter at 27; GTS Letter at 6–7; Nasdaq 

Letter I at 30. 

678CCMR Letter at 27. 

679See, e.g., T. Rowe Price Letter at 3–5. See also 

SIFMA Letter II at 39–40; Chamber of Commerce 

Letter at 1; Cboe, State Street, et al. Letter at 3; 

Citadel Letter I at 24–25. 

680See IEX Letter III at 4 (‘‘There is clear evidence 

that the 30-mil ‘limit’ has acted to keep access fees 

artificially high, leading to price distortions and 

access fee cap to gain insight into the 

then current market rates for execution 

services.660 At the time of adoption in 

2005, the $0.0030 fee limitation was 

based on the then-prevailing market 

rates for execution services and general 

business practices, as very few trading 

centers charged fees in excess of that 

amount.661 As it did in 2005 in 

establishing the preexisting fee caps, to 

determine the appropriate level of the 

amended access fee caps, the 

Commission has similarly considered 

the current market rate for execution 

services as measured by the rates 

charged by other trading centers as a 

factor in considering the level of the 

adopted access fee caps.662 This factor 

is useful in calculating the level of the 

access fee caps, but it is not the only 

factor. The Commission is balancing the 

need to set a level of the access fee caps 

to allow for fair and efficient access 

while also seeking to ensure that trading 

centers are not impaired in their ability 

to provide execution services. 

e. Protected Quotes Priced Under $1.00 

With respect to the access fee cap for 

protected quotations priced under 

$1.00, one commenter stated its view 

that ‘‘the negative impact of the 

proposed access fee caps is much more 

pronounced for securities priced less 

than $1.00.’’ 663 The commenter stated 

that for protected quotations priced less 

than $1.00, the ‘‘estimated revenue 

impact to exchanges providing rebates 

in these securities [those priced below 

$1] is not insignificant’’ and that ‘‘the 

access fee cap must remain unchanged 

to support competition, differentiation, 

and liquidity provision.’’ 664 This 

commenter also stated that ‘‘[s]implistic 

proportionality is not a sufficient 

justification for this reduction’’ and 

instead ‘‘[a]nalysis of whether there will 

be proportionate outcomes is necessary 

to overcome the arbitrary and capricious 

nature of this reduction.’’ 665 Finally, 

this commenter stated that the reduction 

would ‘‘likely impact exchanges’ ability 

to differentiate, as well as materially 

limit the transaction revenue that 

exchanges apply towards developing 

innovative solutions that contribute to 

the robustness of the U.S. 

marketplace.’’ 666

One commenter stated that reducing 

the access fee cap generally would 

reduce the disincentive to trade on 

exchanges because costs would be 

lower.667 Another commenter stated 

that the estimated loss in net capture 

due to the reduction in the access fees 

for protected quotation priced below 

$1.00 ‘‘will not harm the major 

exchanges.’’ 668

The Commission is adopting a 

modified access fee cap of 0.1% of the 

share price for protected quotations 

priced under $1.00. The Commission 

proposed a lower access fee cap of 

0.05% of the quotation price per share 

in light of the proposed 5 mils access fee 

cap. Since the 5 mils access fee cap is 

not being adopted, the Commission has 

modified the access fee cap for 

protected quotes priced under $1.00 so 

that it is consistent with the 10 mils 

access fee cap for protected quotes 

priced $1.00 or more. 

The adopted 0.1% access fee cap will 

align this cap with the 10 mils access 

fee cap that will apply to protected 

quotations in NMS stocks priced $1.00 

or greater.669 This alignment is 

consistent with the access fee caps that 

apply under the preexisting rule, which 

are 30 mils and 0.3% respectively. 

Alignment of the access fee caps for 

protected quotations in NMS stocks 

priced below $1.00 and those priced 

$1.00 and above is necessary to preserve 

continuity at the $1.00 cutoff to ensure 

that cost to access a protected quote for 

an NMS stock that is priced below $1.00 

is not more compared to the cost to 

access a protected quote for the same 

NMS stock that is priced $1.00 or 

more.670 For example, an NMS stock 

could have a protected bid that is priced 

below $1.00 and a protected offer that 

is priced above $1.00. If the access fee 

cap for protected quotes priced below 

$1.00 remained at the preexisting level, 

the access fee for the protected bid 

would be almost three times higher than 

the access fee for the protected offer.671

In such an instance, it would cost more 

to trade against the bid than to trade 

against the offer and negatively impact 

incentives for accurate price 

formation.672

The Commission understands that 

reducing the access fee cap for stocks 

priced below $1.00 could reduce 

exchange revenue.673 This is because 

exchanges typically charge the 

maximum fee of .3% for accessing 

protected quotes priced less than $1.00 

and do not offer rebates, or offer rebates 

in small amounts.674 Accordingly, 

exchanges typically retain the full 

amount of the access fee charged. 

However, in order to prevent the 

distortions that would occur if a higher 

access fee cap were applied to protected 

quotes priced less than $1.00, the 

Commission is adopting the percentage 

cap that is aligned with the access fee 

cap that is applicable to protected 

quotes priced $1.00 or more to preserve 

continuity at the $1.00 cutoff. 

f. Comments on Implementation 

Some commenters stated that the 

Commission should build in an 

evaluation process to assess the benefits 

and any potential degradations to 

market quality resulting from changes to 

the access fee caps.675 One commenter 

stated that the rule should ‘‘include a 

mechanism in the rule to periodically 

re-evaluate the access fee caps set in the 

proposal to ensure that access fee levels 

continue to have the anticipated 

benefits.’’ 676 Others recommended 

application of the new access fee caps 

to a smaller subset of NMS stocks before 

rolling it out to all NMS stocks.677 One 

commenter stated that changes to access 

fees should be adopted as part of a pilot 

to allow for a study of the effects on 

market quality.678 Another commenter 

stated the Commission should first 

collect more data and industry input 

and conduct further analysis to 

determine the optimal access fee cap 

levels before proceeding.679 One 

commenter, however, disagreed that any 

delay to collect further data or conduct 

additional analysis was warranted.680


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increasing costs to institutional investors in 

particular.’’). 

681 IEX Letter III at 4. See also Verret Letter II at 

4; IEX Letter III. 

682National securities exchanges establish and 

amend their fee schedules by filing proposed fee 

rule changes, pursuant to section 19(b) of the 

Exchange Act and rule 19b-4 thereunder, for 

Commission review. National securities exchange 

fee schedules are posted on their websites. See Rule 

19b–4(l). Some national securities exchanges 

currently use volume calculated on a monthly basis 

to determine the applicable threshold or tier rate. 

See, e.g., fee schedules of Nasdaq PSX available at 

https://www.nasdaqtrader.com/ 

Trader.aspx?id=PSX_pricing (as of Mar. 2024) 

(calculating fees based on ‘‘average daily volume 

during the month’’) and Cboe EDGA available at 

https://www.cboe.com/us/equities/membership/fee_

schedule/edga/ (as of Mar. 2024) (calculating fees 

based on ‘‘average daily volume’’ and ‘‘total 

consolidated volume’’ on a monthly basis). 

683This amendment to Rule 610 does not alter an 

exchange’s ability to determine the measurement 

period during which volume is calculated (e.g., a 

week prior, two weeks prior, or prior monthly), 

rather the rule will instead require the measurement 

period to be prior to the date of execution so that 

market participants can determine the amount of 

the fee at the time of execution. 

684See, e.g., Ontario Teachers et al. Letter at 2; 

ASA Letter at 6; Angel Letter at 8; Letter from 

Kelvin To, Founder and President, Data Boiler 

Technologies, LLC, dated Apr. 12, 2023 (‘‘Data 

Boiler Letter II’’) at 3 (agreeing with Angel Letter); 

Citigroup Letter at 6; BMO Letter at 4; Council of 

Institutional Investors at 4. See also Comment Letter 

Type H, available at https://www.sec.gov/ 

comments/s7-30-22/s73022.htm. 

685See, e.g., BMO Letter at 4; NASAA Letter at 

9. 

686 IEX Letter I at 28–29. See also Letter from 

Stanislav Dolgopolov, Chief Regulatory Officer, 

Decimus Capital Markets, LLC, dated Mar. 31, 2023, 

at 3 (‘‘Decimus 2023 Letter’’). 

687Angel Letter at 8. See also BMO Letter at 4; 

Healthy Markets Letter I at 25. 

688Fidelity Letter at 15. See also ICI Letter I at 

17. 

689Nasdaq Letter I at 32. See also Letter from 

Tyler Gellasch, President & CEO, Healthy Markets 

Association, dated Aug. 1, 2023 (‘‘Healthy Markets 

Letter II’’) at 11. 

690See, e.g., RBC Letter at 5; ASA Letter at 5; IEX 

Letter I at 29; Letters from Kelvin To, Founder and 

President, Data Boiler Technologies, LLC, dated 

Mar. 31, 2023 (‘‘Data Boiler Letter I’’) at 5; Themis 

Letter at 1 (expressing support for the proposal, but 

expressing disappointment that the Commission 

did not go further and calling for the elimination 

of rebates); Healthy Markets Letter I at 24 (‘‘If two 

different brokers send the exact same order to an 

exchange, they should get the same pricing for that 

order. Pricing should be based on the order being 

sent, not the other business or trading by the party 

sending it.’’). 

691RBC Letter at 5. See also Proof Letter at 1–2 

(supporting requiring exchange pricing to be 

Continued 

According to this commenter, there is a 

‘‘mountain of evidence supporting a 

reduction in the access fee cap from 

current levels’’ and ‘‘general consensus 

in favor of reducing the cap.’’ 681

The Commission disagrees with 

commenters’ suggestions that further 

study be conducted before adopting the 

amendment or that the amendment 

should be incrementally rolled out. A 

delayed or incremental approach to 

reducing the preexisting access fee caps 

would delay the benefits to investors of 

the reduced caps. The Commission has 

extensively considered the adopted 

amendments, reviewed all comments 

letters and conducted extensive 

economic analysis in deciding to adopt 

this amendment. The amended access 

fee caps will provide savings for 

investors and should be implemented. 

E. Final Rule 610(d) Requiring That All 

Exchange Fees and Rebates Be 

Determinable at the Time of an 

Execution 

Many exchange fees and rebates are 

calculated at the end of the month, 

which impedes the ability of market 

participants, including investors, to 

understand at the time of execution the 

full cost of their transaction. For 

example, the exchanges have developed 

complex fee and rebate schedules, some 

of which include tiers or other 

incentives based on a market 

participant’s relative monthly trading 

volume or relative volume compared to 

the consolidated trading volume in the 

current month, with higher volume tiers 

receiving a higher (lower) per unit 

rebate (fee). This means that the exact 

fee or rebate amount for an order cannot 

be determined until the end of the 

month, after an execution occurs, and is 

not known to the parties to the trade at 

the time of execution. Further, 

uncertainty regarding the fee amount at 

the time of execution can hinder the 

ability of market participants to conduct 

best execution analyses and can affect 

order routing decisions. 

To provide further transparency 

regarding transaction pricing, the 

Commission proposed to amend Rule 

610 to add a new subsection (d) 

‘‘Transparency of Fees,’’ which would 

prohibit a national securities exchange 

from imposing, or permitting to be 

imposed, any fee or fees, or providing, 

or permitting to be provided, any rebate 

or other remuneration (e.g., discounted 

fees, other credits, or forms of linked 

pricing) for the execution of an order in 

an NMS stock unless such fee, rebate or 

other remuneration can be determined 

by the market participant at the time of 

execution. As the Commission 

explained in the Proposing Release, 

under proposed Rule 610(d), any 

national securities exchange that 

imposes a fee or provides a rebate that 

is based on a certain volume threshold, 

or establishes tier requirements or tiered 

rates based on minimum volume 

thresholds, would be required to set 

such volume thresholds or tiers using 

volume achieved during a stated period 

prior to the assessment of the fee or 

rebate so that market participants are 

able to determine what fee or rebate 

level will be applied to any submitted 

order at the time of execution.682 For 

example, if an exchange proposed a 

lower fee for members that reach a 

certain level of trading volume in a 

month, the required level of trading 

volume would have to be achieved 

based on a month prior to the 

imposition of the fee or payment of the 

rebate.683

The Commission has considered 

commenters’ views (as discussed below) 

and is adopting Rule 610(d) as 

proposed. Investors can use this 

information to assess their brokerdealer’s routing decisions and such 

information will help to inform market 

participants’ best execution analysis. 

1. General Comments 

The Commission received comments 

from a broad range of commenters who 

stated that proposed Rule 610(d) would 

provide enhanced transparency 

surrounding transaction fees and 

rebates 684 and alleviate concerns related 

to potential conflicts of interest.685 One 

commenter stated that proposed Rule 

610(d) would ‘‘shed greater 

transparency on the use of fee and 

rebate tiers and their impact on 

individual trades’’ and ‘‘help to address 

concerns related to conflicts of interest[ ] 

because . . . investors will be in a better 

position to identify and seek the 

recovery of rebates that accrue 

specifically to their orders . . .’’ 686

Further, one commenter stated that such 

a change is ‘‘a great step forward and 

long overdue,’’ 687 and another 

commenter stated that it would be ‘‘a 

positive outcome for the industry and 

investors and w[ould] reduce market 

complexity and increase 

transparency.’’ 688 One commenter 

stated that Rule 610(d) ‘‘has the 

potential to facilitate broker-dealers in 

passing-through access fees and rebates 

to their customers, and in doing so, it 

could alleviate concerns [ ] about 

perceived conflicts-of-interest 

associated with the maker-taker model 

and the provision of exchange rebates to 

broker-dealers.’’ 689

Other commenters’ support for Rule 

610(d) was more measured because they 

stated that the proposal did not go far 

enough to address market distortions 

resulting from fee and rebate tiers.690

One such commenter stated that 

although it was ‘‘encouraged about 

eliminating the retroactive attributes of 

exchange volume tiers,’’ it felt a ‘‘more 

optimal solution [ ] would be to remove 

them entirely’’ 691 because ‘‘exchange 


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computable at the time of the trade but questioning 

what, if any, impact this will have on complexity 

of existing pricing tiers and expressing preference 

that the Commission adopt a ‘‘more drastic policy 

change.’’); IEX Letter I at 6. 692RBC Letter at 5. See also Citigroup Letter at 

6; Proof Letter at 1–2. 693 IEX Letter I at 29. See also Citigroup Letter at 

6; John Ramsay, Chief Market Policy Officer, 

Investors Exchange LLC, dated Sept. 20, 2023 (‘‘IEX 

Letter II’’) at 4; Healthy Markets Letter II at 3–6. 

However, not all commenters agree that volumebased fee/rebate tiers are anticompetitive. See, e.g., 

Cboe Letter III at 6–7 (arguing ‘‘volume-based tiers 

do not restrain trade or represent a burden on 

competition . . . By contrast, limiting volumebased rebate tiers would in fact harm competition 

and disadvantage the very small and mid-sized 

brokers who support this myth.’’). 

694BMO Letter at 4. See also Fidelity Letter at 15; 

Proof Letter at 1–2. 

695Pragma Letter at 7–8. 

696However, a broker-dealer may choose not to 

offer pass-through of fees, rebates and other forms 

of remuneration to its customers or may choose not 

to pass through the entirety of the incentive it 

receives, or the customer may not want or be able 

to accommodate such pass-throughs. In these cases, 

a conflict of interest would continue to exist 

between the broker-dealer and its customer when 

the broker-dealer routes the customer’s order for 

execution based on the broker-dealer’s economic 

benefit from its routing decision. Notwithstanding, 

even if pass-through of fees, rebates and other forms 

of remuneration to customers does not happen, 

Rule 610(d) will provide certainty regarding the 

applicable fee/rebate at the time of execution, 

which will facilitate a customer’s ability to evaluate 

their broker’s routing decisions and could improve 

broker-dealer accountability, provide greater 

transparency regarding executions and lead to 

improved order execution for customers. See infra 

section VII.D.3. 

697See id. 

698See infra section VII.D.3. 

699Nasdaq Letter I at 2, 31–32. 

700See Proposing Release, supra note 11, at 

80287. If an ATS or OTC market maker displayed 

a protected quotation, its fees would be subject to 

the access fee caps under rule 610(c). However, 

exchange fees and the fees of non-exchange trading 

centers are treated very differently under the 

Federal securities laws. For example, one of the 

distinguishing features of registered national 

securities exchanges is that—unlike non-exchange 

trading centers—their fees are subject to the 

principles-based standards set forth in the Exchange 

Act, as well as the rule filing requirements 

thereunder. 

701 15 U.S.C. 78(f)(b) and (s)(b). 

702 17 CFR 240.19b–4. 

703 17 CFR 240.19b–4(m)(1). 

704 15 U.S.C. 78f(b)(4) and (5). See also Proposing 

Release, supra note 11, at 80287. 

volume tiers create barriers to entry that 

only benefit the largest, most active 

trading firms at the expense of smaller 

competitors.’’ 692 One commenter stated 

its support for Rule 610(d), but also 

stated that the Commission should ‘‘take 

additional steps . . . to prohibit or 

restrict the use of CADV-based tiers,’’ 

which in this commenter’s view are ‘‘by 

their nature [ ] highly anti-competitive 

and discriminatory.’’ 693 Further, one 

commenter ‘‘encouraged the 

Commission to review and address the 

issue of ‘bespoke’ pricing tiers prevalent 

in today’s volume tiered pricing 

models.’’ 694 Another commenter, while 

agreeing with the objective of fee 

transparency, was skeptical that Rule 

610(d) ‘‘would ‘materially reduce’ 

uncertainty regarding the fee amount at 

the time of execution’’ and stated that 

the proposal would provide ‘‘little 

practical transparency for most Market 

Participants.’’ 695

Rule 610(d) will provide additional 

certainty, transparency and clarity to 

exchange fee structures, which will 

assist investors and other market 

participants in assessing their order 

placement. Further, certainty about the 

cost of a transaction at the time of the 

trade will help broker-dealers make 

more informed order routing decisions, 

particularly benefitting customers that 

are sensitive to transaction costs at the 

execution venue, because broker-dealers 

and their customers will know with 

more certainty the cost of an exchange 

transaction at the time of the trade. 

Investors will be able to obtain or 

request at the time of execution details 

about the exchange fees and rebates 

assessed on their orders without having 

to wait weeks until that pricing is 

determined and invoiced. 

In addition, because the rule will 

allow market participants to know the 

amount of fees and rebates that are 

applicable to their transactions at the 

time of the trade, the rule will facilitate 

the ability of broker-dealers to pass back 

to their customers, if the customer 

requests and the customer and the 

broker-dealer both are able to 

accommodate the pass-through of fees, 

rebates, and other forms of 

remuneration in a more timely 

fashion.696 Today, lower fees or higher 

rebates based on volume achieved in a 

current trading month can lead to 

routing for purposes of achieving a 

certain level of volume or attaining a 

possible tier level rather than routing 

solely to achieve best execution. While 

tiers that are based on volume from a 

previous time-period may still 

incentivize routing by a broker-dealer to 

try to secure a higher rebate/lower fee 

tier in the following month, certainty 

regarding what tier applies at the time 

of trade will facilitate the ability of a 

broker-dealer to pass those fees and 

rebates through to their customers, if 

they so decide,697 on a more timely 

basis because they will be known at the 

time of the trade.698 Requiring certainty 

regarding the amount of the fee/rebate is 

an incremental step toward addressing 

commenters’ concerns regarding the 

ability of exchanges and brokers to pass 

back the actual fee or report on each 

transaction. 

If market participants pass through in 

their entirety the exchange fees/rebates 

to their customers, an ancillary benefit 

of the new rule will be that the potential 

inducement to broker-dealers to route 

orders based on garnering the highest 

rebate/paying the lowest fee will be 

reduced since a broker-dealer would no 

longer retain for itself the transaction 

pricing benefit from its routing decision. 

The new rule also will facilitate a 

customer’s ability to obtain more timely 

information about what exchange 

transaction pricing the broker-dealer 

receives, which may increase 

accountability of the broker-dealer to 

the customer in ways that could lead to 

better order execution and more 

transparency regarding the fees/rebates 

applicable to a particular order. 

Other commenters voiced support for 

the Commission’s objectives in 

proposing Rule 610(d), but suggested 

certain modifications. One commenter 

stated that it ‘‘did not object in principle 

to . . . requir[ing] exchanges to set 

volume-based access fees and rebates as 

of the time of execution’’ provided other 

market centers would be held to ‘‘the 

same standards of transparency.’’ 699 As 

discussed in the Proposing Release, 

exchange fees and the fees of nonexchange trading centers are treated 

differently under the Federal securities 

laws.700 Specifically, non-exchange fees 

are not subject to the requirements 

applicable to exchange fees under 

sections 6(b) and 19(b) of the Exchange 

Act 701 and rule 19b–4 thereunder.702

Exchange fees are subject to the 

requirements of the Exchange Act and 

the rules thereunder, which requires, 

among other things, that every exchange 

post and maintain a current and 

complete version of the entirety of each 

and every fee, due, and charge assessed 

by an exchange,703 and that such 

exchange rules applicable to fees must 

provide for the equitable allocation of 

reasonable dues, fees, and other charges 

among its members and issuers and 

other persons using its facilities and not 

be designed to permit unfair 

discrimination between customers, 

issuers, brokers or dealers.704 Rule 

610(d) is consistent with that statutory 

framework as it provides members and 

their customers with more certainty and 

transparency at the time of trade when 

exchange transaction pricing may be 

relevant to, and impactful on, the 

broker-dealer’s order routing decision. 

New Rule 610(d) is narrowly tailored to 

improve certainty and transparency 

regarding exchange fees and rebates 

within the current regulatory 

framework. 

One commenter stated that the 

proposal might make it more difficult 


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705Nasdaq Letter I at 33. 

706 Id. at 33. 

707Cboe Letter II at 9–10 (stating that removing 

incentives provided by exchange rebate tiers would 

drive liquidity off-exchange and negatively impact 

exchange liquidity provision). See also Data Boiler 

Letter I at 28–29 (stating that determinable 

requirement will lead to increased costs that will be 

passed along to customers as higher commissions 

or reduced services and could lead to higher 

barriers to entry because the requirement may cause 

a ‘‘direct hit to broker-dealers’ bottom line’’ which 

will force them to ‘‘find alternative ways to squeeze, 

exploit, or rent seek to cover their losses’’ and 

urging adoption of ‘‘Copyright Licensing 

mechanism’’ instead.). 

708 Virtu Letter II at 9–10 (stating the ‘‘effort 

required to understand the volume fee system, 

forecast volume fees for an upcoming period, and 

confirm that fees are indeed being calculated 

appropriately will especially disadvantage smaller 

brokers, who typically have less resources . . . for 

needless work such as this.’’). 

709 Virtu Letter II at 9. 

710Cboe Letter III at 2. 

711Cboe Letter III at 6–7. 

712 Virtu Letter III at 9–10. 

713 Implicit in the use of historical rather than 

future volume is that market participants will know 

the amount of the fee/rebate that will apply at the 

time of the execution. As discussed above, 

exchange fees are subject to the requirements of the 

Exchange Act and the rules thereunder, which 

require, among other things, that every exchange 

post and maintain a current and complete version 

of the entirety of each and every fee, due, and 

charge assessed by an exchange, Because 

information necessary to calculate the amount of 

the fee or rebate will be knowable at the time of 

execution, Rule 610(d) will provide market 

participants with the ability to determine the fee or 

rebate due at the time of execution. 

714See infra section VII.D.3. 

715Citadel Letter II at 6 (stating that comments on 

Rule 610(d) were provided ‘‘on the basis that 

volume-based fee tiers were explicitly not being 

prohibited’’ and requesting the Commission 

‘‘propose and publish an analysis assessing the 

cumulative effect of the two proposals that allows 

commenters to consider the broader implications 

(and the Commission’s analysis of those 

implications) of prohibiting volume-based 

transaction pricing for certain orders.’’). 

716FIA PTG Letter II at 4. See also Citadel Letter 

I at 25; Healthy Markets Letter I at 26. 

for smaller broker-dealers to compete 

against established firms because 

‘‘participation in the exchanges’ growth 

programs’’ might become more 

expensive in the initial month of 

participation and ‘‘limit exchanges’ 

ability to incent market makers and 

other participants to quote at the NBBO 

and to do so in a large number of 

securities, including thinly-traded 

securities.’’ 705 The commenter did not 

provide detail as to how these impacts 

would arise, but requested the 

Commission to ‘‘exempt growth 

programs and special pricing programs 

that reward market makers and other 

participants for quoting at the NBBO 

and providing market quality’’ from the 

requirements of Rule 610(d).706

Finally, some commenters did not 

support proposed Rule 610(d) because 

they stated it would negatively impact 

the ability to incentivize liquidity 

provision, ‘‘disrupt[ ] existing economic 

incentives without justification,’’ 707 add 

‘‘an unnecessary layer of 

complexity,’’ 708 and inappropriately 

‘‘wade into the business of telling 

private companies how to charge their 

customers.’’ 709 One commenter stated 

that ‘‘existing fee constructs such as 

volume-based pricing tiers are 

important tools that allow exchanges to 

compete with one another and with 

non-exchanges.’’ 710 This commenter 

further stated that volume-based tiers 

are entirely consistent with the 

Exchange Act and vital tools exchanges 

use to ‘‘incentivize greater participation 

and improve liquidity and market 

quality.’’ 711 Finally, one commenter 

stated that the Commission ‘‘include[d] 

no data [ ] showing this change would 

cure any harm, nor does it claim any 

anticipated benefits that might flow 

from this change.’’ 712

The new rule does not prohibit 

exchange liquidity provision incentives 

nor add complexity as suggested by 

some commenters. It instead shifts the 

time of calculating fees or rebates so that 

investors and other market participants 

are informed, when placing an order, of 

the amount of the fee or rebate that will 

be assessed. Rule 610(d) does not alter 

an exchange’s ability to offer incentive 

programs based on volume tiers or any 

another metric; rather it will provide 

prospective certainty regarding what 

fee/rebate the market participant will 

incur/earn by achieving the requisite 

benchmark. Therefore, exceptions for 

liquidity provision incentives are not 

appropriate or necessary. Further, Rule 

610(d) does not require exchange fees, 

rebates or other remuneration to be 

based on activity from a specific 

measurement period provided the 

metric used can be achieved prior to the 

time of execution, nor does it impose 

any obligations or additional costs on 

market participants to perform any new 

calculations, make new projections or 

forecasts, or undertake any new 

responsibilities. The Commission is not 

requiring market participants to 

undertake any obligations regarding the 

calculation of the applicable fee/rebate. 

Instead, Rule 610(d) will facilitate a 

market participant’s ability to know the 

amount of the fee/rebate based on 

historical (rather than future) volume, so 

that it can understand how a volumebased fee/rebate will apply at the time 

of execution.713 Rule 610(d) will allow 

market participants to calculate the 

amount of the fee/rebate using data 

available at the time of execution rather 

than have to forecast or estimate the cost 

of their transaction. As discussed below, 

this certainty and transparency 

regarding the fee and rebate that will 

apply to a particular transaction will 

benefit market participants and improve 

market quality.714

Further, one commenter requested the 

Commission withdraw proposed Rule 

610(d) in light of its subsequent 

proposed rule addressing volume-based 

transaction pricing because the 

proposals are ‘‘inextricably linked’’ and 

‘‘so contradictory and indeterminate 

that the public has not had a reasonable 

opportunity to comment on what the 

Commission is actually proposing.’’ 715

The Commission disagrees. The Fee 

Tiers Proposal remains a proposal. As 

explained throughout this section, the 

increased certainty and transparency 

Rule 610(d) will require will provide 

benefits to investors and other market 

participants on its own. Further, the two 

proposals are not contradictory because 

Rule 610(d) applies to all exchange fees 

and rebates not just those that are 

volume-based, whereas the Fee Tiers 

Proposal specifically concerns volumebased pricing and agency-related orders 

as well as a disclosure requirement that 

would be fully compatible with Rule 

610(d). Accordingly, both proposals are 

compatible in their different scopes, 

objectives, and application and so are 

not in conflict. In addition, Rule 610(d) 

is not indeterminate but rather 

straightforward; the public has had the 

opportunity to comment and many 

have, in fact, so commented. 

Another commenter stated the 

Commission should revise proposed 

Rule 610(d) to require fees and rebates 

to be known ‘‘before the time of 

execution’’ and require ‘‘all affected 

trading venues to publish their fees in 

machine-readable format’’ to allow 

market participants to more readily 

consume a trading venue’s fee schedule 

and update participant systems.716

Implicit in the requirement that fees/ 

rebates be determinable at the time of 

execution is use of historical, rather 

than future, volume to benchmark any 

qualifying criteria for a particular fee/ 

rebate and thus the fee/rebate would be 

calculatable or determinable before the 

time of execution. For a fee to be 

determinable at the time of execution, it 

must be ascertainable before or 

contemporaneously with the execution. 

Otherwise, the purpose of Rule 610(d)— 

to provide certainty and transparency 

regarding what fee/rebate will apply at 

the time of execution—would be 

undermined. No change or clarification 

of Rule 610(d) is necessary because 

implicit in the requirement that fees/ 


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81666 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

717See rule 19b–4(m)(1). 17 CFR 240.19b–4(m)(1). 

718The MDI Rules adopted the definition of 

round lot in rule 600(b)(82). This provision was 

subsequently renumbered to Rule 600(b)(93) by the 

Rule 605 Amendments. 17 CFR 242.600(b)(93); Rule 

605 Amendments, supra note 10. 

719The MDI Rules adopted the definition of oddlot information in rule 600(b)(59). This provision 

was subsequently renumbered to Rule 600(b)(69) by 

the Rule 605 Amendments. 17 CFR 242.600(b)(69); 

Rule 605 Amendments, supra note 10. 

720See MDI Adopting Release, supra note 10. 

721See supra note 320. 

722The Commission is adopting this amendment 

to the definition of regulatory data in Rule 

600(b)(89)(iv). See supra note 320. 

723The Commission is not changing the 

calculation used to assign round lots or the round 

lot tiers in the round lot definition adopted in the 

MDI Rules. 

724See MDI Adopting Release, supra note 10. 

725See Proposing Release, supra note 11, at 80295 

(describing the phased transition plan for the MDI 

Rules). 

726See supra notes 74–78 and accompanying text. 

727See supra notes 63–65 and accompanying text 

for a description of SIP data. 

728See supra note 66. 

729See supra note 67. 

730See supra note 718. 

731See supra notes 67–68 and accompanying text. 

732See MDI Adopting Release, supra note 10, at 

18727. 

733MDI Adopting Release, supra note 10, at 

18601–02, 18617; see also 17 CFR 242.600(b)(93). 

734See MDI Adopting Release, supra note 10, at 

18700–01; see also Proposing Release, supra note 

11, at 80295, 80298–99. 

735See Proposing Release, supra note 11, at 

80295. 

736See Proposing Release, supra note 11, at 

80300–01. 

737See infra section VI.C. 

738See Proposing Release, supra note 11, at 

80295; see also supra notes 74–78 and 

accompanying text. 

rebates be determinable at the time of 

execution is the ability to calculate the 

fee/rebate prior to execution. 

Finally, new Rule 610(d) enhances 

transparency regarding exchange fees 

and rebates but does not require a 

specific format for publication of the 

information. Exchange fees are required 

to be posted on exchange websites 717

and, as is true today, if market 

participants need a specific format, they 

can make such requests to the 

exchanges. 

V. Final Rule—Transparency of Better 

Priced Orders 

The Commission, among other things, 

adopted new definitions of round lot 718

and odd-lot information 719 under the 

MDI Rules to enhance the transparency 

for investors and other market 

participants of quotes and orders in 

NMS stocks that have better prices than 

what has been provided in SIP data.720

In the Proposing Release, the 

Commission proposed: (1) to accelerate 

the implementation of these two 

definitions adopted under the MDI 

Rules, (2) an amendment to the 

definition of ‘‘regulatory data’’ in Rule 

600(b)(78)(iv),721 (3) to require each 

exclusive SIP to represent quotation 

sizes in consolidated information in 

terms of the number of shares, rounded 

down to the nearest multiple of a round 

lot, and (4) to amend the definition of 

odd-lot information to include a best 

odd-lot order. As discussed in detail 

below, the Commission is: (1) adopting 

an accelerated implementation schedule 

for the round lot and odd-lot 

information definitions, with 

modifications to the proposed 

implementation schedule; (2) adopting 

the amendment to the definition of 

‘‘regulatory data’’, as proposed; 722 (3) 

requiring each exclusive SIP to 

represent quotation sizes in 

consolidated information in terms of the 

number of shares, rounded down to the 

nearest multiple of a round lot, as 

proposed; and (4) modifying the 

Commission’s approach in the 

Proposing Release by adopting 

amendments to the round lot definition 

that will require less frequent round lot 

adjustments—i.e., semiannually, rather 

than monthly—by defining a round lot 

‘‘Evaluation Period’’ and by specifying 

an operative period.723 In addition, the 

Commission is adopting the best odd-lot 

order data element, as proposed. 

A. Background 

The MDI Rules expanded NMS 

information and established a 

decentralized consolidation model, 

pursuant to which competing 

consolidators will eventually replace 

the exclusive SIPs for the collection, 

consolidation, and dissemination of 

NMS information.724 The Commission 

adopted a phased transition plan for the 

MDI Rules,725 which has been 

delayed.726 Accordingly, NMS 

information is currently collected, 

consolidated and disseminated within 

the national market system by the 

exclusive SIPs as SIP data.727

Because the MDI Rules are not yet 

implemented, NMS stock quotation 

information that is included in SIP data 

is provided in round lots, as defined in 

exchange rules,728 and for most NMS 

stocks a round lot is defined as 100 

shares.729 Under Rule 600(b)(93), as 

adopted by the MDI Rules,730 round lot 

sizes are assigned to each NMS stock 

based on its average closing price and 

those NMS stocks that have an average 

closing price in the prior month greater 

than $250.00 will be assigned a round 

lot in a size that is less than 100 shares. 

Moreover, because the MDI Rules are 

not yet implemented, information about 

orders in NMS stocks that have a size 

less than a round lot, i.e., odd-lot orders, 

is available on individual exchange 

proprietary data feeds, and market 

participants interested in quotation 

information for individual odd-lot 

orders must purchase these proprietary 

feeds.731 SIP data includes odd-lot 

transaction information but does not 

include odd-lot quotation information, 

except to the extent that odd-lot orders 

are aggregated into round lots pursuant 

to exchange rules.732

The MDI Rules were designed to 

increase transparency into, among other 

things, the best priced quotations 

available in the market.733 Under the 

MDI Rules’ phased transition plan, the 

round lot and odd-lot information 

definitions were scheduled to be 

implemented during later phases in 

order to avoid imposing costs on the 

exclusive SIPs, which will be retired 

upon full implementation of the MDI 

Rules.734 Due to the delays in the MDI 

Rules’ implementation, as discussed in 

the Proposing Release,735 the 

Commission is adopting an accelerated 

implementation schedule, with some 

modifications from the proposal, so that 

market participants, including investors, 

will be provided with the enhanced 

transparency benefits earlier than 

anticipated in the MDI Rules. 

B. Final Rule—Round Lots 

The Commission is amending the 

implementation schedule for the round 

lot definition that was adopted in the 

MDI Rules. The round lot definition will 

be implemented on the first business 

day of November 2025. This adopted 

compliance date is modified from the 

proposal, which required compliance 

with the round lot definition 90 days 

from Federal Register publication of 

any Commission adoption of an earlier 

implementation of the round lot 

definition.736 The Commission has 

provided more time than what was 

proposed so that market participants 

can update and modify their systems.737

However, the adopted compliance date 

still accelerates the time by which the 

definition will be implemented as 

compared to the preexisting schedule 

adopted in the MDI Rules.738

In addition, the Commission is 

amending the round lot definition to 

include a new definition for an 

‘‘Evaluation Period’’ and a provision 

specifying the operative dates for round 

lot assignments. These amendments will 

align the dates for assigning round lots 


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739See supra section III.C.8. 740See supra note 320. 741See supra note 718. 742 17 CFR 242.600(b)(93). The definition of 

regulatory data adopted in the MDI Rules also 

requires that a round lot indicator be included in 

NMS information so that market participants will 

know the size of a round lot for each NMS stock. 

The primary listing exchange must provide, among 

other things, an ‘‘indicator of the applicable round 

lot size’’ to competing consolidators and selfaggregators. 17 CFR 242.600(b)(89); MDI Adopting 

Release, supra note 10, at 18634. In addition, the 

MDI Rules require competing consolidators to 

represent quotation sizes for certain core data 

elements in terms of the number of shares, rounded 

down to the nearest multiple of a round lot. 17 CFR 

242.600(b)(26)(iii); MDI Adopting Release, supra 

note 10, at 18615. 

743Orders currently defined as odd-lots often 

reflect superior pricing. See MDI Adopting Release, 

supra note 10, at 18616 n.241 (describing analysis 

of data from May 2020 that found that 

‘‘approximately 45% of all trades executed on 

exchange and approximately 10% of all volume 

executed on exchange in corporate stocks and ETFs 

occurred in odd-lot sizes (i.e., less than 100 shares), 

and 40% of those odd-lot transactions (representing 

approximately 35% of all odd-lot volume) occurred 

at a price better than the NBBO’’). More recent data 

and updated analyses confirm that these pricing 

patterns in odd-lot trading have continued. See 

Proposing Release, supra note 11, at 80296. 

744See MDI Adopting Release, supra note 10, at 

18601, 18615, 18742, 18744–45. In the MDI 

Proposing Release, the Commission explained the 

importance of increasing transparency into odd-lot 

quotation information by demonstrating that oddlot transactions make up a significant proportion of 

transaction volume in NMS stocks (including 

ETPs), through provision of the daily exchange oddlot rate (i.e., the number of exchange odd-lot trades 

as a proportion of the number of exchange trades) 

for corporate stocks and ETPs in 2018 and in June 

2019. See Securities Exchange Act Release No. 

88216 (Feb. 14, 2020), 85 FR 16726, 16739 (Mar. 24, 

2020) (‘‘MDI Proposing Release’’). For this release, 

Commission staff repeated this analysis to 

determine the daily exchange odd-lot rate for 2023. 

Based on data from the Commission’s MIDAS 

analytics tool, the daily exchange odd-lot rate for 

all corporate stocks ranged from approximately 

61% to 70% of trades and the daily exchange oddlot rate for all ETPs ranged from 31% to 42% of 

trades in 2023. Accordingly, accelerating the 

implementation of the round lot and odd-lot 

information definitions will increase the pre-trade 

transparency of better priced orders that are 

prevalent in the national market system. 

745See MDI Adopting Release, supra note 10, at 

18612 (table 1). 

746See Proposing Release, supra note 11, at 

80296–97 (tables 1 and 2). 

747See infra section V.B.3.b.iv. Amended Rule 

600(b)(93)(iii) defines the Evaluation Period as (A) 

all trading days in Mar. for the round lot assigned 

on the first business day in May and (B) all trading 

days in Sept. for the round lot assigned on the first 

business day of Nov. during which the average 

closing price of an NMS stock on the primary listing 

exchange shall be measured by the primary listing 

exchange to determine the round lot for each NMS 

stock. 

748See infra section V.B.3.b.iv. The analysis used 

the average closing price of the NMS stocks on their 

primary listing exchange for all trading days in Mar. 

2023 and used those average prices to determine the 

size of the round lot for each stock in the universe. 

Those round lots were then applied to the analysis 

of the stocks’ trading data for Oct. 23–27, 2023. 

to the dates for assigning minimum 

pricing increments under Rule 612.739

Finally, the Commission is also 

adopting, as proposed, the amendment 

to the ‘‘regulatory data’’ definition in 

Rule 600(b)(89)(iv).740

1. Round Lot Definition 

Rule 600(b)(93), as adopted by the 

MDI Rules,741 defines a round lot for 

NMS stocks that have an average closing 

price on the primary listing exchange 

during the prior calendar month of: (1) 

$250.00 or less per share as 100 shares; 

(2) $250.01 to $1,000.00 per share as 40 

shares; (3) $1,000.01 to $10,000.00 per 

share as 10 shares; and (4) $10,000.01 or 

more per share as 1 share.742 For any 

new NMS stock for which the prior 

calendar month’s average closing price 

is not available, a round lot is 100 

shares. As a result of the MDI Rules’ 

round lot definition, each exchange’s 

BBO and the NBBO for an NMS stock 

could be based upon smaller, 

potentially better priced orders,743

which would improve transparency 

regarding the better priced quotations 

available in the market and the ability 

of market participants to access these 

quotations.744

In the MDI Adopting Release, the 

Commission analyzed data from May 

2020 on the portion of all corporate 

stock and ETF volume executed on an 

exchange, transacted in a quantity less 

than 100 shares, at a price better than 

the prevailing NBBO, occurring in a 

quantity that would be defined as a 

round lot under the MDI Rules.745 The 

Proposing Release repeated this analysis 

using data for the dates March 25–31, 

2022.746 Both analyses demonstrated 

that the round lot definition adopted in 

the MDI Rules will capture significant 

percentages of better priced odd-lot 

orders for NMS stocks with an average 

closing price greater than $250.00. 

The Commission has updated this 

analysis from the Proposing Release 

with data from October 2023. As 

discussed below, upon further 

consideration and evaluation of 

comments, the Commission is adopting 

modifications to the round lot definition 

to require less frequent round lot 

adjustments so that they occur on a 

semiannual basis, rather than on a 

monthly basis and the calculation of the 

average closing price on the primary 

listing exchange will be based on a onemonth ‘‘Evaluation Period.’’ 747 The 

updated analysis accounts for the 

modifications to the round lot definition 

and is based on data from October 23– 

27, 2023, using a March 2023 Evaluation 

Period to be consistent with the adopted 

rule.748 The updated analysis 

demonstrates that the round lot 

definition, as amended, will capture 

significant percentages of better priced 

odd-lot orders. 

Tables 1 and 2 examine the portion of 

all corporate stock and ETP share 

volume and trades executed on an 

exchange, transacted in a quantity less 

than 100 shares, at a price better than 

the prevailing NBBO, occurring in a 

quantity defined as a round lot under 

the MDI Rules, as amended by the 

Commission. 

TABLE 1 

Round lot tier Round lot size 

(shares) Percent 1

$0–$250.00 .............................................................................................................................................................. 100 0.00 

$250.01–$1,000.00 .................................................................................................................................................. 40 52.89 

$1,000.01–$10,000.00 ............................................................................................................................................. 10 76.89 

$10,000.01 or more ................................................................................................................................................. 1 100.00 

1Portion of all corporate stock and ETP share volume executed on an exchange, transacted in a quantity less than 100 shares, at a price better than the prevailing NBBO, occurring in a quantity that would be defined as a round lot under the MDI Rules as amended, for Oct. 23–27, 

2023. 

Source: Equity consolidated data feeds (CTS and UTDF), as collected by MIDAS; NYSE Daily TAQ. 


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81668 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

749See supra note 66. 750See Proposing Release, supra note 11, at 80297 

(stating, ‘‘[f]or stocks priced between $250.01 and 

$1,000.00 per share, which will have a round lot 

size of 40 under the round lot definition, the price 

reflected in the simulated competing consolidator 

feed was better than the exclusive SIP feed 21.47% 

of the time and worse less than .1% of the time. 

For stocks priced between $1,000.01 and $10,000.00 

per share, which will have a round lot size of 10 

under the round lot definition, the price reflected 

in the simulated competing consolidator feed was 

better than the exclusive SIP feed 64.67% of the 

time and worse less than .1% of the time.’’). For the 

third round lot price tier above $250.01, for stocks 

priced $10,000.01 or more, the Proposing Release 

stated that there was one stock that was priced over 

$10,000 per share and was already quoted in oneshare round lots on the exclusive SIP feed; 

therefore, the simulated feed and exclusive SIP feed 

showed the same prices for the stock. Id. at 80297 

n.369. 

751The Commission assigned a sample of NMS 

stocks to a round lot tier based upon their average 

closing prices on the primary listing exchange 

during Sept. 2023 to account for the adopted 

definition of Evaluation Period under the round lot 

definition, which states that the Evaluation Period 

for the round lot assigned on the first business day 

of Nov. would be all trading days in Sept. See 

amended Rule 600(b)(93)(iii). 

752See supra note 66. 

753 In the third price tier, which defines a round 

lot for stocks priced $10,000.01 or more per share 

as an order for the purchase or sale of an NMS stock 

of one share, only one stock, which is already 

quoted in one share round lot on the exclusive SIP 

feed, was priced over $10,000 per share, so the 

simulated feed and exclusive SIP feed showed the 

same prices for this stock. 

754See supra note 750. 

755See supra note 718. 

756See Proposing Release, supra note 11, at 

80300. 

757MDI Adopting Release, supra note 10, at 

18701. The Commission stated that ‘‘the 

consolidated market data products offered by 

competing consolidators during the initial parallel 

operation period would be based on the current 

definition of round lot.’’ Id. at 18700. However, 

because the Commission is accelerating the 

implementation of the round lot definition, the 

exclusive SIPs will be providing SIP data that 

reflects the new round lot sizes during the initial 

parallel operation period. Further, the acceleration 

of the implementation of the round lot definition 

will result in its use during the parallel operation 

period by both the exclusive SIPs and competing 

consolidators. See supra note 73 for a discussion of 

the parallel operation period; infra section VI.C for 

a discussion of the modified compliance deadline. 

758See supra notes 73–78 and accompanying text. 

759See Proposing Release, supra note 11, at 

80295. See also MDI Adopting Release, supra note 

10, at 18699–701. The two-year estimated 

timeframe includes the implementation of the 

round lot definition, which was scheduled to occur 

at the end of the transition plan. 

TABLE 2 

Round lot tier Round lot size 

(shares) Percent 1

$0–$250.00 .............................................................................................................................................................. 100 0.00 

$250.01–$1,000.00 .................................................................................................................................................. 40 13.79 

$1,000.01–$10,000.00 ............................................................................................................................................. 10 26.63 

$10,000.01 or more ................................................................................................................................................. 1 100.00 

1Portion of all corporate stock and ETP trades executed on an exchange, transacted in a quantity less than 100 shares, at a price better than 

the prevailing NBBO, occurring in a quantity that would be defined as a round lot under the MDI Rules as amended, for Oct. 23–27, 2023. 

Source: Equity consolidated data feeds (CTS and UTDF), as collected by MIDAS; NYSE Daily TAQ. 

The Proposing Release also included 

the results of a simulation conducted by 

the Commission, using exchange direct 

feed data from MIDAS for every trading 

day in March 2022, to create a mockup 

competing consolidator feed that 

included quotation information for a 

sample of NMS stocks priced at or over 

$250.01 using the priced-based round 

lot sizes adopted in the MDI Rules’ 

round lot definition as opposed to the 

round lot sizes that are defined in 

current exchange rules (typically 100 

shares).749 Snapshots of this simulated 

feed were compared against snapshots 

of the exclusive SIP feed for the sample 

of NMS stocks at the same point in time. 

For two of the three round lot price tiers 

above $250.01, the simulated competing 

consolidator feed showed better prices, 

on average, than the exclusive SIP 

feed.750

The Commission has updated this 

analysis using exchange direct feed data 

from MIDAS for every trading day in 

November 2023 and to account for the 

modifications to the round lot 

definition.751 Like the prior analysis, the 

Commission conducted a simulation of 

a competing consolidator feed that 

provides quotation information for a 

sample of NMS stocks priced at or over 

$250.01 using the priced-based round 

lot sizes adopted in the MDI Rules’ 

round lot definition as opposed to the 

round lot sizes that are defined in 

current exchange rules (typically 100 

shares).752 Snapshots of this simulated 

feed were compared against snapshots 

of the exclusive SIP feed for that NMS 

stock at the same point in time. For two 

of the three price tiers and 

corresponding round lot sizes, the 

simulated feed showed better prices, on 

average, than the exclusive SIP feed.753

For stocks priced between $250.01 and 

$1,000.00 per share, which will have a 

round lot size of 40 under the round lot 

definition, the price reflected in the 

simulated competing consolidator feed 

was better than the exclusive SIP feed 

31.93% of the time and worse less than 

.1% of the time. For stocks priced 

between $1,000.01 and $10,000.00 per 

share, which will have a round lot size 

of 10 under the round lot definition, the 

price reflected in the simulated 

competing consolidator feed was better 

than the exclusive SIP feed 80.77% of 

the time and worse less than .2% of the 

time. The updated analysis continues to 

demonstrate that the simulated 

competing consolidator feed, which 

reflects the round lot sizes adopted in 

the MDI Rules’ round lot definition, 

provides better prices than the exclusive 

SIP feeds, which reflect the prior round 

lot size, in NMS stocks priced over 

$250.01, even with the modifications to 

the round lot definition.754

2. Proposed Acceleration of Round Lot 

Definition 

The Commission proposed to 

accelerate the implementation of the 

round lot definition set forth in Rule 

600(b)(93).755 Specifically, the 

Commission proposed to require 

compliance with the round lot 

definition 90 days from Federal Register 

publication of any Commission 

adoption of an earlier implementation of 

the round lot definition.756

In the MDI Adopting Release, the 

Commission stated that ‘‘sequencing 

[round lot implementation] after the 

parallel operation period is important to 

avoid either: (1) potential confusion and 

market disruption that could result from 

two different round lot structures 

operating at the same time; or (2) 

imposing reprogramming costs on the 

exclusive SIPs for a limited time period 

prior to their retirement.’’ 757 However, 

because full implementation of the MDI 

Rules as adopted pursuant to the phased 

transition plan 758 likely will not occur 

until at least two years after new 

proposals to amend the effective 

national market system plan(s) are 

developed, filed and approved by the 

Commission,759 the Commission 


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760See Proposing Release, supra note 11, at 

80300–01. 

761See infra section VII.D.5. 

762Under the MDI Rules, the definition of 

regulatory data requires the primary listing 

exchange to make an indicator of the applicable 

round lot size to competing consolidators and selfaggregators. See Rule 600(b)(89)(i)(E), 17 CFR 

242.600(b)(89)(i)(E). See also supra note 320. 

763 17 CFR 242.600(b)(89)(i)(E). 

764See Proposing Release, supra note 11, at 

80299. 

765See Proposing Release, supra note 11, at 

80299. For more details, see MDI Proposing Release, 

supra note 744, at 16762. 

766See Proposing Release, supra note 11, at 

80299; MDI Adopting Release, supra note 10, at 

18619. 

767See Proposing Release, supra note 11, at 

80299. As discussed below, since the MDI Rules 

already require the primary listing exchanges to 

provide an indicator of the applicable round lot size 

to competing consolidators and self-aggregators, the 

incremental cost of providing this indicator to the 

two exclusive SIPs should be low. See infra section 

VIII.G. 

768See Comment Letters Type E, F, G, H, I, J, K, 

available at https://www.sec.gov/comments/s7-30- 

22/s73022.htm; see, e.g., Letters from Aron 

Tastensen (Feb. 23, 2023); Aswin Joy (Mar. 7, 2023); 

Abraham (Mar. 14, 2023); Andrew A. (Mar. 19, 

2023). 769See, e.g., XTX Letter at 5; BMO Letter at 2; 

Schwab Letter II at 36; Citigroup Letter at 3; Hudson 

River Letter at 2; Fidelity Letter at 9, 16; BlackRock 

Letter at 11–12; Vanguard Letter at 2. 770See, e.g., NYSE Letter I at 7; Nasdaq Letter I 

at 3; MEMX Letter at 2, 4, 5–6; Cboe Letter II at 2, 

10; IEX Letter I at 6, 30; Cboe Letter III at 10 and 

n.18. The Commission also received comment 

letters submitted by both exchanges and firms that 

supported the accelerated implementation of the 

round lot definition. See Cboe, State Street, et al. 

Letter at 2; NYSE, Schwab, and Citadel Letter at 2. 771See, e.g., MFA Letter at 3, 13–14; Better 

Markets Letter I at 16–17; SIFMA AMG Letter I at 

9; CCMR Letter at 22; FIA PTG Letter II at 4–5; ICI 

Letter I at 6–7; SIFMA Letter II at 34, 44; STA Letter 

at 8. See also AIMA Letter at 3 (stating that the 

Commission should prioritize the implementation 

of the round lot definition and the Rule 605 

Proposal). 772See Comment Letter Type E, I, available 

athttps://www.sec.gov/comments/s7-30-22/ 

s73022.htm; see, e.g., Letters from Bill Gilbert (Mar. 

7, 2023); Richard Pasquali (Mar. 16, 2023); IEX 

Letter I at 6; MFA Letter at 13–14; XTX Letter at 

5; Better Markets Letter I at 16–17; BlackRock Letter 

at 11–12 (stating that accelerated implementation of 

the round lot and the odd-lot information 

definitions would increase pre-trade transparency 

for investors); FIA PTG Letter II at 4; Hudson River 

Letter at 2; ICI Letter I at 6. 

773See, e.g., XTX Letter at 5 (also referring to the 

proposed publication on the exclusive SIPs of oddlots priced better than the NBBO); Cboe Letter II at 

10, Cboe Letter I at 10 (stating that the proposed 

acceleration of the round lot definition and the 

display of odd-lot orders would improve price 

discovery and reduce spreads); ICI Letter I at 6. 774See, e.g., IEX Letter I at 6 (referring to the 

proposed acceleration of the implementation of the 

round lot definition as well as the display of oddlot orders). 775See, e.g., MFA Letter at 13–14; Better Markets 

Letter I at 16–17; FIA PTG Letter II at 4. 776See, e.g., MFA Letter at 13–14; Better Markets 

Letter I at 16–17; BlackRock Letter at 11 (stating that 

accelerated implementation of the round lot and the 

odd-lot information definitions would result in 

enhanced execution quality for investors). 

777See FIA PTG Letter II at 4. 

778See Hudson River Letter at 2. 

779See CCMR Letter at 22. 

780See, e.g., Letters Type E, G, J, available at 

https://www.sec.gov/comments/s7-30-22/ 

s73022.htm; see also e.g., Letters from Christopher 

Nieto (Mar. 31, 2023); Michael Montalban (Mar. 31, 

2023). 

781See, e.g., Letter Type K, available at https:// 

www.sec.gov/comments/s7-30-22/s73022.htm. 

782See, e.g., IEX Letter I at 30; BlackRock Letter 

at 11 (stating that the proposed acceleration of the 

implementation of both the round lot and odd-lot 

definitions would increase the usefulness of the 

exclusive SIPs because of the prevalence of current 

odd-lot sizes); MEMX Letter at 4; STA Letter at 8. 

783See Proposing Release, supra note 11, at 

80296. 

784 Id. 

785 Id. 

786 Id. 

proposed to amend the phased 

transition schedule of the MDI Rules to 

allow the benefits of the round lot 

definition to be made available to 

investors sooner.760 The benefits 

identified in the MDI Adopting Release 

justify the costs of accelerating the 

implementation of the round lot 

definition in this rulemaking.761

Further, as part of accelerating the 

implementation of the round lot 

definition, the Commission proposed to 

amend the definition of ‘‘regulatory 

data’’ in Rule 600(b)(78) to require the 

indicator of the applicable round lot 

size to be provided to the exclusive SIPs 

for collection and dissemination.762 The 

preexisting definition of ‘‘regulatory 

data’’ required the primary listing 

exchange for an NMS stock to provide 

to competing consolidators and selfaggregators an indicator of applicable 

round lot size.763 The Commission 

proposed to add new paragraph (iv) to 

the definition of ‘‘regulatory data’’ to 

require the primary listing exchanges to 

also make the indicator available to the 

exclusive SIPs.764 Referencing the round 

lot indicator adopted with regard to 

competing consolidators in the MDI 

Rules, the Commission stated that such 

an indicator will ‘‘help market 

participants ascertain the applicable 

round lot size for each NMS stock on an 

ongoing basis’’ 765 and ‘‘reduce 

confusion as market participants adjust 

to the new round lot sizes.’’ 766 For these 

same reasons, the Commission proposed 

to require this indicator to be provided 

to the exclusive SIPs for collection and 

dissemination.767

3. Comments and Response 

a. Comments Supporting the Proposed 

Change 

The Commission received comments 

in support of the proposed acceleration 

of the implementation of the round lot 

definition from individuals,768 firms,769

exchanges,770 and associations.771

Several commenters supported the 

proposed acceleration of the 

implementation of the round lot 

definition because they said that it 

would improve transparency 772 and 

enhance price discovery.773 Several 

commenters stated that the proposed 

change would result in more accurate 

prices,774 allow investors to make more 

informed trading decisions,775 improve 

execution quality,776 and reduce 

transaction costs and inefficiencies.777

One commenter supported the 

proposed acceleration of the 

implementation of the round lot 

definition because the commenter said 

it would narrow the NBBO spread by 

incorporating current odd-lot interest 

and ‘‘mak[ing] the notional size 

associated with the NBBO more uniform 

across stock price levels.’’ 778 Another 

commenter supported the proposal 

because the round lot definition ‘‘would 

enhance the accuracy of the NBBO for 

high-priced stocks.’’ 779 Some 

commenters supported the proposed 

acceleration of the implementation of 

the round lot definition because they 

stated that this change would restore 

public trust,780 or because this change 

and the dissemination of odd-lot 

information by the exclusive SIPs would 

enhance reporting efficiency and reduce 

delays.781 Commenters also supported 

the proposed acceleration of the 

implementation of the round lot 

definition because they stated that the 

round lot definition would result in lot 

sizes that would better suit the needs of 

investors.782

In the MDI Adopting Release, as well 

as the Proposing Release, the 

Commission described the benefits of 

the adopted round lot definition.783 The 

Commission stated that the new round 

lot definition will ‘‘narrow NBBO 

spreads for most stocks with prices 

greater than $250,’’ 784 improve 

transparency and ‘‘the 

comprehensiveness of and usability of 

core data, facilitate the best execution of 

customer orders, and reduce 

information asymmetries.’’ 785 The 

Commission also stated that the reduced 

round lot size for high priced NMS 

stocks would ‘‘better ensure the display 

and accessibility of significant liquidity 

for high-priced stocks.’’ 786 Some 

commenters supported the proposed 

acceleration of the implementation of 

the round lot definition but stated that 

more time than proposed was needed 


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787See, e.g., NYSE Letter I at 7; Nasdaq Letter I 

at 3; Fidelity Letter at 16; Cboe Letter III at 10 n.18. 

788See infra section VI.C. 

789See Fidelity Letter at 16. 

790See, e.g., Virtu Letter II at 10; Citadel Letter 

I at 26; ASA Letter at 6; Tastytrade Letter at 22; 

SIFMA Letter II at 34; Morgan Stanley Letter at 3. 

See also Nasdaq Letter I at 34 (stating that ‘‘an 

effective tick reform proposal may alleviate the 

need to speed implementation of the round and odd 

lot proposals.’’). 

791See, e.g., Virtu Letter II at 10; Citadel Letter 

I at 26. 

792See Virtu Letter II at 10. 

793See ASA Letter at 6. 

794See Virtu Letter II at 10. 

795See infra section VII.D.4.a. 

796See infra section VII.B.2; section VII.D.1. 

797See ASA Letter at 6. 

798See infra section VII.D.4.a. (discussing the 

impact of the acceleration of the implementation of 

the round lot definition and reduced tick sizes and 

stating that the number of stocks trading over $250 

with spreads narrower than $0.015 is ‘‘likely very 

small’’). 

799See, e.g., Virtu Letter II at 10; Citadel Letter 

I at 26; ASA Letter at 6. 

800The Proposing Release stated that, based on 

average closing prices on the primary listing 

exchange in Mar. 2022, there were 181 NMS stocks 

priced over $250. See Proposing Release, supra note 

11, at 80300 n.407. 

801These NMS stocks were ETFs: SPY and QQQ. 

As of Nov. 30, 2023, the last sale price for SPY was 

$454.30 and its average bid-ask spread over the 

previous 30 trading days was $0.0105. For QQQ, as 

of Nov. 30, 2023, the last sale price was $386.70 and 

the average bid-ask spread over the previous 30 

trading days was $0.0116. This analysis was 

conducted using Bloomberg data. See also supra 

section III for a discussion of the amended 

minimum pricing increments. The calculation of a 

TWAQS for NMS stocks will occur during an 

Evaluation Period for purposes of assigning 

minimum pricing increments. See Rule 612(a)(1). 

802SPY and QQQ are also among the most liquid 

NMS stocks. Using Bloomberg data, for the period 

Jan. 22, 2024–Feb. 16, 2024, SPY had the highest 

average daily traded value of all NMS stocks, while 

QQQ was ranked fourth. Specifically, for this 

period, the average daily traded value per day for 

SPY was $36,581,363,712, or 5.9% of total value 

traded of all U.S. equity trading, and for QQQ the 

average daily traded value per day was 

$18,632,960,000, or 3.5% of total value traded of all 

U.S. equity trading. 

803Based on daily average traded value for Nov. 

1, 2023–Nov. 30, 2023, using Bloomberg data. For 

SPY, the daily average traded value for Nov. 2023 

for compliance.787 As discussed later in 

this release, the Commission is 

providing more time to implement the 

round lot definition than the 90-days 

that was proposed for 

implementation.788

One commenter supported the 

proposed acceleration of the 

implementation of the round lot 

definition subject to ‘‘regulatory and 

industry-wide education to investors on 

the changes.’’ 789 As with many 

regulatory changes, investor education 

and notification may be useful so that 

investors better understand the 

implications of the size of their orders. 

b. Comments Objecting to the Proposed 

Change 

The Commission also received 

comments that raised objections to 

specific aspects of the proposed 

acceleration of the implementation of 

the round lot definition. These 

comments are addressed below. 

i. Comments on the Interaction Between 

the Round Lot Definition and the 

Proposed Minimum Pricing Increments 

The Commission received comments 

that expressed concern about the 

potential impact of both the 

implementation of the round lot 

definition and the proposed changes to 

the minimum pricing increments.790

Specifically, some commenters raised 

concerns about the potential impact of 

both proposed changes on liquidity and 

NBBO depth.791 One commenter stated 

that smaller round lot sizes would make 

the NBBO ‘‘less robust, as a smaller 

amount of liquidity would now 

establish the NBBO benchmark,’’ 

compounded by the proposed reduction 

in quoting tick sizes that would require 

liquidity to be dispersed in finer pricing 

increments.792 One commenter stated 

that the proposed minimum pricing 

increments and ‘‘the round lot reforms’’ 

would be duplicative because they 

would both result in narrow spreads.793

In addition, one commenter stated that 

the round lot definition and proposed 

minimum pricing increments ‘‘would 

significantly reduce transparency on the 

SIP and force more participants to 

purchase costly direct feeds to maintain 

the same level of transparency of 

liquidity.’’ 794

Although the Commission agrees that 

both the round lot definition adopted in 

the MDI Adopting Release and the 

amended minimum pricing increments 

will impact the NBBO and will result in 

a narrower spread for impacted NMS 

stocks, the NMS stocks that would be 

subject to both the round lot definition 

and the amended minimum pricing 

increments are likely to be very small in 

number and also extremely liquid, 

which could counteract any potential 

harm to liquidity resulting from the 

interaction of both changes. The round 

lot definition adopted in the MDI 

Adopting Release and the amended 

minimum pricing increments each will 

impact the NBBO and each will result 

in a narrower spread for those NMS 

stocks that are assigned a smaller round 

lot 795 or a smaller minimum pricing 

increment.796

The round lot definition will narrow 

the spread for NMS stocks that have an 

average closing price over $250 per 

share by showing better prices for these 

stocks. The amended minimum pricing 

increments will reduce the spread for 

those NMS stocks that have a narrow 

TWAQS and will allow these stocks to 

be priced more competitively in smaller 

increments, which will more accurately 

reflect supply and demand. 

Accordingly, the smaller round lot and 

the smaller minimum pricing increment 

narrow spreads in different ways. In 

response to the comment stating that the 

round lot definition and the proposed 

tick size changes are duplicative 

because they would both result in 

narrow spreads,797 both requirements 

will narrow spreads, but they are not 

duplicative. 

Although there may be NMS stocks 

that are assigned both a smaller round 

lot and a smaller minimum pricing 

increment, Commission analysis of data 

discussed below shows that this 

overlapping universe of NMS stocks is 

very small. In other words, most NMS 

stocks will not be assigned both a round 

lot that is less than 100 shares and a 

smaller $0.005 minimum pricing 

increment and therefore will not 

experience a combined impact on the 

NBBO spread or depth. As explained in 

the analysis, since only a few NMS 

stocks are expected to be subject to both 

a smaller round lot and a smaller tick 

size, the potential combined impact of 

the amendments to the minimum 

pricing increments and round lots 

should be limited.798 Specifically, in 

response to comments expressing 

concerns about the combined impact of 

the proposed smaller minimum pricing 

increments and the implementation of 

the round lot definition,799 the 

Commission conducted the analysis to 

determine the magnitude of NMS stocks 

that would be impacted by both 

changes. According to the Commission’s 

analysis, as of November 30, 2023, only 

163 NMS stocks were priced above 

$250.00 per share and would have been 

potentially eligible to be assigned to a 

round lot size smaller than 100 shares, 

out of a universe of 11,200 NMS stocks 

on that date.800 Further, based on 

Commission review of the 163 NMS 

stocks that would have been assigned to 

a round lot less than 100 shares, as of 

November 30, 2023, only two out of the 

163 had an average quoted spread over 

the previous thirty trading days of 

$0.015 or less and therefore may have 

been potentially eligible to have been 

assigned to the smaller $0.005 minimum 

pricing increment.801 The two NMS 

stocks—SPY and QQQ—are among the 

most liquid exchange-traded 

products.802 For the month of November 

2023, SPY had the highest average daily 

traded value, while QQQ was ranked 

second in average daily traded value.803


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was $31,652,396,337. For QQQ, it was 

$17,527,314,000. 

804See infra section VII.D.4.a. 

805See infra section VII.D.4.a. (stating, ‘‘[t]he 

exceptional liquidity of the affected stocks will 

likely protect their NBBO from material 

deterioration.’’). 

806 Id. 

807See supra note 66. 

808See MDI Proposing Release, supra note 744, at 

16738–39 (describing exchange rules on aggregating 

odd-lot across multiple prices and providing them 

to the exclusive SIPs at the least aggressive price if 

the combined odd-lot interest is equal to or greater 

than a round lot). 

809See Proposing Release, supra note 11, at 

80294; MDI Adopting Release, supra note 10, at 

18616. 

810See infra section VII.D.1; section VII.D.1.b.i; 

section VII.D.1.b.ii; section VII.E.3. 

811See infra section VII.D.1 and note 1145 and 

accompanying text. 

812Once implemented, the MDI Rules will add 

depth of book information to consolidated market 

data, and this information will provide information 

about depth outside of the NBBO for those market 

participants that would find this information 

useful. See infra section VII.D.4.a.; MDI Adopting 

Release, supra note 10, at 18728, 18730 (explaining 

that SIP data currently only includes top-of-book 

quotes). 17 CFR 242.600(b)(26)(I) (defining ‘‘core 

data’’ to include depth of book data) and 17 CFR 

242.600(b)(24)(i) (defining ‘‘consolidated market 

data’’ to include core data). 

813See Virtu Letter II at 10. 

814See supra notes 807–812 and accompanying 

text. 

815See supra section V.B.1. (table 1 and table 2). 

816See MDI Adopting Release, supra note 10, at 

18742, 18743. 

817See supra section III.C. See also MDI Adopting 

Release, supra note 10, at 18744, 18745. See also 

infra section VII.D.4.a. (stating that the round lot 

definition would shrink the NBBO for stocks priced 

greater than $250, would increase transparency and 

would result in better order execution). 

818See, e.g., Tastytrade Letter at 22; SIFMA Letter 

II at 34; Morgan Stanley Letter at 3. 

819See, e.g., Tastytrade Letter at 22. 

820Under exchange rules, there are three different 

round lot sizes. See supra note 67. The MDI Rules’ 

round lot definition adds one more round lot size, 

i.e., 40 shares. Consistent with its views stated here, 

the Commission previously considered potential 

investor confusion with the additional round lot 

size and did not believe it will be confusing to 

investors. See MDI Adopting Release, supra note 

10, at 18618. 

821Preexisting Rule 612 included two minimum 

pricing increments based on the price of a quote or 

order—$0.01 and $0.0001. 

822See supra section III. See also infra notes 

1589–1593 and accompanying text. 

823See infra note 1385; MDI Adopting Release, 

supra note 10, at 18619. 

Based on this information, while the 

Commission recognizes that the 

interaction of the minimum pricing 

increment and the round lot definition 

may result in some reduction of depth 

for the very few NMS stocks that may 

be subject to both a smaller tick size and 

a round lot size of less than 100 

shares,804 the impact of the reduction of 

NBBO depth should not be of such a 

level as to impede trading in the 

affected NMS stocks because these 

stocks are highly liquid, which should 

greatly mitigate the impact of reduced 

depth at the NBBO.805 Furthermore, 

these changes will benefit investors and 

other market participants trading these 

stocks through more accurate pricing 

and a reduction in spreads. While the 

extent of any reduced depth at the 

NBBO is not known at this time, due to 

the volume traded in these two NMS 

stocks, any potential reduction will not 

impair market participants’ ability to 

trade these stocks because these stocks 

would be among the most liquid and 

therefore easily traded.806

Additionally, some liquidity that is 

consolidated at the preexisting round 

lot 807 and $0.01 minimum pricing 

increment may be reflected in the 

adopted round lot sizes and smaller 

minimum pricing increment. 

Specifically, some odd-lot orders are 

currently aggregated into the 100-share 

round lot.808 Upon implementation of 

the round lot definition, some orders 

that were considered odd-lots may be of 

round lot size as defined. Further, 

interest that is displayed at the 

previously required $0.01 minimum 

pricing increment may be reflected in 

orders that are entered in the smaller 

tick size. Once these amendments are 

implemented, the NBBO will reflect 

better prices, both because of the 

smaller round lot size for some NMS 

stocks and new $0.005 increment for 

some other NMS stocks. As smaller 

sized orders in higher priced stocks are 

often priced better than orders that are 

currently in round lots, the smaller 

round lot sizes will allow potentially 

better priced orders to be the basis of the 

NBBO.809 The new $0.005 increment 

will also result in the NBBO reflecting 

better prices because the smaller 

increment will allow orders to be priced 

in a manner that is more reflective of the 

supply and demand of liquidity for the 

stock.810 Accordingly, each of these 

amendments will result in narrower 

NBBO spreads and better prices.811

Further, those market participants that 

may need to trade in large sizes may be 

able to see liquidity outside of the 

NBBO by considering the new odd-lot 

information that will be available in SIP 

data as well as depth of book data that 

is available via exchange proprietary 

data feeds.812

In response to the comment that 

raised concerns about the potential for 

the proposed variable minimum pricing 

increments and the new round lots to 

reduce transparency on the exclusive 

SIPs,813 for the reasons discussed 

above,814 the combined impact of the 

adopted minimum pricing increments 

and round lot definition should not 

reduce transparency for most NMS 

stocks and the exclusive SIPs will 

provide a more accurate NBBO once 

these amendments are implemented. 

While the round lot will be smaller for 

certain NMS stocks, as described above, 

the NBBO based on the new round lots 

will in many cases reflect better 

prices.815 Therefore, while the actual 

number of shares will be smaller for 

certain NMS stocks, the disseminated 

prices will likely be better.816 In 

addition, as discussed above, the new 

minimum pricing increment required 

under Rule 612 for certain NMS stocks 

will allow the NBBO that is 

disseminated by the exclusive SIPs to 

reflect more competitive pricing. These 

amendments will enhance the NBBO 

that is calculated and disseminated by 

the exclusive SIPs by reflecting more 

competitive and better available 

prices.817

Commenters also expressed concern 

that the implementation of the round lot 

definition and the proposed changes to 

the minimum pricing increments would 

confuse investors.818 One commenter 

warned that changes to round lots and 

tick sizes would confuse retail investors 

and reduce trust in the market.819

Because there are expected to be only 

a small number of NMS stocks that 

could be subject to both a change in a 

minimum pricing increment and a 

change to the round lot size, the risk of 

investor confusion is limited. Market 

participants may choose to educate 

investors about the new round lot and 

amended minimum pricing increments, 

as they sometimes choose to educate 

investors regarding other regulatory 

changes that impact how investors enter 

orders. Investors are already familiar 

with three round lot sizes 820 and two 

minimum pricing increments,821 so the 

addition of only one round lot size and 

one minimum pricing increment is 

unlikely cause investor confusion.822

The Commission is also adopting new 

indicators for dissemination on the 

exclusive SIPs of the assigned round 

lots and minimum pricing increments to 

alert market participants, including 

investors, of the relevant round lot and 

minimum pricing increment for each 

NMS stock. These indicators will also 

help to mitigate concerns about any 

potential for investor confusion.823

ii. Comments on the Round Lot 

Indicator 

The Commission proposed to amend 

Rule 600(b)(78) to add a requirement to 

make the indicator of the applicable 

round lot size available to the exclusive 


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824See Proposing Release, supra note 11, at 

80299. 

825See supra note 320. 

826See NYSE Letter I at 7–8; Letter from Robert 

Books, Chair of the Operating Committee, Operating 

Committees of the CTA Plan, CQ Plan and UTP 

Plan, dated Mar. 28, 2023 (‘‘CTA, CQ, UTP Plans 

Operating Committees Letter’’) at 3. See also infra 

section VI.C. 

827See infra section VI.C. 

828See Proposing Release, supra note 11, at 

80300–01. 

829See supra note 826; infra section VI.C. 

830See, e.g., RBC Letter at 5; Tastytrade Letter at 

21; T. Rowe Price Letter at 4; Pragma Letter at 8– 

9; Data Boiler Letter I at 8 and Data Boiler Letter 

II at 2. 

831See, e.g., Pragma Letter at 1, 8, 9; T. Rowe 

Price Letter at 4. 

832See, e.g., Tastytrade Letter at 21. 

833See, e.g., RBC Letter at 5. 

834See Data Boiler Letter I at 8; see also Data 

Boiler Letter II at 2. The commenter raised concerns 

about the round lot and odd-lot information 

definitions. 

835See MDI Adopting Release, supra note 10, at 

18615–22. 

836See Tastytrade Letter at 22. 

837See MDI Adopting Release, supra note 10, at 

18619, 18747. 

838For example, as of Oct. 26, 2023, one NMS 

stock has a round lot size of 10 shares while also 

possessing an option contract size of 100 shares. 

839See MDI Adopting Release, supra note 10, at 

18619. See also infra section VII.D.4.a. 

840See, e.g., Nasdaq Letter I at 34–35; XTX Letter 

at 5; Angel Letter at 2–3; Anonymous Letter (Feb. 

12, 2023) (stating that order sizes should be treated 

the same, regardless of status as a round lot or an 

odd-lot). 

841See MDI Adopting Release, supra note 10, at 

18618 n.274. 

842See MDI Adopting Release, supra note 10, at 

18618 n.274. 

843MDI Adopting Release, supra note 10, at 

18617. 

844See, e.g., FIF Letter at 13; Hudson River Letter 

at 2, 4; BlackRock Letter at 9, 10. See also SIFMA 

Letter II at 34, 35 (stating that ‘‘The Tick Size 

Proposal would make dynamic three components of 

trading that are static today: (i) tick sizes; (ii) access 

fees; and (iii) round lots. Exacerbating this 

complication, tick sizes would adjust quarterly, 

while round lots would change monthly. Tick sizes 

would be based on average quoted spread, while 

round lots are based on a stock’s price.’’); Morgan 

Stanley Letter at 3 (stating that the proposed 

amendments would require ‘‘market participants to 

make frequent changes to their systems . . .’’ that 

‘‘. . . the risk of technology failure created by 

monthly and/or quarterly changes to systems by the 

buy-side, sell-side, exchanges and vendors 

(including security information processors) may 

introduce new market and operational risks . . . ’’ 

and that ‘‘. . . this dynamic aspect of the proposal 

could create investor confusion and potentially 

drive trading inefficiencies.’’). 

845Two commenters suggested aligning the 

assignment of round lots and minimum pricing 

increments on a quarterly or semiannual basis. See 

Hudson River Letter at 2, 4; BlackRock Letter at 10. 

One commenter suggested aligning both 

assignments on a quarterly basis. See FIF Letter at 

13. See also infra notes 849–853 and accompanying 

text. 

846Hudson River Letter at 4. 

847BlackRock Letter at 10. 

848See id. 

SIPs in Rule 600(b)(78)(iv).824 The 

Commission is adopting this 

requirement as proposed in Rule 

600(b)(89)(iv).825 The Commission did 

not receive comments specifically 

supporting or objecting to the proposed 

amendment. However, two commenters 

cited this requirement as support for 

their arguments that the proposed 90- 

day compliance deadline for the round 

lot and odd-lot information definitions 

would provide an insufficient amount of 

time.826 As discussed below,827 the 

Commission is providing more time for 

compliance with the round lot 

definition, which is a substantially 

longer period for compliance than the 

90 days that was proposed.828 The 

Commission is providing a longer 

compliance period than proposed after 

considering the information provided by 

commenters that requested more time to 

comply with the implementation of the 

round lot definition, including 

implementation of the round lot 

indicator.829 The additional time will 

provide market participants with time to 

make the changes necessary to 

implement the round lot indicator. 

iii. Comments on the Round Lot 

Definition 

The Commission received comments 

on the round lot definition that was 

adopted in the MDI Rules.830

Commenters raised concerns about the 

defined round lot sizes,831 the 

determination of round lot size based on 

price,832 the impact of smaller round lot 

sizes on the relevance of the NBBO,833

and the impact of the round lot 

definition as well as the odd-lot 

information definition on bandwidth.834

The Commission considered and 

addressed issues related to adopting the 

round lot definition and the odd-lot 

information definition in the MDI 

Adopting Release.835

One commenter stated that investors 

trading in options may be confused by 

the round lot definition, stating that 

retail investors who trade options know 

one options contract represents 100 

shares or a ‘‘round lot.’’ 836 The 

Commission considered and addressed 

the interaction of the new round lot 

definition and options trading in the 

MDI Adopting Release.837 Further, it is 

unlikely that the acceleration of the 

round lot definition could confuse retail 

investors trading in options. 

Specifically, the round lot size will not 

change the size of the options contract 

and precedent exists for standard 

options contracts on stocks with a round 

lot size less than 100 shares.838

Furthermore, corporate actions, such as 

rights offerings, stock dividends, and 

mergers can result in adjusted contracts 

representing stock in amounts other 

than 100 shares, so investors have some 

familiarity already with options on 

underlying NMS stocks that have a 

‘‘round lot’’ that is less than 100 

shares.839

Several commenters also suggested 

eliminating the concept of round lots 

altogether.840 The Commission is not 

eliminating the concept of round lots. 

As the Commission stated in the MDI 

Adopting Release, round lot orders 

continue to play an important role in 

the national market system by 

delineating orders of meaningful size 

and focusing regulatory requirements 

and protections—such as those set forth 

in rules 602, 604 and 611 of Regulation 

NMS—on such orders.841 Further, as the 

Commission stated in the MDI Adopting 

Release, eliminating the concept of a 

round lot could also cause investor 

confusion and other unintended 

consequences.842

iv. Modified Round Lot Assignment 

Frequency and Evaluation Period for 

Round Lots 

Under the MDI Rules, each NMS stock 

was assigned a round lot size every 

month based on its average closing price 

for the prior calendar month on its 

primary listing exchange.843

Commenters raised concerns about 

potential confusion and operational 

risks arising due to the fact that round 

lots and the proposed minimum pricing 

increments would be changed at 

different times,844 and several 

commenters suggested aligning the 

assignment of round lots and minimum 

pricing increments, either on a quarterly 

or on a semiannual basis.845 One 

commenter stated ‘‘having two to four 

adjustments per year strikes the 

appropriate balance between having the 

optimal round lot and minimum pricing 

increment with reducing the time that 

market participants are adjusting to the 

changes.’’ 846 Another commenter 

warned that having differing assignment 

schedules for round lot sizes and 

minimum pricing increments ‘‘will 

materially elevate systemic risk since it 

only requires a single large market 

participant to create widespread 

disruption by failing to properly modify 

their systems.’’ 847 The commenter 

suggested reducing the frequency of 

changes to quarterly or semiannually 

and synchronizing the round lot and 

minimum pricing increment changes.848

After further consideration, the 

Commission agrees with the concerns 


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849While the Commission proposed in Rule 

612(a) to define a quarterly tick evaluation period, 

it is adopting a semiannual tick Evaluation Period 

in amended Rule 612(a)(1). See supra section 

III.C.7.a. 

850The Commission’s amendments to Rule 

600(b)(93) will also renumber the sub-provisions 

within rule 600(b)(93). The round lot tiers in 

preexisting Rule 600(b)(93)(i)–(iv) will be 

renumbered as Rule 600(b)(93)(i)(A)–(D). 

Preexisting Rule 600(b)(93)(v) will be amended and 

renumbered as Rule 600(b)(93)(ii). Preexisting Rule 

600(b)(93)(iii)–(iv) will contain provisions related to 

a new ‘‘Evaluation Period.’’ 

851Amended Rule 600(b)(93) and amended Rule 

612(a)(1) each define ‘‘Evaluation Period’’ 

differently. 

852See Hudson River Letter at 2, 4; BlackRock 

Letter at 10. 

853 Id. 

854See MDI Adopting Release, supra note 10, at 

18619. 

855 Id. 

856See infra section VII.D.1.d for a discussion of 

the semiannual evaluation of minimum pricing 

increments. As discussed above, the Commission is 

aligning the assignment of round lots and minimum 

pricing increments. A longer round lot assignment 

frequency, such as annual assignments, would more 

likely result in round lot sizes calculated based on 

prices not reflective of current trading. Limiting 

round lot reassignments to a frequency of once 

every six months was determined to be sufficient 

to achieve the goals stated in the MDI Adopting 

Release, while reducing costs and complexity for 

market participants. See also infra notes 1594–1595 

and accompanying text (discussing the impact of 

the semiannual evaluation period and the lag 

between evaluation and implementation on the 

accuracy of round lot assignments). 

raised by the commenters. Frequent 

systems changes and updates can 

introduce risks for market participants 

and the market, and frequent changes to 

the terms of how an order is entered for 

an NMS stock can potentially cause 

investor confusion. Therefore, the 

Commission is amending the round lot 

definition to make the timing for 

assigning round lots consistent with the 

timing for assigning minimum pricing 

increments. Such alignment on a 

semiannual basis will help to facilitate 

an orderly market and help reduce 

operational risks and investor 

confusion. 

As described above, the Commission 

is adopting a definition of Evaluation 

Period under Rule 612 that will result 

in the assignment of minimum pricing 

increments on a semiannual basis 

instead of on a quarterly basis, as 

proposed.849 The Commission has 

therefore decided to amend the round 

lot definition to change the frequency of 

round lot changes from a monthly basis 

to a semiannual basis (the round lot 

sizes and price tiers for assigning round 

lots adopted in the MDI Adopting 

Release have not changed). Specifically, 

the Commission is amending Rule 

600(b)(93) to require round lots to be 

assigned on a semiannual basis instead 

of on a monthly basis, which will match 

the minimum pricing increment 

assignment frequency of amended Rule 

612.850 Amended Rule 600(b)(93)(i) will 

assign each NMS stock to a round lot 

size based on the NMS stock’s average 

closing price on the primary listing 

exchange during a one month 

Evaluation Period. Amended Rule 

600(b)(93)(iii) will define the Evaluation 

Period as (A) all trading days in March 

for the round lot assigned on the first 

business day in May and (B) all trading 

days in September for the round lot 

assigned on the first business day of 

November during which the average 

closing price of an NMS stock on the 

primary listing exchange shall be 

measured by the primary listing 

exchange to determine the round lot for 

each NMS stock.851

Further, amended Rule 600(b)(93)(iv) 

will provide time for market 

participants to implement any 

reassignments of round lots and 

provides that the assigned round lots 

will be operative until the next 

semiannual date for a new round lot 

change. Specifically, round lots 

assigned under Rule 600(b)(93) shall be 

operative on (A) the first business day 

of May for the March Evaluation Period 

and continue through the last business 

day of October of the calendar year, and 

(B) the first business day of November 

for the September Evaluation Period and 

continue through the last business day 

of April of the next calendar year. For 

both round lots and minimum pricing 

increments, the adopted semiannual 

assignment dates will be the first 

business day in May and the first 

business day of November. 

Like amended Rule 612, in amended 

Rule 600(b)(93)(iv) the Commission is 

adopting a one-month time period 

between the conclusion of each 

Evaluation Period and each operative 

date (i.e., the date on which the round 

lot assignment becomes effective) to 

provide market participants with time to 

implement any new round lot 

assignments. These changes address 

concerns about operational risks and 

will help to ensure the orderly 

implementation of the systems changes 

necessary to implement the new round 

lots and minimum pricing increments. 

Further, market participants will be able 

to use the one-month implementation 

period to communicate with investors 

about any upcoming changes, which 

will help to minimize potential investor 

confusion. 

These amendments are responsive to 

commenters who suggested aligning the 

assignment of round lots and minimum 

pricing increments.852 By aligning the 

timing for assigning round lot sizes to 

the timing for assigning minimum 

pricing increments, there will be fewer 

modifications to market participants’ 

systems and they will have more time 

to implement such systems changes. 

These amendments to the round lot 

definition address commenter concerns 

about systemic risk and the risk of 

market disruptions because market 

participants will only have to make 

systems changes two times per year for 

round lot assignments and tick 

reassignments rather than twelve and 

four times per year, respectively.853

These amendments to make the 

assignment of round lots uniform with 

the assignment of minimum pricing 

increments will reduce potential 

confusion for investors because they 

will only have to understand two round 

lot assignments per year instead of 

twelve. 

The Commission is not changing the 

round lot sizes, pricing tiers or the 

calculation used to assign round lots. As 

originally adopted, round lots were 

assigned based on the average closing 

price of the prior month on the primary 

listing exchange. Under Rule 

600(b)(93)(iii), round lots will be 

assigned based on the average closing 

price during a specified month, e.g., 

March or September on the primary 

listing exchange. 

In the MDI Adopting Release, the 

Commission explained that assigning a 

round lot size based on the NMS stock’s 

average closing price on the primary 

listing exchange for the prior calendar 

month would strike ‘‘an appropriate 

balance between using accurate, up-todate pricing information and avoiding 

the cost and complexity of over-frequent 

computation and potential round lot 

reassignment.’’ 854 The Commission also 

stated that market participants are 

accustomed to monthly updates, so 

monitoring for round lot size changes 

and implementing systems changes to 

account for the monthly calculation 

‘‘would not be overly burdensome or 

costly.’’ 855

In light of the concerns raised by 

commenters about potential confusion 

and potential operational risks due to 

the fact that round lots and minimum 

pricing increments would be changed at 

different times, the Commission 

reviewed data that compared how often 

round lot sizes would change if subject 

to monthly evaluations, as the MDI 

Rules previously required, to how often 

they would change if subject to a 

semiannual evaluation based on one 

month of prices.856 The Commission 

examined the average closing prices of 

NMS stocks from January 2019 through 

September 2023 (6,052 stocks) using 


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81674 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

857The Commission’s analysis revealed that 

certain NMS stocks shifted above and below the 

$250 per share threshold, which resulted in the 

difference in number of changes between the 

monthly round lot updates and the semiannual 

round lot updates. For example, one NMS stock 

would have changed round lot size 24 times over 

five years if round lot sizes were adjusted monthly, 

as compared to four times if round lot sizes were 

adjusted semiannually. 

858See MDI Adopting Release, supra note 10, at 

18619. 

859See infra section VI.C. 

860The MDI Rules adopted the definition of oddlot information in rule 600(b)(59). This provision 

was subsequently renumbered to Rule 600(b)(69) by 

the Rule 605 Amendments. 17 CFR 242.600(b)(69); 

Rule 605 Amendments, supra note 10. 

861Pursuant to the implementation period for the 

MDI Rules, odd-lot information will be collected, 

consolidated, and disseminated by competing 

consolidators, beginning during the parallel 

operation period. See Proposing Release, supra note 

11, at 80298. 

862See proposed Rule 603(b)(3). While the MDI 

Rules do not require competing consolidators to 

disseminate all consolidated market data elements, 

such as odd-lot information, in consolidated market 

data products, the Commission proposed to require 

the exclusive SIPs to collect, consolidate, and 

disseminate odd-lot information. Under the 

decentralized consolidation model, competing 

consolidators will be permitted to design 

consolidated market data products with different 

elements of consolidated market data for their 

subscribers and subscribers will be able to choose 

competing consolidators and consolidated market 

data products that meet their needs. See MDI 

Adopting Release, supra note 10, at 18659. Under 

the existing exclusive SIP model, the exclusive SIPs 

are the only source of consolidated NMS 

information and—while proprietary data products 

offer some of the same data content, including oddlot quotations—subscribers would have no 

alternative providers of consolidated NMS 

information if such data were not required to be 

collected, consolidated, and disseminated by the 

exclusive SIPs. Therefore, the Commission 

proposed that the exclusive SIPs be required to 

disseminate odd-lot information. 863 17 CFR 242.614(e). See also MDI Adopting 

Release, supra note 10, at 18700 n.1355. 

Bloomberg data. During this time, only 

323 NMS stocks moved above or below 

the round lot tiers of $250.01 per share, 

$1,000.01 per share, and $10,000.01 per 

share. If round lot sizes were updated 

on a monthly basis, there would have 

been 1,012 total changes over the past 

five years, for an average of 17 changes 

per month. If round lot sizes were 

updated every six months, there would 

have been 454 total changes over the 

past five years, for an average of 50 

changes every six months.857 The data 

suggests that lengthening the time 

between assigning round lots will 

reduce the number of re-assignments. 

Some of the re-assignments identified 

using the monthly reassignment were 

the result of some NMS stocks shifting 

between round lots sizes from month to 

month. The shifting of round lot size 

tiers from month to month may increase 

the potential for investor confusion. 

This is similar to the concerns 

expressed by commenters about having 

asynchronous round lot and minimum 

pricing increments changes. 

Finally, the Commission is amending 

Rule 600(b)(93)(v), which previously 

stated that a round lot for an NMS stock 

for which the prior calendar month’s 

average closing price is not available is 

an order for the purchase or sale of 100 

shares. This preexisting provision 

assigned new NMS stocks to a 100-share 

round lot because such NMS stocks that 

started trading intra-month did not have 

an average closing price from the prior 

calendar month upon which to make a 

round lot assignment.858 As amended, 

preexisting section (v) will be 

renumbered as Rule 600(b)(93)(ii) and 

will be amended to state instead that 

any security that becomes an NMS stock 

during an operative period as described 

under new paragraph (iv) shall be 

assigned a round lot of 100 shares. This 

provision is consistent with the 

preexisting provision. New NMS stocks 

that begin trading during an operative 

period will not be able to have an 

average closing price calculated during 

an Evaluation Period. Further, this new 

language will make the round lot 

definition similar to Rule 612 in 

identifying those NMS stocks that 

become NMS stocks during an operative 

period and have not yet been an NMS 

stock during an Evaluation Period. 

C. Final Rule—Odd-Lot Information 

The Commission is adopting an 

accelerated implementation schedule 

for odd-lot information definition that is 

modified from the proposal in order to 

provide a longer time for market 

participants to update and modify their 

systems.859 Further, the Commission is 

adopting amendments to Rule 603(b) 

under Regulation NMS, as proposed, to 

require the exclusive SIPs to collect, 

consolidate and disseminate odd-lot 

information. Finally, the Commission is 

adopting amendments to the definition 

of odd-lot information to include the 

best odd-lot order, as proposed. 

1. Proposed Acceleration of Odd-Lot 

Information Definition 

The Commission proposed to 

accelerate the implementation of the 

odd-lot information definition under 

Rule 600(b)(59) 860 by requiring SROs to 

provide the data necessary to generate 

odd-lot information to the exclusive 

SIPs and to require the exclusive SIPs to 

collect, consolidate, and disseminate 

odd-lot information.861 Specifically, the 

Commission proposed to amend Rule 

603(b) under Regulation NMS to require 

the national securities exchanges and 

national securities associations to make 

all data necessary to generate odd-lot 

information available to the exclusive 

SIPs and to require the exclusive SIPs to 

collect, consolidate, and disseminate 

odd-lot information.862

The Commission proposed to divide 

Rule 603(b) into three new subsections 

to reflect the requirements under Rule 

603(b) until the MDI Rules are 

implemented. As proposed, Rule 

603(b)(1) governs the applicability of 

Rules 603(b)(2) and (b)(3) by describing 

the compliance dates set forth in the 

MDI Rules. Proposed Rule 603(b)(2) 

governs the provision of consolidated 

market data by competing consolidators 

and self-aggregators pursuant to the 

decentralized consolidation model set 

forth in the MDI Rules. Proposed Rule 

603(b)(3) governs the provision of NMS 

information by the exclusive SIPs, 

including the new requirements 

regarding the collection, consolidation, 

and dissemination of odd-lot 

information. 

Therefore, proposed Rule 603(b)(1)(i) 

states that compliance with Rule 

603(b)(3) is required until the date 

indicated by the Commission in any 

order approving amendments to the 

effective national market system plan(s) 

to effectuate a cessation of the 

operations of the plan processors that 

disseminate consolidated information 

regarding NMS stocks. Proposed Rule 

603(b)(1)(ii) states that compliance with 

proposed Rule 603(b)(2) is required 180 

calendar days from the date of the 

Commission’s approval of the 

amendments to the effective national 

market system plan(s) required under 

rule 614(e).863

Preexisting Rule 603(b), which 

imposes requirements on the 

dissemination of consolidated market 

data by national securities exchanges 

and national securities associations, was 

proposed to be renumbered as Rule 

603(b)(2). Proposed Rule 603(b)(3) 

requires every national securities 

exchange on which an NMS stock is 

traded and national securities 

association to act jointly pursuant to one 

or more effective NMS plans to 

disseminate consolidated information, 

including a national best bid and 

national best offer and odd-lot 

information, on quotations for and 

transactions in NMS stocks, and the 

effective plan or plans must provide for 

the dissemination of all consolidated 

information for an individual NMS 

stock through a single plan processor. 

The single plan processor must 

represent quotation sizes in such 

consolidated information in terms of the 

number of shares, rounded down to the 

nearest multiple of a round lot. 


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864See infra section V.C.1.a; section V.D. 

865The Commission also received comment on 

the timing proposed to implement the odd-lot 

information and round lot definitions. These 

comments are discussed below in section VI.C. 

866See, e.g., Form Letter Type I, of which 22 

comments were received, available at https://

www.sec.gov/comments/s7-30-22/s73022.htm. See 

also e.g., Form Letter Type D, of which 255 

comments were received, Form Letter Type J, of 

which 15 comments were received, and Form Letter 

Type K, of which 22 comments were received, 

available at https://www.sec.gov/comments/s7-30- 

22/s73022.htm; Letters from Aric Ott (Mar. 6, 2023); 

Austin Peck (Mar. 31, 2023); Colin Clarry (Mar. 6, 

2023); Aron Tastensen (Feb. 23, 2023); Dave and 

Paula Wager (Mar. 6, 2023); Mark Rogers (Mar. 30, 

2023); Erik Jansen (Mar. 31, 2023). 

867See, e.g., Cboe Letter II at 10 (stating that oddlot transactions represent a majority of trades, oddlot quotations represent significant price 

improvement on Cboe’s exchanges and stating ‘‘the 

inclusion of odd-lot quotations on the SIPs is long 

overdue’’); IEX Letter I at 6; Nasdaq Letter I at 3, 

10; MFA Letter at 13–14; Better Markets Letter I at 

16–17; NYSE Letter I at 7; Cboe Letter II at 2; SIFMA 

AMG Letter I at 9; JPMorgan Letter at 2; Letter from 

Tom Davin, Senior Vice President, Software & 

Information Industry Association, Managing 

Director, Financial Information Services Division, 

Financial Information Services Division of the 

Software & Information Industry Association, dated 

Mar. 29, 2023 (‘‘FISD Letter’’) at 1, 3. 

868See, e.g., Robinhood Letter at 5; Proof Letter 

at 1. 

869See, e.g., FIA PTG Letter II at 4; Hudson River 

Letter at 2; NYSE, Schwab, and Citadel Letter at 2; 

STA Letter at 8; Schwab Letter II at 6; BlackRock 

Letter at 12; MEMX Letter at 7. 

870Nasdaq Letter I at 3, 10. 

871See FIA PTG Letter II at 4; Hudson River Letter 

at 2. 

872See, e.g., NYSE, Schwab, and Citadel Letter at 

2; STA Letter at 8; Schwab Letter II at 6. 

873See, e.g., ICI Letter I at 2, 7; FIA PTG Letter 

II at 4–5; Robinhood Letter at 5, 44. See also supra 

section I.D (discussing overarching comments on 

the proposal in general). 

874See Proposing Release, supra note 11, at 

80295. 

875As discussed below, the Commission is 

adopting an accelerated implementation schedule 

for the odd-lot information definition that is 

modified from the proposal in order to provide a 

longer period of time for market participants to 

update and modify their systems. See infra section 

VI.C. 

876See infra section V.E. 

877See, e.g., FIF Letter at 13; FIA PTG Letter II 

at 5; Fidelity Letter at 17; FISD Letter at 3. 

878See Fidelity Letter at 17. 

879See id. 

Additionally, every national securities 

exchange on which an NMS stock is 

traded and national securities 

association shall make available to a 

plan processor all data necessary to 

generate odd-lot information. 

The Commission did not receive any 

comments on proposed Rule 603(b)(1), 

which added the compliance dates 

already adopted in the MDI Rules, or the 

renumbering of current Rule 603(b) as 

Rule 603(b)(2), and is adopting these 

changes, as proposed. The Commission 

discusses proposed Rule 603(b)(3) 864

herein, which the Commission is 

adopting as proposed. 

a. General Comments and Response 

The Commission received comments 

in support of the proposed acceleration 

of the implementation of the odd-lot 

information consistent with the MDI 

Rules from individuals, firms, 

exchanges, and associations.865

Generally, individual commenters 

supported the proposed acceleration of 

the implementation of the odd-lot 

information definition because it would 

increase transparency and ‘‘because 

odd-lots represent the majority of 

trades.’’ 866 Certain other market 

participants also supported the 

proposed acceleration of the odd-lot 

information definition for similar 

reasons, stating greater transparency 

would enhance price discovery, 

improve decision-making with respect 

to order routing, and reduce spreads.867

Commenters further supported the 

acceleration of odd-lot information 

requirements because it would improve 

the quality of SIP data and ‘‘make more 

data accessible to investors at lower 

prices by introducing competition into 

an otherwise monopolistic data 

market.’’ 868

Certain market participants stated that 

accelerating the implementation of oddlot information is not necessary and 

overly burdensome given the other 

components of the proposal.869 One 

commenter supported the acceleration 

of the MDI Rules with respect to oddlots but stated that ‘‘[o]ver the long run, 

eliminating round lots altogether . . . 

may be a better resolution.’’ 870 In 

contrast, two commenters opposed 

accelerating the implementation of the 

odd-lot information definition, stating 

that it would increase the amount of 

development work required of market 

participants and therefore ‘‘delay the 

additional transparency that could be 

afforded by solely modifying the round 

lot definition.’’ 871 Additional 

commenters supported acceleration of 

the revised round lot definition but not 

the odd-lot information definition, 

without providing a specific reason for 

the distinction, and generally urged the 

Commission to revisit comments on 

odd-lot dissemination.872

The Commission is adopting 

proposed Rule 603(b)(3) with respect to 

the provision of odd-lot information, as 

proposed. The provision of odd-lot 

information within the national market 

system will provide significant benefits 

to investors by increasing transparency 

about better priced orders that are 

available in the market. The round lot 

definition will not provide transparency 

about those orders that remain odd-lots, 

i.e., odd-lot quotation information. As 

discussed above, only those NMS stocks 

that are priced greater than $250 will be 

assigned a smaller round lot size. These 

NMS stocks may still have odd-lots 

available at prices better than the round 

lot price. Further, the odd-lot 

information definition will provide 

transparency about better priced odd-lot 

orders for all NMS stocks. 

While some commenters suggested 

that the Commission consider 

alternative sequencing of the proposal 

and expressed concern regarding the 

acceleration of the implementation of 

the odd-lot information definition: (1) 

ahead of other elements of MDI Rules, 

(2) simultaneously with minimum 

pricing increments, and (3) 

simultaneously with the changes to the 

round lot definition,873 investors and 

market participants should be provided 

with the benefits of odd-lot information 

sooner than the originally adopted 

implementation schedule in the MDI 

Adopting Release,874 and the adoption 

of the acceleration of the odd-lot 

information requirements should occur 

contemporaneously with adoption of 

the other requirements outlined in the 

Proposing Release. Timelier 

implementation of the odd-lot 

information definition allows investors 

to benefit from greater transparency and 

accessibility of better priced orders and 

improved execution quality; waiting to 

implement the definition would delay 

these benefits for market participants.875

Further, the implementation of the MDI 

Rules continues, although on a delayed 

basis as compared to the adopted 

implementation schedule. The 

implementation of odd-lot information 

on an accelerated schedule will not 

impede the further implementation of 

the remaining MDI Rules.876

Apart from comments regarding 

sequencing, certain industry 

participants expressed concern that 

adding odd-lot information, including 

the BOLO, to the exclusive SIPs will 

increase message traffic and therefore 

increase costs.877 One commenter stated 

that the proposal would add odd-lot 

information to exclusive SIP data 

without disclosing how much the SROs 

would charge retail investors and 

broker-dealers for the new data fields.878

The commenter, while recommending 

that the Commission proceed with 

implementation of the MDI Rules and 

governance changes, stated that 

exclusive SIP data fees are ‘‘complex 

and often opaque’’ and that while SIP 

data costs are charged to retail 

customers on a per investor basis, the 

cost to produce SIP data does not scale 

on a per investor basis.879


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880See Proposing Release, supra note 11, at 80279 

(discussing the potential increased system traffic for 

the proposed minimum pricing increments). 881See Proposing Release, supra note 11, at 80297 

(discussing a 2019 proposal by the CTA/CQ and 

UTP Plans to add odd-lot information to the 

exclusive SIPs). 882See infra section VI.C (revising the compliance 

timeframe from 90 days as proposed to 18 months 

from the effective date of the Adopting Release). 883See infra sections VII.D.5 and VIII; see also 

Proposing Release, supra note 11, at 80299, 80301. 884See MDI Adopting Release, supra note 10, at 

18684. 885See MDI Adopting Release, supra note 10, at 

18650, 18684. 886See MDI Adopting Release, supra note 10, at 

18684 n.1158. 

887See 17 CFR 242.608(b). See also Rescission of 

Effective-Upon-Filing Procedure for NMS Plan Fee 

Amendments and Modified Procedures for 

Proposed NMS Plans and Plan Amendments, 

Securities Exchange Act Release No. 89618 (Aug. 

19, 2020), 85 FR 65470 (Oct. 15, 2020). 

888See Proposing Release, supra note 11, at 80338 

(discussing how expediting the inclusion of odd-lot 

data into the exclusive SIPs would impact 

competition among data providers). 

889MEMX Letter at 7. 

890See MDI Adopting Release, supra note 10, at 

18653. 

891Under rule 603(a), an SRO is prohibited from 

making its core data available to vendors on a more 

timely basis than it makes such data available to the 

exclusive SIPs. In the MDI Adopting Release, the 

Commission stated that rule 603(a) prohibits an 

SRO from making its NMS information available to 

any person on a more timely basis (i.e., by any time 

increment that could be measured by the SRO) than 

it makes such data available to the exclusive SIPs. 

See MDI Adopting Release, supra note 10, at 18656. 

892See Schwab Letter II at 36. 

893Odd-lot transaction information is currently 

collected, consolidated, and disseminated by the 

exclusive SIPs. See Securities Exchange Act Release 

Nos. 70793 (Oct. 31, 2013), 78 FR 66788 (Nov. 6, 

2013) (order approving Amendment No. 30 to the 

UTP Plan to require odd-lot transactions to be 

reported to the consolidated tape); 70794 (Oct. 31, 

2013), 78 FR 66789 (Nov. 6, 2013) (order approving 

Eighteenth Substantive Amendment to the Second 

Restatement of the CTA Plan to require odd-lot 

transactions to be reported to consolidated tape). 

894 17 CFR 242.600(b)(69); MDI Adopting Release, 

supra note 10, at 18613. 

895See 17 CFR 242.600(b)(60) (defining NBBO 

and setting forth the manner in which the NBBO 

While the addition of odd-lot 

quotation information to the exclusive 

SIPs will increase the number of 

messages that the exclusive SIPs will 

have to collect and consolidate and the 

number of messages that will be made 

available to market participants, the 

exclusive SIPs and market participants 

can handle such increased message 

traffic. As discussed in the Proposing 

Release, the systems used by exchanges 

and other market participants can 

handle many levels of data messages at 

extreme low latency and should be able 

to adjust to the addition of odd-lot 

quotation information.880 Further, the 

exclusive SIPs have been discussing the 

addition of odd-lot quotation 

information to SIP data for several 

years 881 and should be able to make the 

necessary adjustments to their 

processors in the adopted timeframe.882

To the extent that increased message 

traffic increases costs for the exclusive 

SIPs, the Commission estimated those 

costs in the Proposing Release, which 

are discussed below.883

The Commission discussed the 

potential for new fees related to 

consolidated market data, which 

includes odd-lot information, in the 

MDI Adopting Release.884 Fees imposed 

by the exclusive SIPs are subject to the 

Exchange Act and the rules thereunder. 

The Commission discussed the statutory 

standards for any potential fees for 

consolidated market data, which 

includes odd-lot information, in the 

MDI Adopting Release.885 Specifically, 

the statutory standards that apply to fees 

proposed by the effective market system 

plan(s) include section 11A(c)(1)(C)–(D) 

of the Exchange Act and rule 603(a) 

under Regulation NMS. Proposed fees 

must be fair and reasonable and not 

unreasonably discriminatory. As 

discussed in the MDI Adopting Release, 

the Commission has historically 

assessed fees for data, such as the data 

content underlying consolidated market 

data of which odd-lot information is a 

part, using a reasonably related to cost 

standard.886 To the extent that the 

exclusive SIPs propose to increase SIP 

data fees because of the addition of oddlot information, any such new proposed 

fees must be filed with the Commission 

pursuant to rule 608, published for 

public comment and approved by the 

Commission before they can take 

effect.887 Further, as discussed in the 

Proposing Release, expediting the 

inclusion of odd-lot information to the 

exclusive SIPs can provide additional 

competition to the segment of the 

market that subscribes to proprietary 

data with odd-lot information for use in 

visual display settings.888

One commenter requested 

confirmation that exchange proprietary 

data feeds could be used to provide oddlot information to the exclusive SIPs 

consistent with statements in the MDI 

Adopting Release that odd-lot 

information could be made available to 

competing consolidators and selfaggregators (under the decentralized 

consolidation model) using ‘‘existing 

proprietary data feeds, a combination of 

proprietary data feeds, or a newly 

developed consolidated market data 

feed.’’ 889 As previously stated by the 

Commission, the use of proprietary data 

feeds for delivering odd-lot information 

is consistent with the MDI Rules in the 

context of the decentralized 

consolidation model.890 The use of 

proprietary data feeds for purposes of 

providing data to the exclusive SIPs 

may require consideration by the 

exclusive SIPs and the Operating 

Committees of the technical 

specifications that may be necessary for 

purposes of collecting and distributing 

such information to the exclusive 

SIPs.891

One commenter stated that 

‘‘disseminating odd lot quotes on the 

SIP could lead investors to expect prices 

that are not available.’’ 892 Odd-lot 

quotation information will reflect actual 

prices of actual orders that have been 

submitted by market participants. This 

information will provide investors with 

valuable information about the prices at 

which other market participants are 

willing to trade. However, as with any 

change, market participants may have to 

educate investors as to the existence of 

odd-lot quotation information on the 

exclusive SIPs. 

2. Proposed Amendment to Odd-Lot 

Information Definition for Best Odd-Lot 

Orders 

The odd-lot information definition 

includes (1) odd-lot transactions,893 and 

(2) 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.894

Accordingly, once implemented, 

information on odd-lot orders priced 

better than the NBBO will be included 

in the NMS information that is made 

available to market participants within 

the national market system. 

The Commission proposed to amend 

the definition of odd-lot information to 

include a BOLO as new Rule 

600(b)(59)(iii). Specifically, for each 

NMS stock, the best odd-lot order to buy 

would mean the highest priced odd-lot 

order to buy that is priced higher than 

the national best bid, and the best oddlot order to sell would mean the lowest 

priced odd-lot order to sell that is priced 

lower than the national best offer. 

Similar to the definition of the NBBO, 

in the event that two or more national 

securities exchanges or associations 

provide odd-lot orders at the same price, 

the exclusive SIPs, competing 

consolidators and self-aggregators 

would be required to determine the best 

odd-lot order by ranking all such 

identical odd-lot buy orders or odd-lot 

sell orders (as the case may be) first by 

size (giving the highest ranking to the 

odd-lot buy order or odd-lot sell order 

associated with the largest size), and 

then by time (giving the highest ranking 

to the odd-lot buy order or odd-lot sell 

order received first in time).895


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is determined ‘‘in the event two or more market 

centers transmit to the plan processor, a competing 

consolidator or a self-aggregator identical bids or 

offers for an NMS security’’). 

896See, e.g., Comment Letter Type D; Letters from 

Aron Tastensen (Feb. 23, 2023); Bill Goerger (Mar. 

19, 2023); Carson Bruenderman (Mar. 7, 2023). 

897See, e.g., IEX Letter I at 6; Cboe, State Street, 

et al. Letter at 2; ASA Letter at 5; SIFMA Letter II 

at 4, 32; BlackRock Letter at 12. The Commission 

also received a comment that said that the 

Commission should not amend rule 603(c) to 

require the display of odd-lot information, but did 

not discuss the costs (or benefits) of such a 

requirement. See FIF Letter at 13. The Commission 

is not amending rule 603(c) in this release. 

898See, e.g., Comment Letter Type D, I, and K, 

available at https://www.sec.gov/comments/s7-30- 

22/s73022.htm; see supra notes 866 and 896. 

899See, e.g., IEX Letter I at 30–31; ICI Letter I at 

6; Cboe Letter II at 10; BlackRock Letter at 12. 

900See, e.g., ASA Letter at 5; Fidelity Letter at 16; 

SIFMA Letter II at 4, 32. 

901SIFMA Letter II at 34, 43. 

902See, e.g., Comment Letter Type D, I and K; 

Letters from Chris Eastvedt (Mar. 6, 2023); M B 

(Mar. 6, 2023); Prakash Tamang (Mar. 6, 2023); 

Adam Aiello (Mar. 7, 2023); Shayne Gallagher (Mar. 

7, 2023); Aswin Joy (Mar. 7, 2023); Daryll Fogal 

(Mar. 15, 2023); Bill Goerger (Mar. 19, 2023); Allie 

Birge (Mar. 31, 2023); Eileen Loh (Mar. 19, 2023). 

903See, e.g., Data Boiler Letter II at 3; JPMorgan 

Letter at 2, 7. 

904See JPMorgan Letter at 7 (stating further if the 

protected price is lower than the BOLO then ‘‘Rule 

605 could show misleading negative price 

improvement while ignoring the order’s size’’); 

Fidelity Letter at 16; SIFMA Letter II at 43. 

905 JPMorgan Letter at 7. 

906Fidelity Letter at 16 (supporting ‘‘adding 

better-priced odd lots to the SIP when this 

information provides actionable information to the 

marketplace, such as helping broker-dealers meet 

their best execution obligations’’ but urging the 

Commission to ‘‘balance the advantages and 

disadvantages of odd-lot transparency,’’ such as the 

ability to influence execution quality statistics). 

907The Commission is adopting this amendment 

to the definition of odd-lot information in Rule 

600(b)(69)(iii). See supra note 860. 

908See 17 CFR 242.600(b)(14) (defining best 

available displayed price) and 17 CFR 

242.605(a)(1)(ii)(M) through (Q) (requiring rule 605 

statistics relative to the best available displayed 

price). Entities that prepare rule 605 reports will be 

required to use the BOLO to compare the best 

available odd-lot price to the NBBO and determine 

the best available displayed price. In some cases, 

the best available displayed price may be the 

NBBO. 

909See Rule 605 Amendments, supra note 10. 

910See Rule 605 Amendments, supra note 10. 

911See supra note 902. 

912See, e.g., NYSE Rule 7.36(b)(3); Nasdaq Equity 

4, Rule 4756(c)(2); Cboe BZX Rule 11.9(c)(2). See 

also supra note 732. 

913 17 CFR 242.600(b)(16) (defining ‘‘bid or offer’’ 

to mean ‘‘the bid price or the offer price 

communicated by a member of a national securities 

exchange or member of a national securities 

association to any broker or dealer, or to any 

customer, at which it is willing to buy or sell one 

or more round lots of an NMS security, as either 

principal or agent, but shall not include indications 

of interest.’’). 

914See supra section V.B.1. 

a. General Comments and Response 

The Commission received comments 

supporting the requirement to identify 

the BOLO from individuals 896 and 

market participants.897 As stated above, 

many individual commenters supported 

publishing odd-lot information, 

including the BOLO, in the exclusive 

SIPs in order to further transparency 

and aid investors in making more 

informed trading decisions.898

Similarly, certain other commenters 

viewed the additional information as a 

useful measure for all investors and 

their agents to better evaluate the best 

prices in NMS stocks and would 

enhance the ability to trade and route 

orders effectively as well as facilitate 

best execution.899 Certain market 

participants that support the publication 

of the BOLO cautioned against requiring 

broker-dealers to use the metric as a 

benchmark against execution quality.900

One of the commenters requested 

guidance regarding whether ‘‘market 

participants would be expected to clear 

the best odd-lot orders as part of ISO 

routing, notwithstanding that the oddlot orders are not protected 

quotations.’’ 901 Finally, a number of 

individual commenters that expressed 

support for including odd-lot 

information in the exclusive SIPs urged 

the Commission to include ‘‘odd-lot 

transactions’’ in the NBBO, citing the 

fact that odd-lot transactions are now a 

majority of the market and most 

prevalent among retail investors.902

The Commission also received 

comments opposing the requirement to 

identify the BOLO, stating the 

information would create ambiguity or 

investor confusion.903 Some of these 

commenters stated that confusion 

would arise from the fact that a 

customer would expect to receive the 

BOLO price even though it is not a 

protected quote.904 One commenter 

stated that the round lot and odd-lot 

requirements outlined in the MDI 

Adopting Release sufficiently provide 

increased transparency while 

minimizing confusion.905 One 

commenter stated that the transparency 

of odd-lot orders may be ‘‘gameable’’ 

such that a limit order to buy one share 

could change all execution quality 

benchmarks for brokers.906

As discussed below, the Commission 

is adopting the amendment to odd-lot 

information to include a BOLO, as 

proposed.907 While initially market 

participants may need to explain to 

their customers about the existence of 

the BOLO, this new data element is not 

expected to confuse investors. Investors 

are already able to see odd-lot 

transaction information and, upon 

implementation, the BOLO will provide 

them with information about the best 

odd-lot quotations. The BOLO is an 

informative, useful piece of information 

for investors to use when considering 

prices related to NMS stocks. Among 

other uses, the BOLO may serve as the 

benchmark execution price for 

execution quality statistics in rule 605 

reports that measure price improvement 

relative to the best available displayed 

price.908 However, in rule 605 reports, 

the price improvement statistics relative 

to the best available displayed price will 

be a supplement to, rather than a 

replacement for, price improvement 

statistics relative to the NBBO.909

Further, rule 605 reports present 

information, including price 

improvement, in order size categories 

based on notional order size and 

whether the order is for a fractional 

share, odd-lot, or round lot.910 These 

provisions provide more context for 

price improvement statistics that 

consider the best available odd-lot price 

and thus mitigate concerns about 

‘‘gaming’’ execution quality reports. 

Further, rule 605 reports represent 

monthly, aggregated execution quality 

statistics and thereby dilute the effect of 

an odd-lot price at one specific point in 

time. 

Several commenters stated that oddlot quotations should be included in the 

NBBO.911 Odd-lot quotations are 

currently included in the calculation of 

the NBBO when they are aggregated into 

round lots for purposes of providing an 

exchange’s best bids and offers to the 

exclusive SIPs.912 Pursuant to 

Regulation NMS, bids and offers can 

only be in round lot sizes,913 therefore, 

the NBBO can only be reflected in 

round lot sizes. The round lot definition 

as adopted in the MDI Rules, will 

categorize certain orders that are 

currently odd-lots as round lots based 

on their price, and as a result, 

quotations and orders that were 

previously defined as odd-lots will be 

eligible to establish the NBBO.914

Orders that remain odd-lots under the 

new definitions are not bids and offers 

and therefore do not independently 

contribute to establishing the NBBO. 

The identification of a BOLO will 

assist investors in assessing the current 

state of the market for individual NMS 

securities. The BOLO will reflect the 

best odd-lot price consolidated across 

all national securities exchanges and 

national securities associations and is 

therefore consistent with the goals set 

forth in section 11A of the Exchange Act 

because it will make information about 

quotations in NMS stocks available to 

broker-dealers and investors and will 

enhance the usefulness of odd-lot 

information. Although odd-lot liquidity 

better than the NBBO often resides at 

multiple price levels and information 


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915See supra note 901. 

916See MDI Adopting Release, supra note 10, at 

18605 for a discussion of the implications of 

expanded consolidated market data on the duty of 

best execution. 

917 Id. at 18605–06. Consolidated market data 

products will be developed by competing 

consolidators once the decentralized consolidation 

model is implemented. See rule 600(b)(25), 17 CFR 

242.600(b)(25) (defining consolidated market data 

product). 

918Under the MDI Rules, the definition of ‘‘core 

data’’ requires competing consolidators to represent 

certain core data elements, including the best bid 

and best offer, the NBBO, and protected quotations 

in terms of the number of shares, rounded down to 

the nearest multiple of a round lot. 17 CFR 

242.600(b)(26)(iii). See also 17 CFR 242.600(b)(26) 

(defining ‘‘core data’’). The MDI Rules adopted the 

definition of ‘‘core data’’ in rule 600(b)(21). This 

provision was subsequently renumbered to rule 

600(b)(26) by the Rule 605 Amendments. See Rule 

605 Amendments, supra note 10. 919See MDI Adopting Release, supra note 10, at 

18615. Through the definition of ‘‘odd-lot 

information,’’ the MDI Rules also require odd-lots 

priced at or better than the NBBO to be represented 

in the aggregate at each price level at each national 

securities exchange or national securities 

association rather than on an order-by-order basis. 

17 CFR 242.600(b)(69)(ii). See also 17 CFR 

242.600(b)(26)(i)(H) (including ‘‘odd-lot 

information’’ as an element of core data). The MDI 

Adopting Release explained that ‘‘[a]ggregating 

better-priced odd-lots at each price level at each 

exchange . . . . means that better-priced odd-lot 

orders will be represented in core data in terms of 

the total number of shares available at each price 

level at each exchange rather than on an order-byorder basis. For example, if the NBB for XYZ, Inc. 

is 100 shares at $25.00, and there are three orders 

of five shares and two orders of ten shares at $25.01 

on Exchange A, a competing consolidator’s core 

data product would show 35 shares at $25.01 on 

Exchange A.’’ MDI Adopting Release, supra note 10, 

at 18613 n.199. Therefore, quotations for odd-lot 

orders priced better than the NBBO are required to 

be displayed as the number of shares available in 

an odd-lot size that are aggregated at the same price. 

920See FIF Letter at 13; SIFMA Letter II at 34, 42. 

921See FIF Letter at 13. 

922See SIFMA Letter II at 42. 

923See SIFMA Letter II at 34. 

924See MDI Adopting Release, supra note 10, at 

18615. 

925See FIF Letter at 13. 

926See amended Rule 603(b)(3). 

927 17 CFR 242.600(b)(69)(ii). See also supra note 

919. 

928See SIFMA Letter II at 42. 

929See MDI Adopting Release, supra note 10, at 

18615. 

930See MDI Adopting Release, supra note 10, at 

18600. 

931See MDI Adopting Release, supra note 10, at 

18601. 

932See MDI Adopting Release, supra note 10, at 

18601, 18607. 

reflecting all of these odd-lot prices is 

already included in the definition of 

odd-lot information, requiring the 

identification and dissemination of the 

best of all such inside the NBBO oddlots on both the buy and sell side will 

help inform market participants of the 

best possible prices at which their 

orders (or their customers’ orders) 

could—in whole or in part—be 

executed. The identification and 

dissemination of the price, size, and 

market of the best odd-lot orders will 

also enhance the ability of market 

participants to make effective trading 

and order routing decisions using NMS 

information and facilitate best 

execution. One commenter requested 

guidance on how to treat odd-lot orders 

for order routing purposes.915 The 

Commission stated in the MDI Adopting 

Release that odd-lot information may be 

relevant to a broker-dealer’s ability to 

analyze and achieve best execution.916

As the Commission stated in the MDI 

Adopting Release, while odd-lot 

information, which will now include 

the BOLO, ‘‘may be relevant to brokerdealers’ best execution analyses and, in 

many cases, will facilitate the ability of 

broker-dealers to achieve best execution 

for their customer orders, the 

Commission . . . is not setting forth 

minimum data elements needed to 

achieve best execution and does not 

expect that all market participants will 

need to purchase the most 

comprehensive or fastest consolidated 

market data product available.’’ 917

D. Display of Round Lots and Odd-Lot 

Information 

Currently, the exclusive SIPs 

represent quotation sizes in SIP data in 

terms of number of round lots. For 

example, for an NMS stock for which a 

round lot is 100 shares, a bid for 200 

shares of that stock would be 

represented as a bid for ‘‘2’’ in SIP data. 

Under the MDI Rules, competing 

consolidators are required to represent a 

round lot as the number of shares 

rounded down to the nearest multiple of 

a round lot.918 For example, a 275-share 

buy order at $25.00 for a stock with a 

100-share round lot would be 

disseminated as ‘‘200.’’ 919 Accelerated 

implementation of the round lot 

definition will require the exclusive 

SIPs to revise their systems to reflect 

this change. Therefore, in proposed Rule 

603(b)(3), the Commission proposed to 

require each exclusive SIP to, among 

other things, represent quotation sizes 

in consolidated information in terms of 

the number of shares, rounded down to 

the nearest multiple of a round lot. 

1. Comments and Response 

The Commission received comments 

on the display requirement adopted as 

part of the MDI Rules.920 One 

commenter stated that, for mixed lot 

orders, the total number of shares—both 

the round lot and odd-lot portions— 

should be included as consolidated 

market data.921 Another commenter 

stated that, by requiring that the number 

of shares at each price level be 

displayed at the round lot level, the 

display requirement would make 

consolidated market data less useful and 

less competitive relative to exchange 

proprietary data feeds, which display 

the total number of shares at a price 

level.922 The commenter also stated that 

basing quotations on the number of 

shares rounded to the nearest round lot 

(rather than based on round lots) could 

result in operational risk and investor 

confusion.923

As stated above, the display 

requirement was adopted as part of the 

MDI Rules. The Commission discussed 

the reasons for adopting the display 

requirement in the MDI Adopting 

Release.924 However, in response to the 

commenter that suggested the inclusion 

of both the round lot and odd-lot 

portions of mixed lot orders,925 since 

odd-lot information will be 

disseminated by the exclusive SIPs,926

the total number of shares of odd-lots 

priced at or better than the NBBO will 

be included in SIP data. Through the 

definition of odd-lot information, the 

MDI Rules require odd-lots priced at or 

better than the NBBO to be represented 

in the aggregate at each price level at 

each national securities exchange or 

national securities association rather 

than on an order-by-order basis.927

In response to the commenter that 

stated that displaying quotations in 

round lot sizes would undermine the 

usability and competitiveness of 

consolidated market data as compared 

to exchange proprietary data feeds,928

the Commission described the reason 

for displaying quotations in round lot 

sizes in the MDI Adopting Release, 

which remains relevant to the 

implementation of the round lot 

definition by the exclusive SIPs.929

Further, the Commission recognized in 

the MDI Adopting Release that different 

market participants need differing 

amounts of information to meet 

different trading objectives.930 The MDI 

Rules are intended to reduce 

information asymmetries between users 

of proprietary feeds and users of SIP 

data by enhancing the content of 

information made available in the 

national market system to enable market 

participants to trade efficiently and 

competitively.931 For example, the 

inclusion of odd-lot quotations and the 

round lot definition will allow investors 

to see, and more readily access, better 

priced orders in smaller sizes.932 As 

discussed above, the total number of 

shares of odd-lots priced at or better 

than the NBBO will be included in data 

that is made available by the exclusive 

SIPs. Certain market participants may 

choose to continue to purchase 

exchange proprietary data products if 


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933See SIFMA Letter II at 34. 934 17 CFR 242.600(b)(26)(iii). 935See MDI Adopting Release, supra note 10, at 

18615. 936See MDI Adopting Release, supra note 10, at 

18615 n.236. Rule 611 of Regulation NMS requires 

trading centers to have policies and procedures that 

are reasonably designed to prevent ‘‘tradethroughs’’ on that trading center of protected quotes 

in NMS stocks, subject to specified exceptions. 17 

CFR 242.611. Rule 611 currently only applies to 

round lots. Specifically, rule 611 applies to 

‘‘protected quotations’’ which means ‘‘protected 

bid[s] or [ ]protected offer[s].’’ 17 CFR 

242.600(b)(82). ‘‘Protected bid or protected offer,’’ 

as defined in rule 600(b)(81), refers to ‘‘a 

quotation,’’ defined in rule 600(b)(86), which in 

turn refers to ‘‘a bid or an offer,’’ defined in rule 

600(b)(16), which, as noted above, only applies to 

round lots. See supra note 913 and accompanying 

text. 

937See MDI Adopting Release, supra note 10, at 

18615 n.236; see also supra note 919. 

938See, e.g., Schwab Letter II at 36; FIA PTG 

Letter II at 5; Robinhood Letter at 46–47. 

939See, e.g., JPMorgan Letter at 7; Citadel Letter 

I at 26; ICI Letter I at 2–3 n.8; Robinhood Letter at 

5. See also Schwab Letter II at 36. 

940See SIFMA Letter II at 44. This commenter 

and another commenter stated that the Commission 

has not taken action to ensure the implementation 

of the full set of MDI Rules since disapproving the 

proposed fees and proposed amendments to the 

current NMS plans for consolidated market data in 

2022. Id.; SIFMA AMG Letter I at 9. See also 

Fidelity Letter at 4; FIA PTG Letter II at 5. 

941See, e.g., SIFMA Letter II at 44; Robinhood 

Letter at 5. 

942See, e.g., Robinhood Letter at 5, 38, 41–42, 43, 

47, 48, 49; JPMorgan Letter at 7; Citadel Letter I at 

26. 

943Robinhood Letter at 49. See also Robinhood 

Letter at 44, 46–49. See also infra section VII.C.3. 

944See supra notes 73–76 and accompanying text. 

945See supra note 78. 

946Rule 614(e) of the MDI Rules requires that an 

amendment to the effective national market system 

plan(s) be filed with the Commission to conform 

such plan(s) to the decentralized consolidation 

model. 17 CFR 242.614(e). 

947See, e.g., SIFMA Letter II at 44; Robinhood 

Letter at 5; see also Robinhood Letter at 42, 49. 

948See Proposing Release, supra note 11, at 80296 

n.359. 

949See Proposing Release, supra note 11, at 

80294. For more details, see MDI Proposing Release, 

supra note 744, at 16743. 

950See supra sections III.A, IV.C, and IV.E. 

951See infra section VII.C.3. 

952See, e.g., NYSE Letter I at 7–8; CTA, CQ, UTP 

Plans Operating Committees Letter at 3; FISD Letter 

at 2, 3, 4; Nasdaq Letter I at 3; Cboe Letter II at 11; 

FIF Letter at 14; Cboe Letter III at 10 n.18. 

953 In addition, with respect to the compliance 

dates, several commenters requested the 

Continued 

they require more granular information 

about odd-lots. Here, the Commission’s 

amendment is limited in reach—it 

extends the MDI Rules’ display 

requirement to the exclusive SIPs as 

part of the accelerated implementation 

of the round lot and odd-lot information 

definitions, changing only the entity 

responsible for displaying this 

information—from competing 

consolidators to the exclusive SIPs. This 

change by itself should not impact the 

utility or competitiveness of 

consolidated market data. With respect 

to the commenter’s concerns that the 

display requirement would result in 

operational risk and investor 

confusion,933 the required display of 

mixed lot orders rounded down to the 

nearest multiple of a round lot was 

previously adopted in the MDI Rules for 

competing consolidators.934 In the MDI 

Adopting Release, the Commission 

stated that the preexisting convention of 

displaying the number of round lots 

‘‘could be confusing’’ when applied to 

the MDI Rules’ round lot definition, 

which, once implemented, will assign 

varying round lot sizes to individual 

NMS stocks based on stock price.935

Further, the Commission explained that 

rounding down to the nearest round lot 

multiple would ensure that the elements 

of core data would reflect orders of 

meaningful size, and that for the NBBO, 

rounding down would help ensure that 

the protected portion of the order is 

clearly represented, to address concerns 

about impacts on investor confidence 

and investor confusion that potentially 

could result from the display of 

unprotected size at the NBBO.936 The 

Commission also stated that odd-lots 

priced at or better than the NBBO, 

including the odd-lot portion of a mixed 

lot order at the NBBO, will be included 

in core data.937 The Commission is 

extending this display requirement to 

exclusive SIPs as part of the accelerated 

implementation of the round lot and 

odd-lot information definitions. There 

should not be any new operational risks 

or investor confusion arising from this 

change because only the entity 

responsible for displaying the 

information is changing. 

The Commission is adopting Rule 

603(b)(3) as proposed. 

E. MDI Rules Implementation 

Some commenters discussed the 

benefits of the MDI Rules 938 and 

expressed concern that the accelerated 

implementation of the round lot and 

odd-lot information definitions could 

indefinitely delay implementation of the 

remainder of the MDI Rules,939 stating 

that these proposed changes were not a 

substitute for implementation of all of 

the MDI Rules.940 Some commenters 

suggested that the changes proposed in 

the Regulation NMS Proposal should be 

postponed until the full implementation 

of the MDI Rules.941 Some commenters 

also raised concerns that the 

Commission was separately accelerating 

the implementation of the round lot and 

the odd-lot information definitions apart 

from the other components of the MDI 

Rules.942 One commenter stated that 

‘‘full implementation of the MDI Rules’’ 

is ‘‘a necessary first step for any 

significant changes to market structure,’’ 

and whether or not fully implemented, 

‘‘an indispensable component of the 

‘baseline’ against which this proposal 

must be measured and justified.’’ 943

Despite delays in the process,944 the 

implementation of the MDI Rules 

continues to be a Commission priority. 

In September 2023, the Commission 

issued an amended order directing the 

SROs to file a proposed new single 

national market system plan regarding 

consolidated equity market data.945

Consolidation of the multiple Equity 

Data Plans into a single, new equity data 

plan would modernize the governance 

of the existing Equity Data Plans.946

The Commission disagrees with 

comments that recommended delaying 

implementation of the Regulation NMS 

Proposal until the full implementation 

of the MDI Rules.947 Due to the delayed 

implementation of the MDI Rules, the 

Commission proposed to accelerate the 

implementation of the round lot and 

odd-lot definitions because these 

definitions can be efficiently 

implemented under the current 

exclusive SIP model.948 Not doing so 

would unnecessarily delay the benefits 

of the round lot and odd-lot information 

definitions to investors and market 

participants. One goal in adopting the 

round lot definition was to increase 

transparency about the better priced 

orders available in the market by 

allowing each exchange’s BBO and the 

NBBO for an NMS stock to be based 

upon smaller, potentially better priced 

orders, which will also improve market 

participants’ ability to access these 

orders.949 Waiting to implement the 

round lot definition would delay these 

benefits for market participants. Further, 

full implementation of the MDI Rules 

will not address the issues discussed 

above related to the minimum pricing 

increments for certain NMS stocks, the 

access fee caps for protected quotations 

and exchange fees.950 Finally, as 

discussed below, the eventual 

implementation of the MDI Rules is part 

of the baseline for the amendments to 

Rules 610 and 612.951

VI. Compliance Dates 

The Commission proposed different 

compliance dates for the individual 

proposed rule amendments. As 

discussed below in the relevant 

sections, the Commission received 

several comments on the proposed 

compliance dates.952 The Commission is 

adopting compliance dates that are 

longer than proposed.953


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Commission consider the interaction between the 

proposed rules and other recent Commission rules. 

In determining compliance dates, the Commission 

considers the benefits of the rules as well as the 

costs of delayed compliance dates and the potential 

overlapping compliance dates. For reasons 

discussed throughout the release, to the extent that 

there are costs from overlapping compliance dates, 

we expect the benefits of the rules to justify such 

costs. See infra section VII.D.6 for a discussion of 

the interactions of the final rules with certain other 

Commission rules. 

954See FIF Letter at 2, 8. 

955For a description of the move to 

decimalization, see Staff Decimalization Report, 

supra note 26. 

956See Proposing Release, supra note 11, at 

80284. 957See Proposing Release, supra note 11, at 80284 

n.249. 958See supra section IV.D.1. 959See 15 U.S.C. 78s(b); 17 CFR 240.19b–4. 

Specifically, for the reasons discussed 

below, the amendments adopted herein 

will have the following compliance 

dates: 

Rules 600(b)(89)(i)(F) and 612: The 

first business day of November 2025. 

Rules 600(b)(89)(iv), 600(b)(93) and 

603(b)(3) (with respect to the 

requirement that the effective national 

market system plans to disseminate 

consolidated information shall provide 

for the dissemination of all consolidated 

information for an individual NMS 

stock through an exclusive SIP, and that 

the exclusive SIPs must represent 

quotation sizes in such consolidated 

information in terms of the number of 

shares, rounded down to the nearest 

multiple of a round lot): The first 

business day of November 2025. 

Rule 610: The first business day of 

November 2025. 

Rules 600(b)(69) and 603(b)(3) (with 

respect to the requirement that every 

national securities exchange on which 

an NMS stock is traded and national 

securities association must make 

available to the exclusive SIPs all data 

necessary to generate odd-lot 

information, and the collection, 

consolidation and dissemination of oddlot information by the exclusive SIPs): 

The first business day of May 2026. 

A. Final Rule 612 Compliance Date 

In the Proposing Release, the 

Commission detailed a staggered 

implementation period that would cover 

five quarters for the proposed 

amendments to Rule 612. The 

Commission proposed the 

implementation period to provide the 

market and market participants with 

time to implement the proposed 

variable minimum pricing increments as 

well as to facilitate an orderly transition. 

The adopted amendments to Rule 612 

are modified from those that were 

proposed. Accordingly, the Commission 

is adopting a modified implementation 

schedule and compliance date. 

One commenter suggested that the 

Commission direct the SROs to develop 

a phased implementation schedule for 

the reduced minimum pricing 

increment, ‘‘[c]onsistent with the prior 

implementation of decimalization’’ and 

described several steps to be considered 

in an implementation plan.954 Because 

the amendments to Rule 612 have been 

modified to require the addition of only 

one minimum pricing increment, the 

compliance date discussed below will 

provide the SROs and other market 

participants sufficient time to 

implement the changes and a further 

phased implementation schedule is 

unnecessary. The move to 

decimalization in 2000–2001 was more 

complicated as it involved changes to 

SRO rules that specified several 

different increments that were fractions 

of a dollar and required systems changes 

to accommodate decimals instead of 

fractions.955 The amendment to Rule 

612 will be less complicated because it 

will not require changes to SRO rules 

and the systems that are in place today, 

while needing updates, already can 

accommodate sub-penny increments. 

Further, the amendments adopted 

require less changes than what were 

proposed. 

The amendments to Rule 612 will 

require the primary listing exchanges to 

evaluate each NMS stock during an 

Evaluation Period to calculate their 

TWAQS and the primary listing 

exchanges will have to provide a 

minimum pricing increment indicator to 

the exclusive SIPs for dissemination. 

The Evaluation Periods will be 

conducted on a semiannual basis, rather 

than a quarterly basis as proposed. 

Further, the amendments will require 

market participants to update and 

modify their systems, such as order 

handling and processing systems, to 

accommodate the one new minimum 

pricing increment, rather than the three 

new minimum pricing increments that 

were proposed. Market participants’ 

systems will have to be updated and 

modified to accommodate the 

assignment of minimum pricing 

increments for quotes and orders priced 

$1.00 or greater to each NMS stock on 

a semiannual basis, rather than a 

quarterly basis as proposed. The 

systems updates necessary for 

implementing the amendment to Rule 

612 are less burdensome than what was 

proposed. 

The Commission has considered the 

systems changes that will be necessary 

to implement the amendments to Rules 

600(b)(89)(i)(F) and 612 and is assigning 

the compliance date for amended Rule 

612 to be the first business day of 

November 2025. In determining this 

compliance date, the Commission 

considered the systems changes that 

must be completed and the date by 

which the TWAQS can be calculated 

during an Evaluation Period after the 

systems changes could be completed. 

This compliance date is sufficient for 

facilitating an orderly transition to the 

amended Rule 612. 

B. Final Rule 610 Compliance Date 

The Commission proposed that 

compliance with the amendments to 

Rule 610 would have occurred during 

the implementation period proposed for 

the amendments to Rule 612, discussed 

above.956 The proposed access fee caps 

would have also had a staggered 

implementation to reflect the proposed 

implementation of the proposed 

minimum pricing increments. 

Specifically, compliance with the 

proposed 10 mils access fee cap would 

have been at the same as the proposed 

$0.005 minimum pricing increment, and 

compliance with the proposed 5 mils 

access fee cap would have been at the 

same time as the proposed $0.001 

minimum pricing increment.957

As described above, the Commission 

has modified amendment to Rule 612 

and has also modified the compliance 

date for the Rule 612 amendments. 

Further, the Commission has modified 

the amendment to Rule 610 such that 

the access fee cap structure is retained 

and only the level of the caps has been 

reduced. The Commission is reducing 

the access fee caps under Rule 610 to 

accommodate the new pricing 

increments as well as to address 

distortions in the market associated 

with fee and rebate models.958

Accordingly, the Commission is 

modifying the compliance date for the 

final Rule 610 amendments to coincide 

with the compliance date for Rule 612. 

The national securities exchanges will 

have to file proposed rule changes with 

the Commission pursuant to section 

19(b) and rule 19b–4 959 to adjust their 

fee schedules to reflect the new lower 

access fee caps. Further, the national 

securities exchanges will have to file 

proposed rule changes to adjust any fee 

or rebate that is not determinable at the 

time of execution. 

The Commission is adopting a first 

business day of November 2025 

compliance date for the amendments to 

Rule 610. This date provides the 

national securities exchanges with time 

to assess their fee schedules and file 

proposed rule changes pursuant to 

section 19(b) and rule 19b–4 to adjust 


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960See supra note 719. 

961See Proposing Release, supra note 11, at 

80300; see id. at n.399 and accompanying text. 

962See Proposing Release, supra note 11, at 

80298. 

963See, e.g., NYSE Letter I at 7–8; CTA, CQ, UTP 

Plans Operating Committees Letter at 3; MEMX 

Letter at 7; FISD Letter at 2, 3, 4; Nasdaq Letter I 

at 3; Cboe Letter II at 11; FIF Letter at 14; Cboe 

Letter III at 10 n.18. See also Fidelity Letter at 16. 

964See, e.g., NYSE Letter I at 7–8; CTA, CQ, UTP 

Plans Operating Committees Letter at 2, 3; FISD 

Letter at 2, 3, 4; FIF Letter at 14; Cboe Letter II at 

11. 

965See FISD Letter at 3. 

966 Id. 

967See FISD Letter at 4. The commenter stated 

that the Operating Committees of the Equity Data 

Plans considered a 10–12 month implementation 

process in their proposal to add odd-lot data to the 

exclusive SIP feeds. Id. 

968See BlackRock Letter at 12. See also MEMX 

Letter at 7. 

969See NYSE Letter I at 8; CTA, CQ, UTP Plans 

Operating Committees Letter at 3; Nasdaq Letter I 

at 3. 

970See NYSE Letter I at 7. 

971See NYSE Letter I at 8. 

972CTA/CQ/UTP Plans Operating Committees 

Letter at 2, 3. 

973See Nasdaq Letter I at 3. 

974Rule 600(b)(93). 

975Rule 600(b)(89)(i)(E) and Rule 600(b)(89)(iv). 

976 15 U.S.C. 78s(b). 

977 17 CFR 240.19b–4. 

978See Proposing Release, supra note 11, at 80300 

n.408. 

979Rule 600(b)(69). 

980See supra notes 969 and 973 (suggesting an 

implementation process of approximately one year). 

their fee schedules in order to comply 

with Rule 610 as amended. 

C. Final Compliance Date for Round Lot 

and Odd-Lot Information 

In the Proposing Release, the 

Commission proposed to require 

compliance with the odd-lot 

information and round lot definitions, 

including, as required under proposed 

Rule 603(b), that national securities 

exchanges and associations make the 

data available to the exclusive SIPs, that 

the exclusive SIPs represent quotation 

sizes in consolidated information in 

terms of the number of shares, rounded 

down to the nearest multiple of a round 

lot, and that the exclusive SIPs 

disseminate odd-lot information as 

defined in Rule 600(b)(69) 960 90 days 

from Federal Register publication of 

any Commission adoption of an earlier 

implementation of the round lot and 

odd-lot information definitions.961 The 

Commission explained that the 

proposed compliance date would 

significantly move up the date by which 

round lot and odd-lot information 

would be more widely available in the 

national market system.962

Several commenters raised concerns 

about the proposed compliance date, 

stating that 90 days was not enough 

time to implement the round lot and 

odd-lot information definitions.963 In 

stating that a longer timeframe was 

needed, some commenters stated their 

views of the challenges entailed in 

implementing the changes.964 One 

commenter stated, ‘‘[t]he technical and 

operational requirements to implement 

the definition changes will necessitate 

distinct product changes in the systems 

of literally hundreds of exchanges, 

vendors, and subscribers, each with 

different development priorities and 

system capabilities.’’ 965 The commenter 

stated that 90 days would not be enough 

time for the exclusive SIPs, data vendors 

and subscribers to accommodate the 

changes, and cautioned that ‘‘hastily 

made changes or missed delivery dates 

could result in not just a failure to 

provide odd-lot quotation data but also 

disrupt the flow of other core data to the 

market.’’ 966 The commenter urged the 

Commission not to adopt the 90-day 

compliance timeframe and instead, after 

adoption of the Proposing Release, 

allow time for industry consultation to 

develop an implementation plan.967

Two commenters, while supporting the 

odd-lot information definition adopted 

in the MDI Rules, recommended only 

implementing the BOLO due to the 

complexity and time it would take to 

implement the odd-lot information 

definition by many market 

participants.968

Three commenters suggested an 

implementation timeframe of at least 

one year.969 One commenter explained 

that the changes to the round lot 

definition would require programming 

changes by the exclusive SIPs and the 

market participants that receive SIP 

data, as well as testing of the changes at 

the exchanges, exclusive SIPs and 

customer levels,970 and that it would 

likely take longer than one year for the 

exclusive SIPs and exchanges to 

implement the proposed odd-lot 

changes.971 The Operating Committees 

for the Equity Data Plans stated that the 

implementation timeframe for the 

exclusive SIPs would likely extend 

beyond one year due to, among other 

things, ‘‘the time needed for system 

design, [to] procure necessary 

equipment, and accommodate industry 

testing.’’ 972 Another commenter stated 

that the proposed 90-day timeframe was 

too aggressive, did not consider 

‘‘technical realities,’’ and suggested an 

implementation period of at least one 

year.973

In light of the comments, the 

Commission is modifying the 

compliance date for the round lot and 

odd-lot information definitions. For 

implementation of the round lot 

definition 974 and the round lot 

indicator,975 the compliance date will 

be the first business day of November 

2025. The Commission calculated this 

deadline based on two main factors. 

First, the compliance date is 

approximately 12 months after the 

effective date, which is consistent with 

what commenters suggested was 

necessary for systems changes and 

testing. Second, the compliance date 

provides sufficient time for any 

exchanges that have defined round lots 

in their rules to file proposed rule 

changes pursuant to section 19(b) of the 

Exchange Act 976 and rule 19b–4 977

thereunder to reflect the new round lot 

definition.978

The compliance date for the odd-lot 

information definition 979 and Rule 

603(b)(3) (with respect to the 

requirement that every national 

securities exchange on which an NMS 

stock is traded and national securities 

association must make available to the 

exclusive SIPs all data necessary to 

generate odd-lot information, and the 

collection, consolidation and 

dissemination of odd-lot information by 

the exclusive SIPs) will be the first 

business day of May 2026, which is 

approximately 18 months after the 

effective date of the Adopting Release. 

The Commission is providing a 

modified compliance date for the oddlot information definition, consistent 

with what industry comment suggested 

was necessary for technical and 

operational requirements,980 due to 

several factors. First, the exclusive SIPs 

will likely have to make more changes 

to their systems to accommodate the 

odd-lot information definition than to 

implement the round lot definition. 

Specifically, the exclusive SIPs will 

need to collect more data, consolidate it, 

and disseminate it as odd-lot 

information. In addition, the exclusive 

SIPs will need to calculate and 

disseminate the BOLO. The Commission 

continues to believe that both the 

changes to the odd-lot information 

definition and the dissemination of the 

BOLO are independently important, and 

the additional time allotted to comply 

with the odd-lot information definition 

addresses the concerns from 

commenters regarding the complexity or 

operational risks that may arise with 

making odd-lot information changes in 

a compressed timeline. Second, the 

effective national market system plan(s) 

may also need to assess whether plan 

amendments will be necessary to 

conform such plans to the odd-lot 

information definition, and to file any 

such amendments with the Commission 


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981See Anthony Clarke, Demystifying the Central 

Limit Order Book (CLOB): Everything You Need to 

Know (Apr. 21, 2023), available at https://

www.nasdaq.com/articles/demystifying-the-centrallimit-order-book-clob-everything-you-need-to-know. 

982See supra section I.A.1. 

983See generally, Regulation NMS Adopting 

Release, supra note 4. 

984Specifically, preexisting Rule 612 of 

Regulation NMS prohibited a national securities 

exchange, national securities association, ATS, 

vendor, or broker or dealer from displaying, 

ranking, or accepting quotations, orders, or 

indications of interest in any NMS stock priced in 

an increment smaller than $0.01 if the quotation, 

order, or indication of interest is priced equal to or 

greater than $1.00 per share. If the quotation, order, 

or indication of interest is priced less than $1.00 per 

share, the minimum pricing increment is $0.0001. 

985See supra note 42 and accompanying text 

discussing and defining protected quotes. 

986As discussed in sections VII.D.2, VII.D.3, and 

VII.E.1, fees and rebates create a potential conflict 

for a broker in situations where transaction fees, 

which are paid by the broker, potentially conflict 

with execution quality, which is incurred by the 

customer. This conflict, if acted on, can lead to 

inefficient order routing and worse transaction 

outcomes for customers; it can also lead to an 

inefficient incorporation of information into stock 

prices, harming market efficiency. 

987Section 3(f) of the Exchange Act requires the 

Commission, whenever it engages in rulemaking 

and is required to consider or determine whether 

an action is necessary or appropriate in the public 

interest, to consider, in addition to the protection 

of investors, whether the action will promote 

efficiency, competition, and capital formation. 

Additionally, section 23(a)(2) of the Exchange Act 

requires the Commission, when making rules under 

the Exchange Act, to consider the impact such rules 

will have on competition. Exchange Act section 

23(a)(2) prohibits the Commission from adopting 

any rule that would impose a burden on 

competition not necessary or appropriate in 

furtherance of the purposes of the Exchange Act. 

pursuant to rule 608. Finally, market 

participants may need to update their 

systems that accept SIP data to reflect 

odd-lot information. 

Accordingly, extending the 

compliance deadlines for the 

implementation of the round lot and 

odd-lot information definitions will 

address the concerns raised by 

commenters and provide additional 

time for market participants to make the 

changes necessary to implement the 

definitions. 

VII. Economic Analysis 

A. Introduction 

The most common method of trading 

in NMS stocks by registered exchanges 

today is the limit order book matching 

system, a mechanism that securities 

exchanges use to bring together orders 

of multiple buyers and sellers of 

securities and have those orders 

interact. It acts as a central hub where 

participants’ priced buy and sell orders 

can be ranked, displayed, and matched 

based on programmed rules established 

by the providing registered exchange. 

As such, the limit order book matching 

system facilitates efficient and 

competitive markets.981

Imagine an order book in which a 

buyer’s or seller’s order could be 

displayed at any pricing increment, no 

matter how small. In this scenario, 

assume a liquidity provider wants to 

buy a stock. The provider sees the book 

with the prices at which others are 

willing to buy. Because in this 

hypothetical market there are no 

restrictions on an entry price point, the 

liquidity provider can jump ahead of 

those other providers by offering to buy 

at a price that is infinitesimally higher. 

This is what is known as 

‘‘pennying.’’ 982 The problem with 

pennying is that it creates a disincentive 

for liquidity providers to post buy or 

sell orders, because they know that a 

second trader can step ahead with an 

infinitesimally better price. This leads 

to lower priced offers to buy and higher 

priced offers to sell—namely a wider 

quoted bid-ask spread. 

Recognizing this market failure, the 

Commission in 2005 adopted 983 a 

market-wide requirement that venues 

could not display, rank, or accept orders 

in increments less than a penny.984 The 

2005 adoption of Rule 612 limited the 

scope of pennying, but it did so at the 

inevitable cost of introducing a floor, 

namely one cent, below which the 

quoted bid-ask spread could not fall. 

Though a minimum tick is necessary, 

placing a floor on the spread introduces 

distortions into the market. The price of 

liquidity will be artificially high for 

some stocks, leading to a surplus, 

similar to a goods market for which 

prices were artificially high. This 

creates rents which accrue to some 

market participants at the expense of 

others. By reducing the minimum 

pricing increment for a defined subset of 

stocks, the adopted amendments to Rule 

612 free the price of liquidity from its 

current constraint, allowing it to 

approach its natural level. At the same 

time, as described in greater detail 

below, the adopted amendments 

maintain a minimum (but smaller) 

pricing increment necessary for the 

proper functioning of financial markets’ 

limit order books. 

Freeing the spread from the binding 

constraint of one penny will bring a 

number of benefits, including lower 

transaction costs. For some stocks 

currently constrained at a penny, the 

spread will, under the amended rules, at 

times be a half-penny, a substantial 

reduction in the quoted price of 

accessing liquidity. This reduction, 

while beneficial, brings into the 

spotlight the cap on the access fee, 

which has been 0.30 cents. Absent a 

reduction in the maximum access fee, a 

round-trip buy and sell for stocks 

quoted at the new half-penny tick 

would require paying more in fees (0.60 

cents) than in the spread itself (0.50 

cents). 

The practice of charging at or near the 

access fee cap has persisted over time. 

Regulation NMS establishes the NBBO. 

Because the NBBO is protected,985 many 

exchanges charge the maximum amount 

allowed to access the quote. This allows 

the exchange to subsidize liquidity 

providers with a rebate, reducing 

spreads (to acquire more volume, due to 

traders’ need to access the protected 

quote). While the quoted spread may be 

lower, the cost to investors is not; this 

is because gains from the lower spread 

are counteracted by the access fee. On 

the other hand, the high access fee and 

rebate can lead to a loss of price 

coherence when the spread is less than 

twice the fee. For stocks that remain tick 

constrained, as some may, the rebate 

distorts the supply of liquidity. Finally, 

fees and rebates that are high as a 

percentage of the quoted spread 

introduce complexity, and potential 

conflicts of interest. Lowering the access 

fee to 10 mils restores price coherence 

and alleviates these costs. 

The Commission is also requiring that 

these fees and rebates be determinable 

at the time of trade execution. Opacity 

and complexities in current exchange 

fees and rebates make these more 

distortive than otherwise.986 With new 

Rule 610(d), the Commission is taking 

an incremental step in ameliorating the 

opacity in fees and rebates, reducing 

information asymmetries and lessening 

the potential for agency conflict 

between brokers and their customers. 

Finally, the Commission has 

accelerated the implementation of the 

round lot, and odd-lot information 

definitions while providing more time 

for the necessary systems changes to 

implement the definitional changes than 

what was proposed. These amendments 

will allow the benefits of these rules to 

accrue to market participants in a timely 

manner. 

Below, we explain why these 

amendments increase efficiency and 

competition and bring benefits that will 

accrue to the broad range of participants 

in U.S. equity markets. We also discuss 

the costs of these amendments. The 

Commission has considered the 

economic effects of the amendments 

and, wherever possible, the Commission 

has quantified the likely economic 

effects of the amendments.987 The 

Commission is providing both a 

qualitative assessment and quantified 

estimates of the potential economic 


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988 Investors can also execute trades on other 

‘‘dark’’ venues that do not display quotes. But 

because quotes are not displayed on these venues, 

the investor could not be certain of the execution 

price or of the number of shares available. See 

Proposing Release, supra note 11, at 80287 

(addressing trading centers that do not display 

protected quotes). 

989Proposing Release, supra note 11, at 80309 

n.483. See also Jonathan Brogaard & Corey Garriott, 

High-Frequency Trading Competition, 54 J. Fin. & 

Quantitative Analysis 1469 (2019) (documenting 

that as more high-frequency liquidity providers 

enter the market, spreads decrease until they 

converge to competitive levels). 

990Although the Proposing Release did not use 

the phrase ‘‘economic spread,’’ the release 

employed the same concept in multiple places. See, 

e.g., Proposing Release, supra note 11, at 80317 (‘‘In 

a competitive market, and in the absence of rebates 

or other price distortions, the prevailing bid or ask 

price would be the feasible price equal to just worse 

than the price that equates liquidity supply and 

demand.’’). In a number of places where the release 

employed the concept of economic spread, it arose 

in discussions about a stock that would trade at a 

given price or spread absent the tick size. See 

Proposing Release, supra note 11, at 80304, 80309, 

and 80317. The spread is composed of several 

elements: adverse selection, inventory risk, and 

processing costs. See Proposing Release, supra note 

11, at 80304 n.447 and 80321. See generally, Roger 

D. Huang & Hans R. Stoll, The Components of the 

Bid-Ask Spread: A General Approach, 10 Rev. Fin. 

Stud. 995 (Winter 1997). As explained in the 

Proposing Release, supra note 11, at 80304 and 

n.447, the spread is unlikely to ever be zero due to 

inventory costs, adverse selection risks, the direct 

costs associated with providing liquidity, and 

trading rules meant to prevent the locking and 

crossing of markets. See P.C. Kumar, Bid-Ask 

Spreads in U.S. Equity Markets, 43 Q. J. Bus. & Econ 

85 (2004). 

991As discussed in the Proposing Release, supra 

note 11, at 80309 nn.483–484 and accompanying 

text, this assumes that stock prices are expected to 

revert to the next worse level. This may occur 

because standard economic theory suggests that in 

a competitive market liquidity providers will 

compete to provide liquidity until the spread—i.e., 

their compensation for providing liquidity—is 

equal to the break-even point for liquidity 

provision. See also Jonathan Brogaard & Corey 

Garriott, High-Frequency Trading Competition, 54 J. 

Fin. & Quantitative Analysis 1469 (2019) 

(documenting that as more high-frequency liquidity 

providers enter the market, spreads decrease until 

they converge to competitive levels). The range of 

infeasible quoting prices narrows somewhat in the 

presence of rebates for liquidity providers. section 

VII.B.3 discusses these effects. 

992Proposing Release, supra note 11, at 80305. 

993 Id., at 80305 n.481 and accompanying text. 994 Id. at 80305–06. Pennying is defined in the 

Proposing Release as occurring when a market 

participant gets to the front of the limit order queue 

by posting economically trivial price improvement. 

Id. at 80306 n.459. One commenter also described 

the economics of pennying using option theory and 

the Commission agrees with this characterization. 

See Harris Letter at 6. According to the commenter, 

pennying results in a payoff structure that has 

unlimited potential upside while the downside is 

capped. By pennying, a fast trader jumps to the 

front of the queue and therefore has a high chance 

of executing his trade and capturing the upside if 

prices move favorably. If prices move in an 

unfavorable direction, the fast trader can unwind 

his position against the slower liquidity supplier 

(whom he undercut); in this case, the cost to the 

fast trader—i.e., the cost of the option—is only one 

tick. The fast trader thereby captures value from the 

liquidity supplier and hence discourages slow 

traders from offering liquidity. A small tick means 

that the cost of pennying is low, which results in 

more pennying and thus less incentive for liquidity 

provision. See also Lawrence E. Harris, Minimum 

Price Variations, Discrete Bid–Ask Spreads, and 

Quotation Sizes, 7 Rev. Fin. Stud. 149 (1994); Anne 

Dyhrberg, et al., When Bigger is Better: The Impact 

of a Tiny Tick Size on Undercutting Behavior, 58 

J. Fin. & Quantitative Analysis (2023) (Dyhrberg et 

al.). 

995Proposing Release, supra note 11, at 80305 

n.458. 

996See infra section VII.D.1.b.i. 

997The Commission’s definition of tickconstrained in this release eliminates an 

unnecessary distinction drawn between tickconstrained and near-tick-constrained stocks that 

appears in the Proposing Release. Specifically, in 

the Proposing Release’s economic analysis, the 

Commission stated that it considered the term 

‘‘tick-constrained’’ to apply to ‘‘stocks that would 

Continued 

effects of the amendments where 

feasible. The Commission incorporated 

data and other information to assist it in 

the analysis of the economic effects of 

the amendments. However, as explained 

in more detail below, the Commission is 

unable to quantify certain economic 

effects because the Commission does 

not have, and in certain cases cannot 

reasonably obtain, data that may inform 

the Commission on certain economic 

effects. Further, even in cases where the 

Commission has data, it is not 

practicable to quantify certain economic 

effects due to the number and type of 

assumptions necessary, which render 

any such quantification unreliable. Our 

inability to quantify certain costs, 

benefits, and effects does not imply that 

such costs, benefits, or effects are less 

significant. 

B. Broad Economic Considerations 

1. Liquidity and Spread 

A key component of market liquidity 

is the limit order book. Liquidity 

providers submit limit orders to buy 

(‘‘bid’’) and sell (‘‘ask’’) stock at 

specified prices and quantities. 

Liquidity demanders trade against these 

limit orders. The quoted (bid-ask) 

spread for a stock is the difference 

between the lowest displayed ask price 

and the highest displayed bid price.988

As discussed in the Proposing Release, 

standard economic theory suggests that 

liquidity providers in a competitive 

market will compete to provide 

liquidity until the spread—i.e., their 

compensation for providing liquidity— 

is equal to the break-even point given 

the costs of liquidity provision.989

Absent fees, rebates, and a minimum 

pricing increment, this break-even point 

for liquidity provision represents the 

lowest bid-ask spread at which liquidity 

providers (as a whole) are willing to 

provide liquidity (hereinafter 

‘‘economic spread’’).990

2. Economics of Minimum Pricing 

Increments 

When a market has a minimum 

pricing increment (hereafter ‘‘tick sizes’’ 

or just ‘‘ticks’’), liquidity providers 

quote bid and ask prices that are 

discrete whole number multiples of that 

tick. For example, if the tick is a penny, 

then a liquidity provider quotes prices 

that are a multiple of a penny, such as 

$10.00 or $10.01, but not $10.015. There 

may, however, be a liquidity provider 

willing to quote an ask of $10.015 and 

a bid of $10.005. Were this liquidity 

provider to be allowed to do so, the 

stock would have a spread $0.01 (i.e., 

the difference between the lowest ask 

price and bid price). However, in the 

presence of the $0.01 tick, liquidity 

providers will quote at the best feasible 

ask price above $10.015, which is 

$10.02, and the best feasible bid price 

below $10.005, which is $10.00.991

Consequently, the stock’s quoted spread 

would be $0.02 instead of $0.01, twice 

as wide than it would otherwise be. 

Tick sizes present an economic 

tradeoff. As discussed in the Proposing 

Release, in determining what tick size is 

optimal for any given stock, there is a 

tradeoff between price competition on 

one hand, and incentives for liquidity 

provision on the other.992 A smaller tick 

allows liquidity providers to better 

compete on price which can lead to 

narrower spreads, reducing costs for 

investors. On the other hand, a smaller 

tick can also lead to pennying. Pennying 

increases adverse selection costs for 

slower liquidity providers by making it 

more likely that they trade when prices 

are moving in an unfavorable direction 

relative to their positions.993 To 

compensate for these costs, liquidity 

providers may post less aggressive 

quotes—lower bid prices and higher ask 

prices—resulting in a wider quoted 

spread and worse liquidity.994 Both 

price competition and adverse selection 

from pennying lie on a continuum.995

As explained in infra section VII.D.1, 

the degree to which pennying versus 

price competition dominates in 

determining whether increasing the tick 

will improve market quality depends on 

the relation between the tick and the 

spread. The greater the tick is in relation 

to the spread, the greater the effect of 

price competition, and the lower the 

risk of pennying.996 Accordingly, the 

Commission defines a stock to be tickconstrained if there is a reasonable 

probability that the stock would 

otherwise trade with a spread less than 

the tick size in the course of normal 

trading, were it allowed to do so, or one 

for which the tick is a substantial 

portion of the quoted spread.997 That is, 


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81684 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

otherwise trade with a spread less than the tick size, 

were they allowed to do so.’’ Proposing Release, 

supra note 11, at 80304. That economic analysis 

also stated that a ‘‘near-tick-constrained’’ stock was 

‘‘one that has a reasonable probability of becoming 

tick-constrained in the course of normal trading, or 

one for which the tick is a substantial portion of the 

spread.’’ Id. Given the economics of minimum 

pricing increments discussed in this section, 

distinguishing near-tick-constrained stocks from 

tick-constrained stocks is unnecessary. The 

Proposing Release’s discussion of these terms in its 

economic analysis did not meaningfully 

differentiate between the effects on stocks in each 

of these groups. As a result, applying the singular 

term tick-constrained avoids confusion and 

streamlines the discussion. In addition, the 

Proposing Release’s empirical analysis employed 

separate numerical definitions for tick-constrained 

and near-tick-constrained stocks. Compare id. at 

80268 n.17 (tick-constrained stocks are those with 

a Time Weighted Average Quoted Spread less than 

.011) with id. at 80304 n.449 (near-tick-constrained 

stocks are those with a Time Weighted Average 

Quoted Spread between .011 and .02). These 

numerical definitions served as proxies for drawing 

distinctions in the Proposing Releases’ empirical 

analysis. See, e.g., id. at 80304 nn.448–449; at 

80308 n.473 and accompanying text; and at 80319 

n.549. Although we continue to include specific 

explanations of what stocks are included in each of 

our quantitative analyses where relevant, to further 

simplify the discussion in the economic analysis, 

we do not use the definitions employed in the 

empirical analysis more broadly. 

998See Proposing Release, supra note 11, at 80309 

and the discussion accompanying nn.474–477. See 

also CCMR Letter at 18 (‘‘an MPI that is too wide 

may set an artificial constraint on permissible bids 

and offers, which can result in an unnecessarily 

wide spread that can also increase transaction costs 

for investors’’). 

999Material presented in this paragraph was 

discussed in the Proposing Release, supra note 11, 

at 80309 and nn.478–481. 

1000 ‘‘Crossing the spread’’ refers to switching 

from posting a (non-marketable) limit order to 

sending a market order. For example, if the national 

best bid were $10.00 and the national best offer 

were $10.02, a limit order to buy, if executed, 

would entail paying $10.00 for the security. 

However, a market order to buy would entail pay 

$10.02, in other words, it would have crossed the 

spread of $0.02. In the most common case of makertaker, the difference between the market and limit 

order is even greater because the buyer using a 

market order would pay $10.02 plus the fee, 

whereas the buyer using a limit order would pay 

$10.00 minus the rebate. 

1001The liquidity provider could submit an order 

at an inverted exchange, though this is an 

inefficient solution. See section VII.C.2.c. 

1002Under typical exchange rules, an order with 

time priority is executed first when multiple orders 

are at the best price, regardless of how many orders 

are at the best price. In longer order queues, 

liquidity-providing orders deeper in the queue, 

which do not have time priority, are less likely to 

be filled in a timely manner and, conditional on 

being filled, the probability of the order having been 

adversely selected tends to be greater compared to 

orders with greater fill priority. Typically, liquidity 

providers compete to gain priority over other 

resting orders by quoting a better price, but tickconstraints make doing so difficult. In the case 

when the spread is constrained to a single tick, it 

would be impossible to improve on the displayed 

price without locking markets. For tick-constrained 

stocks, when the quoted spread may be greater than 

a single tick, improving the price by an entire tick 

may be too much in the sense that doing so may 

narrow the spread beyond what the liquidity 

providers could tolerate. A narrower tick deemphasizes time priority on a stock exchange by 

making it easier to compete on price. See Edwin 

Hu, et al., Tick Size Pilot and Market Quality (DERA 

White Paper, Jan. 31, 2018), available at https://

www.sec.gov/dera/staff-papers/white-papers/dera_

wp_tick_size-market_quality; and Todd G. Griffith & 

Brian S. Roseman, Making Cents of Tick Sizes: The 

Effect of the 2016 U.S. SEC Tick Size Pilot on Limit 

Order Book Liquidity, 101 J. Banking Fin. 104 

(2019). 

1003Market participants can use inverted 

exchanges or ISOs to help ameliorate some of the 

negative effects of tick size constraints. 

1004See, e.g., Barbara Rindi & Ingrid M. Werner, 

U.S. Tick Size Pilot (working paper Mar. 4, 2019), 

available at https://ssrn.com/abstract=3041644 

(retrieved from SSRN Elsevier Database); Mao Ye & 

Chen Yao, Tick Size Constraints, Market Structure 

and Liquidity (working paper Dec. 26, 2019), 

available at https://ssrn.com/abstract=2359000 

(retrieved from SSRN Elsevier database); Phil 

Mackintosh, Why Ticks Matter, NASDAQ (May 19, 

2022), available at https://www.nasdaq.com/ 

articles/why-ticks-matter; and MEMX, TickConstrained Securities (Aug. 2021) (‘‘MEMX 

Report’’), available at https://memx.com/wpcontent/uploads/MEMX-Market-Structure-ReportTick-Constrained-Securities.pdf. 

1005This phenomenon is sometimes referred to as 

excessive intermediation. In this context, excessive 

intermediation refers to excessive quoting in 

sufficiently liquid securities in order to profit from 

the tick-constraint-induced price floor on liquidity, 

which crowds out investors from being able to 

supply liquidity. Such price floors can increase 

quoting activity from high-frequency traders 

looking to earn the artificially high spread. Because 

profiting off of the spread is easiest when the 

marketable orders filled are small, obtaining high 

priority in the queue at each tick is essential to such 

strategies. High-frequency, proprietary traders are 

generally better able to obtain such priority, and 

consequently investors may have less opportunity 

to profitably fill their trades using limit orders. 

Rebates on limit orders further increase the 

incentives of these traders to engage in such 

intermediation, thereby exacerbating the problem. 

1006 In support of this point, one commenter 

stated that the subsidization of liquidity providers 

resulting from the tick constraint leads to greater 

competition on the basis of speed to provide 

liquidity, which increases complexity and related 

costs to investors; See Budish Letter at 4. 

while tick constrained stocks are not the 

only ones to potentially benefit from a 

reduction in the tick size, they are the 

ones most clearly likely to do so.998

Benefits from a reduction in the tick 

size come in the form of higher market 

quality and lower transaction costs to 

investors. As explained above, relaxing 

the tick constraint (the price floor on 

liquidity) directly allows competition 

for market orders. Moving toward a 

more competitive market reduces 

distortions and economic rents. 

As a general matter, a liquidity 

provider is incentivized to get its quote 

to the front of the queue (i.e. establish 

price/time priority on an order book).999

This is because stock exchange priority 

rules give greater priority to better 

priced orders and generally factor order 

entry time into the priority of limit 

orders at the same price. When the 

NBBO is equal to the tick, liquidity 

providers cannot establish price priority 

(other than by crossing the spread) 1000

because there are no price points at 

which to do so.1001 Because liquidity 

providers cannot establish price priority 

when the NBBO spread is one tick, 

establishing time priority becomes more 

important.1002 Consequently, an 

environment where stocks are tickconstrained with artificially wider 

spreads and longer order queues tends 

to favor traders who are better able to 

establish positions more quickly so they 

can be at the front of the queue. Traders 

who are at the back of the queue face 

slower executions and the risk of not 

being executed against at all (a lower fill 

rate). In the latter case, they will need 

to resubmit an order when the market 

has moved in an unfavorable direction, 

increasing transaction costs. Adverse 

selection amplifies these costs: the 

orders of slower traders are most likely 

to be executed when such an execution 

is unfavorable to them and least likely 

when they would be favorable. For 

example, a sell order at the back of the 

queue will tend to be filled when there 

are many buy orders, which tend to 

increase the price, implying that selling 

is disadvantageous. 

To summarize, current wider quoted 

spreads mean greater cost to liquidity 

demanders and greater revenue to 

liquidity providers.1003 An artificially 

wide spread, due to a price floor 

imposed by the tick constraint, 

effectively subsidizes liquidity 

provision. Because there is an increased 

incentive to provide liquidity via limit 

orders, queues of limit orders tend to be 

longer, and wait times to get a limit 

order executed also tend to be longer. 

This makes it more likely that the 

market moves away from an investor’s 

limit order and leads to lower overall 

fill rates for limit orders.1004 Thus the 

floor on liquidity leads to rents accruing 

to fast liquidity providers 1005 at the 

expense of slower ones as well as 

liquidity demanders.1006

3. Economics of Access Fees 

Trading venues can choose to charge 

an access fee, or pay a rebate, to their 

participants—liquidity providers and 

liquidity takers—who trade at their 

venue. The trading venue can further 

choose to levy the fee (or pay the rebate) 

on either the liquidity taker or liquidity 

provider, or on both. As discussed in 

infra section VII.C.2.b, the most 

common fee structure is maker-taker, in 

which liquidity takers are assessed an 

access fee and liquidity providers are 

paid a rebate, which is typically funded 

through the access fee. That is, for a buy 

order the liquidity taker pays the price 

plus the access fee. For a sell order, the 

liquidity taker receives the price, less 


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1007See Proposing Release, supra note 11, at 

80348 (‘‘Net and nominal price rankings are 

coherent if sorting trading venues on the 

competitiveness of their nominal quoted prices 

yields the same ordering as sorting on prices net of 

fees and rebates.’’). 

1008Proposing Release, supra note 11, at 80328. 

1009 Id. 

1010Specifically, commenters had different views 

on whether reducing access fees and rebates will 

adversely affect the provision of liquidity on 

exchanges, either generally or for particular 

categories of stocks. Compare Cboe Letter II at 9; 

Cboe Letter III at 6, 8; Cboe Letter IV at 3, 5; CCMR 

Letter at 27; IEX Letter I at 2; IEX Letter IV at 18, 

21; IEX Letter V at 4; IEX Letter VI at 7; Nasdaq 

Letter I at 2, 20, 22, 25; Nasdaq Letter II at 3, 6; 

Nasdaq Letter III at 2–3; Themis Letter at 7–8; Virtu 

Letter II at 7–8. Commenters likewise had differing 

perspectives on whether reducing access fees and 

rebates will reduce overall transaction costs, 

thereby increasing demand for liquidity, or cause 

offsetting costs related to, e.g., wider spreads, 

volatility, or a less representative NBBO (which 

could reduce demand for liquidity). Compare Cboe 

Letter III at 5–6; Cboe Letter IV at 5; CCMR Letter 

at 27; IEX Letter I at 26; IEX Letter IV at 16, 22– 

23; Nasdaq Letter I at 2, 20, 22–24; Nasdaq Letter 

II at 4–7; Nasdaq Letter III at 5; Themis Letter at 

7; Virtu Letter II at 8. As one example of this debate, 

Nasdaq identifies a ‘‘vicious cycle’’ that could result 

from a reduction in the minimum access fee, 

whereas IEX identifies a ‘‘virtuous cycle’’ from the 

identical change. See Nasdaq Letter II at 6; IEX 

Letter I at 26. See section VII.D.2 for a response to 

these comments on the effect of the reduction in the 

access fee cap on liquidity and transaction costs. 

1011The economic theory laid out below allows 

the Commission to create a common framework for 

the competing claims of commenters and to 

disentangle the complex forces at work in 

determining spreads. While the Commission has 

supplemented this discussion from the Proposing 

Release, the essential point in this framework—the 

equilibrium resulting from the supply and demand 

for liquidity, modified as necessary for the presence 

of a minimum tick—was discussed throughout the 

Proposing Release. See, e.g., Proposing Release, 

supra note 11, at 80228–29, 80317, 80321, 80336, 

80338. 

1012This model presents an abstraction of the 

market for liquidity. As explained in section 

VII.B.2, the willingness to quote a bid or offer 

depends in part on the degree of adverse selection 

in the market which in turn depends on the tick 

size. The key point in this section is that, for stocks 

that have a spread that is sufficiently wide, 

liquidity providers are indifferent between 

receiving compensation in the form of spread or in 

the form of a rebate; similarly, liquidity demanders 

are indifferent between paying the spread or access 

fee, and thus fees and rebates tend to be neutral 

assuming a spread that is sufficiently wide. This 

point is unaffected by the presence of adverse 

selection arising from a tick that may be too narrow. 

1013The price of liquidity is represented by the 

quoted half-spread because the half-spread 

represents the price which liquidity takers must pay 

for the immediacy of executing their trade while 

liquidity providers stand to capture the half-spread. 

1014Figure 1 shows the supply and demand for 

liquidity, with the quoted half-spread as 

representing the price of liquidity on the y-axis. 

This should not be confused with supply and 

demand for shares of the stock, where the price of 

the stock would be on the y-axis. 

the fee. Assuming the broker-dealer is 

the principal to the trade, then the 

economic price of accessing or 

providing liquidity would be equivalent 

to the displayed nominal price net of 

the applicable fees. If the broker-dealer 

is an agent, then there maybe a wedge 

between economic price of accessing or 

providing liquidity and the price net of 

the fee and rebate. It is possible that the 

fee and rebate may be passed on directly 

to the customer. The fee and rebate may 

be passed on indirectly and in part 

through fees, commissions, or as part of 

a bundle of services to the customer. 

Section VII.C.2 describes the current 

market structure as it relates to access 

fees and rebates. A key feature of the 

current market structure is that many 

exchanges charge at the current cap and 

pay out nearly all of the fee as a rebate. 

For this reason, in practice the 

Commission expects access fees to be 

near the cap under the amended rule, 

just as they are near the pre-existing cap 

under the current structure. As 

discussed in the Proposing release, 

several basic economic considerations 

are among those governing the analysis 

of access fees. First, access fees should 

be such that net and quoted prices 

satisfy coherence.1007 Second, under 

simplifying assumptions, fees and 

rebates are approximately neutral 

provided that the stock is not tick 

constrained,1008 although outside of 

those simplifying assumptions lowering 

the access fee cap can have additional 

benefits as discussed in section 

VII.D.2.d. Finally, for tick constrained 

stocks, access fees and rebates can 

distort liquidity supply and demand, 

increasing transaction costs for 

investors.1009

In response to the Proposing Release, 

the Commission received extensive 

comment regarding the role of fees and 

rebates on the supply of and demand for 

liquidity.1010 Below, to address 

comments, the Commission 

supplements its discussion on how 

access fees and fee-funded rebates may 

affect trading in the presence of the 

commonly used maker-taker fee 

structure.1011 This section addresses 

certain aspects of fees and rebates in 

developing a basic framework for 

evaluating the principle economic 

effects and responding to comments. 

The remaining aspects and effects are 

considered in sections VII.C.2, VII.D.2, 

and VII.D.3. 

a. Liquidity With Access Fees and 

Rebates 

In the absence of ticks, the market for 

liquidity, discussed in section VII.B.1, 

may generally be represented by an 

economic model of supply and demand, 

as shown below in panel A of figure 

1.1012 The vertical axis represents the 

price of liquidity, here the quoted halfspread (i.e. because the liquidity taker is 

not typically on both sides of the trade, 

we use the quoted half-spread to 

measure price of liquidity 1013), while 

the horizontal axis represents the 

quantity of liquidity.1014 Liquidity 

providers supply liquidity, and the 

supply curve is upward sloping because 

liquidity providers are willing to supply 

more liquidity when the price of 

liquidity is higher. Liquidity takers 

demand liquidity, and the demand 

curve is downward sloping because 

liquidity takers demand less liquidity at 

higher prices of liquidity (i.e., they trade 

less when they have to pay higher 

transaction costs). The supply and 

demand curves intersect at the point 

where the amount of liquidity supplied 

equals the quantity demanded, which 

indicates the equilibrium price and 

quantity of liquidity in the market. 


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ddrumheller on DSK120RN23PROD with RULES2ER08OC24.001</GPH>

Pllce (Half.Spread) 

Equiliblium 

(Nominal) Pllce 

ofUqukffly 

Pllce (Hd,Spread) 

Panel A 

EquilllHfUln 

ll(luldlly SUpplled 

Figure 1 

Quanlly 

(Amount of Uquldily) 

Panel B 

&ijJpttafterQuanllly 

(Amollnl of Uquldily) 

Figure 1: The above figures illustrate the market for liquidity represented by a supply curve and a demand curve. 

Liquidity suppliers contribute to the supply of liquidity by posting passive orders such as limit orders, while liquidity demanders 

trade against the passive orders thereby taking liquidity. All other things equal, the quantity of liquidity supplied increases as the 

price of liquidity increases, while the quantity of liquidity demanded decreases as the price of liquidity increases. The price of 

liquidity is represented by the quoted half-spread because the half-spread represents the price which liquidity takers must pay for 

the immediacy of executing their trade while liquidity providers stand to capture the half-spread The intersection of these curves 

sets the equilibrium price of liquidity (i.e., the half-spread) and the equilibrium quantity of liquidity. As demonstrated in the 

supply-demand diagram on the right, rebates shift the supply curve so that there is more supply for a given quoted price of 

liquidity. Fees increase the cost of demanding liquidity so the shift in the demand curve reflects that there will be less demand at 

any given price of liquidity. Because both supply and demand curves vertical shifts are parallel, they continue to intersect at the 

same value along the horizontal axis (the amount of liquidity supplied/demanded). 
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81687 

1015This level of access fee and rebate is similar 

to current fees and rebates on maker-taker lit 

exchanges and may vary based on pricing tier; see 

infra section VII.C.2.b. To illustrate the salient 

economic points, this discussion assumes that 

liquidity providers and demanders know what the 

resulting access fees and rebates from a transaction 

will be. As discussed below in sections VII.C.2.b 

and VII.D.3, in the baseline this is only ever 

approximatively true since fees and rebates are 

often determined using current and future volumes. 

But as long as market participants are able to 

approximate their fees and rebates, then they will 

generally behave as described in this paragraph— 

liquidity providers will adjust their quotes on 

account of the expected rebate, and liquidity 

demanders will adjust the quoted price they are 

willing to pay on account of the expected fee. 

1016 If the demand curve were vertical (namely if 

liquidity demanders were not sensitive to price), 

the curve would not shift. However, the 

conclusions would be the same in that the supply 

curve shift would cause the same quantity to be 

supplied at a lower price. 

1017The concept that net cost (or net spread) is 

the correct way to measure the cost of liquidity is 

supported by basic economics and by commenter 

statements. See Citigroup Letter at 6 (stating, ‘‘Many 

of CGMI’s institutional clients are increasingly 

measuring their execution costs all-in, inclusive of 

exchange fees.’’). 

1018This discussion refers to the cost to take 

liquidity and proceeds from providing liquidity at 

the time of the execution of the trade. 

1019The term frictions here refers to factors that 

prevent prices from perfectly reflecting the forces of 

liquidity supply and demand. It does not imply that 

a frictionless market is the optimal market 

construct. As discussed throughout this release, a 

tick size that is too small creates pennying concerns 

which can harm market quality outcomes. See infra 

section VII.D.1.b for additional discussion. 

1020Harris Letter at 2–3, describing the 

equilibrium spreads model (citing Kalman J. Cohen, 

et al., Transaction Costs, Order Placement Strategy 

and Existence of the Bid-Ask Spread, 89 J. Pol. 

Econ. 287 (1981)). 

1021See Katya Malinova & Andreas Park, 

Subsidizing Liquidity: The Impact of Make/Take 

Fees on Market Quality, 70 J. Fin. 509 (2015). 

1022The authors also present evidence suggesting 

that adverse selection costs decreased with the 

introduction of the maker-taker model by increasing 

retail trader participation. See Malinova and Park 

(2015), supra note 1021. In the United States, most 

retail orders in NMS stocks are handled by 

wholesalers, who execute a large majority of the 

dollar volume of the retail orders they handle via 

internalization. See, e.g., Lewis Letter attached to 

Virtu Letter II at p 8–12 and 40–45. Consequently, 

should there be a decrease in retail participation, 

we do not expect this to cause an increase in 

adverse selection on exchanges, because so much of 

retail order flow passes through a wholesaler before 

being executed. 

1023See Budish Letter and Harris Letter; see also 

supra notes 999 to 1008, and surrounding 

discussion. 

1024This stock may become tick-constrained in 

the future, and indeed some stocks that have an 

average spread of 2 cents over a prior period could 

be tick-constrained during that time. 

1025Equivalently, the liquidity provider is only 

willing to quote at 1.4 cents or above, and therefore 

the quoted spread must be at least 2 cents. 

1026See section VII.B.3.a. 

Consider next the effect on liquidity 

of a 30 mils access fee used to fund a 

30 mils rebate.1015 With a rebate of 30 

mils, liquidity providers who submit 

buy orders are willing to increase their 

bid price by 30 mils, while liquidity 

providers who submit sell orders are 

willing to lower their ask price by 30 

mils. For this reason, the bid-ask spread 

narrows by 60 mils, and the quoted halfspread (i.e., price of liquidity) narrows 

by 30 mils. Accordingly, in panel B of 

figure 1, the supply curve for liquidity 

shifts down by 30 mils. Likewise, the 30 

mils access fee acts as a tax on liquidity 

takers. This means that, for the same 

amount of liquidity, liquidity takers will 

reduce the price they are willing to pay 

by 30 mils to account for the access fee 

(since their net cost to take liquidity is 

the price they pay plus the access fee). 

In panel B of figure 1, this effect is 

represented by the liquidity demand 

curve shifting down by 30 mils. Because 

both the supply curve and the demand 

curve shift down by 30 mils, they 

continue to intersect at the same 

quantity of liquidity.1016 That is, the 

equilibrium amount of liquidity remains 

unchanged, but the displayed price is 30 

mils lower. The net cost to take liquidity 

is not affected since it equals the price 

of liquidity plus the 30 mils access 

fee; 1017 similarly, the net proceeds from 

providing liquidity are not affected 

since they equal the price of liquidity 

plus the 30 mils rebate.1018 Thus, in the 

absence of frictions (e.g., discrete prices, 

minimum pricing increments, or agency 

problems), the level of fees and rebates 

(when fees and rebates are equal in size) 

does not affect the total costs of 

trading.1019 As one commenter put it, 

‘‘when liquidity suppliers are 

subsidized at the cost of liquidity takers, 

spreads decline. If they did not, 

everyone would want to be a liquidity 

supplier, and no trade would occur. So, 

maker-taker pricing created narrower 

quoted spreads on average, but it does 

not affect the net cost of providing 

liquidity.’’ 1020

Academic work on the effect of a fee 

change on the Toronto Stock Exchange 

supports the model.1021 In 2005, the 

exchange began offering a rebate to 

liquidity suppliers in a pre-defined 

subset of securities. For securities in 

which the total fee remained constant 

but was split into a maker rebate and a 

taker fee, the authors find that quoted 

spreads narrow, but the net spread— 

which includes the quoted spread and 

the take fee—did not change.1022

b. Liquidity With Ticks, Access Fees, 

and Rebates 

Section VII.B.3.a shows that the 

quoted spread adjusts to a fee and rebate 

by narrowing by the amount of the fee 

and the rebate. The supply and demand 

curves in section VII.B.3.a are 

continuous, whereas in fact displayed 

liquidity has discrete price points, 

namely ticks (the focus of section 

VII.B.2). In the presence of ticks, access 

fees and rebates need no longer be 

neutral, namely the quoted spread may 

not adjust in the same seamless way to 

the presence of a rebate. The basic 

intuition of section VII.B.3.a states that 

a liquidity provider is indifferent 

between receiving compensation from 

the spread and compensation from the 

rebate. If a rebate is offered, the liquidity 

provider in a competitive market 

responds by accepting a lower spread. 

However, if the quoted spread is already 

at its floor, as specified by the tick, it is 

not possible to further lower the spread. 

In this case, unlike in section VII.B.3.a, 

the rebate and access fee are therefore 

not neutral. Rather, the floor creates 

rents that in this case accrue to those 

liquidity suppliers that are able to get to 

the front of the queue the fastest. These 

rents are earned at the expense of 

liquidity takers and slower liquidity 

providers.1023

For stocks that are not constrained by 

the tick, rebates and access fees are 

again on average neutral, as we now 

show. Consider, for example, a stock 

with an economic spread of 2 cents. 

Absent a fee or rebate, the quoted spread 

would equal the economic spread 

rounded up to the next smallest tick, or 

this case, also 2 cents.1024 Given a 30 

mil rebate, a liquidity provider would 

be willing to quote a spread of 1.4 cents 

(the economic spread of 2 cents minus 

twice the 0.3 cents rebate, or 1.4 cents). 

However, given the tick, it is likely that 

the quoted spread would be a full 2 

cents. If it were any lower, the profitmaximizing liquidity provider would 

incur a marginal cost (the economic 

spread of 2 cents) that exceeds the 

marginal benefit (i.e., the next smaller 

quoted spread of 1 cent plus twice the 

0.3 cent rebate, or 1.6 cents). It is 

unlikely that the liquidity provider 

would be willing to do this.1025 Now, 

consider the perspective of the market 

participant taking liquidity. Because the 

liquidity taker is not typically on both 

sides of the trade, we use the halfspread to measure their costs due to the 

bid-ask spread.1026 This liquidity taker 

pays the half-spread along with the 

access fee. In this case, the half-spread 

is 1 cent and the access fee is 0.3 cents, 

so the total is 1.3 cents. As stated above, 

in the absence of rebates, the quoted 

spread would equal its economic spread 

of 2 cents. The half-spread would be 1 

cent, less than 1.3 cents, meaning that 

the liquidity taker pays more when 

there are fees and rebates. 

However, consider a stock with an 

economic spread of 2.5 cents. Given a 


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1027Let S* equal the economic spread, R the 

rebate, and the tick size. Then, for any integer N ≥1, 

the liquidity provider collects t¥ 2R more in profits 

under no rebates versus rebates when S* ∈ (tN, tN 

+ 2R], and 2R less in profits when S* e (tN + 2R,tN 

+ t]. These amounts sum to zero assuming a 

uniform distribution over the interval. The liquidity 

taker is on the other side of the trade; in total, the 

profits to providers are losses to takers, and so these 

also sum to zero. In contrast, for N >1, the liquidity 

provider collects profits 2R over the interval (0,t], 

The assumption of a uniform distribution over the 

interval is not necessary for the result. It is a 

reasonable and standard assumption given the lack 

of specific information on the properties S* of over 

intervals of length equal to the tick size. 

1028See Nasdaq Letter I at 23. 

1029 In the commenter’s example, prices account 

for the presence of a 1 cent tick. This explains why 

the liquidity provider is offering shares at $10.02 

and $10.03 and not at prices in between. The 

liquidity provider earns: ($10.02 * 651 + $10.03 * 

349)/1,000 = $10.02349 per share to sell 1,000 

shares. 

1030 ($10.02 * 651 + $10.03 * 349)/1,000 = 

$10.02349 per share to buy 1,000 shares. 

1031 (951 * $10.02 + 49 * $10.03)/1,000 + $0.003 

= $10.02349 per share, where $0.003 is the rebate 

per share. 

1032See section VII.E.3 for discussion of the 

commenter’s concerns regarding capital formation 

as it relates to reduced depth at the NBBO. 

1033Proposing Release, supra note 11, at 80328– 

29. 

1034See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 

1111–15 (D.C. Cir. 2022). This approach also 

follows Commission staff guidance on economic 

analysis for rulemaking. See Current Guidance on 

Economic Analysis in SEC Rulemaking, (Mar. 16, 

2012), available at https://www.sec.gov/divisions/ 

riskfin/rsfi_guidance_econ_analy_

secrulemaking.pdf (‘‘The economic consequences of 

proposed rules (potential costs and benefits 

including effects on efficiency, competition, and 

capital formation) should be measured against a 

baseline, which is the best assessment of how the 

world would look in the absence of the proposed 

action.’’); id. at 7 (‘‘The baseline includes both the 

economic attributes of the relevant market and the 

existing regulatory structure.’’). The best assessment 

of how the world would look in the absence of the 

proposed or final action typically does not include 

recently proposed actions, because that would 

improperly assume the adoption of those proposed 

actions. 

30 mil rebate, a liquidity provider 

would be willing to quote a spread of 

1.9 cents (the economic spread of 2.5 

cents minus twice the 0.3 cents rebate, 

or 1.9 cents). Again, given the tick, it is 

likely that the quoted spread would be 

a full 2 cents. The liquidity taker would 

again pay 1.3 cents. In this case, in the 

absence of rebates, it is likely that the 

quoted spread would be 3 cents. 

Otherwise, the profit-maximizing 

liquidity provider would incur a 

marginal cost (the economic spread of 

2.5 cents) that exceeds the marginal 

benefit (i.e., the next smallest quoted 

spread of 2 cents). Given that the quoted 

spread is 3 cents, the quoted half-spread 

would be 1.5 cents, so the liquidity 

taker would likely pay more if there 

were no fees and rebates. 

This same reasoning can be used to 

show that, except for stocks for which 

the economic spread is one cent or 

below, the effect of fees and rebates 

cancels out mathematically.1027 The 

main intuition is that, while liquidity 

providers will quote one tick lower if 

the rebate pushes the spread below the 

next smaller tick, liquidity demanders 

pay the access fee even if the rebate 

does not change the quoted spread. We 

show that the gains to liquidity 

demanders from this situation are 

exactly offset by their losses when the 

rebate does not result in quoting one 

tick lower, all provided that the 

economic spread is greater than one 

cent. Thus, the supply-demand curve 

reasoning in section VII.B.3.a is robust 

to the introduction of the tick, provided 

that the economic spread is greater than 

1 tick. In other words, for stocks for 

which the economic spread exceeds 1 

tick, fees and rebates are neutral on 

average. 

One commenter provides a numerical 

example that might appear to go against 

this neutrality result. In particular, the 

commenter states that, ‘‘because rebates 

also increase depth, it is possible that 

the costs of access fees for liquidity 

takers are more than offset by the tighter 

spreads and depth that they create.’’ 1028

The numerical example is as follows: A 

liquidity taker wants to buy 1,000 

shares, and the tick size is 1 cent. 

Without access fees and rebates, the 

liquidity provider is willing to sell 651 

shares at a price of $10.02 and 349 

shares at a price of $10.03, in which 

instance the liquidity provider earns 

$10.02349 per share.1029 The liquidity 

taker then pays an average of $10.02349 

per share to buy the 1,000 shares.1030 In 

the presence of an access fee and rebate 

of 30 mils per share (i.e., $0.003 per 

share), the commenter states that the 

liquidity provider is willing to sell all 

1,000 shares at $10.02, in which 

instance the liquidity provider earns 

only $10.023 per share (i.e., $10.02 per 

share + $0.003 rebate per share = 

$10.023 per share). The liquidity taker 

thus pays only $10.023 per share to buy 

the 1,000 shares in the presence of an 

access fee and rebate of 30 mils (i.e., 

$10.02 per share + $0.003 access fee per 

share = $10.023 per share). 

However, it is not clear from the 

example why the liquidity provider 

would be willing to offer all of the 1,000 

shares at $10.02 per share and earn only 

$10.023 per share in the presence of the 

rebate when it earned $10.02349 per 

share absent the rebate. Rather, in the 

presence of the rebate, the liquidity 

provider would be willing to sell 951 

shares at $10.02 and 49 shares at $10.03, 

in which instance it would also earn 

$10.02349 per share on average.1031

Depth does increase, as the commenter 

states. However, consistent with the 

neutrality argument, the liquidity taker 

pays exactly the same as without the 

fees and rebates. Thus, while tighter 

spreads offset the cost of access fees, 

they do not ‘‘more than offset’’ these 

fees.1032

The previous argument for neutrality 

pertained to stocks for which the 

economic spread was greater than one 

tick. For stocks for which the economic 

spread is less than 1 tick, however, fees 

and rebates are not neutral. Rather, 

because the quoted spread cannot fall to 

compensate for the rebate, provision of 

liquidity is overpriced at the spread of 

one tick. Because the price is artificially 

high, the supply of liquidity is 

distorted,1033 leading to rents for 

liquidity providers who can get to the 

top of the queue the fastest. It is harder 

as a result for slower liquidity 

providers, such as retail investors and 

institutions to have their limit orders 

executed. It is also more expensive for 

investors seeking to access liquidity. For 

these stocks, lowering the access fees 

lowers rents and improves market 

quality, making it cheaper to transact for 

investors as a whole. 

C. Baseline 

The baseline against which the costs, 

benefits, and the effects on efficiency, 

competition, and capital formation of 

the amendments are measured consists 

of the current state of the trading 

environment for NMS stocks, including 

pricing increments; current practice as it 

relates to order routing, quotes, fees, and 

rebates; and availability of data about 

quotes, fees, and rebates; and the 

current regulatory framework. The 

economic analysis appropriately 

considers existing regulatory 

requirements, including recently 

adopted rules, as part of its economic 

baseline against which the costs and 

benefits of the amendments are 

measured.1034


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Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81689 

1035See, e.g., CCMR Letter; Independent Trustees 

Letter; SIFMA Letter I; Citadel Letter I; Equity 

Market Structure Citadel Letter; ICAN Letter; Virtu 

Letter II; AIC Letter; AIMA Letter; Antitrust 

Division of the DOJ Letter; Wagner Letter; Danny 

Mulson Letter. See also supra notes 135 to 137, and 

surrounding text, discussing these comments. Many 

commenters referred to the ‘‘Equity Market 

Structure Proposals’’ as a group, and we understand 

that commenters intended this to mean the four 

rulemaking proposals the Commission issued on 

Dec. 14, 2022. Of those four, only one was adopted 

prior to these amendments. One commenter 

described ‘‘Interconnected Rules’’ to include those 

four proposed rules issued on Dec. 14, 2023, as well 

as certain rules that were previously or later 

adopted, see infra notes 1036 to 1046; and a variety 

of other proposed rules including Safeguarding 

Advisory Client Assets, Investment Advisers Act of 

1940 Release No. 6384 (Aug. 23, 2023), 88 FR 

14,672 (Mar. 9, 2023). See AIC Letter at 1 n.3, 9 n.30 

(listing rules and proposed rules, but not explaining 

a specific connection to the Proposing Release). 

1036 In addition, commenters also mentioned the 

proposal that was ultimately adopted as Private 

Fund Advisers; Documentation of Registered 

Investment Adviser Compliance Reviews, Advisers 

Act Release No. 6383 (Aug. 23, 2023), 88 FR 63206 

(Sept. 14, 2023) (‘‘Private Fund Advisers Adopting 

Release’’). On June 5, 2024, the Fifth Circuit issued 

a ruling that vacated the rules and amendments 

adopted in the Private Fund Advisers Adopting 

Release. Nat’l Ass’n of Priv. Fund Managers v. SEC, 

103 F.4th 1097 (2024). 

1037Shortening the Securities Transaction 

Settlement Cycle, Securities Exchange Act Release 

No. 96930 (Feb. 15, 2023), 88 FR 13872 (Mar. 6, 

2023) (‘‘Settlement Cycle Adopting Release’’). The 

rules and rule amendments adopted in the 

Settlement Cycle Adopting Release shorten the 

standard settlement cycle for most broker-dealer 

transactions from two business days after the trade 

date to one business day after the trade date. To 

facilitate an orderly transition to a shorter 

settlement cycle, a new rule also establishes 

requirements related to completing allocations, 

confirmations, and affirmations no later than the 

end of trade date for the processing of institutional 

transactions subject to the rule; requires registered 

investment advisers to make and keep records of 

each confirmation received, and of any allocation 

and each affirmation sent or received, with a date 

and time stamp for each allocation and affirmation 

indicating when it was sent or received; and 

requires clearing agencies that provide a central 

matching service to establish, implement, and 

enforce policies and procedures reasonably 

designed to facilitate straight-through processing 

and to file an annual report regarding progress with 

respect to straight-through processing. With certain 

exceptions, the rule has a compliance date of May 

28, 2024. See Settlement Cycle Adopting Release, 

section VII. 

1038 Form PF: Reporting Requirements for All 

Filers and Large Hedge Fund Advisers, Advisers Act 

Release No. 6546 (Feb. 8, 2024), 89 FR 17984 (Mar. 

12, 2024) (‘‘February 2024 Form PF Adopting 

Release’’). The Form PF amendments are designed 

to enhance the Financial Stability Oversight 

Council’s ability to monitor systemic risk as well as 

bolster the SEC’s regulatory oversight of private 

fund advisers and investor protection efforts. The 

compliance date for the rule is Mar. 12, 2025. 

February 2024 Form PF Adopting Release, section 

II.F. 

1039 Form PF; Event Reporting for Large Hedge 

Fund Advisers and Private Equity Fund Advisers; 

Requirements for Large Private Equity Fund Adviser 

Reporting, Investment Company Act of 1940 

Release No. 6297 (May 3, 2023), 88 FR 38146 (June 

12, 2023) (‘‘May 2023 SEC Form PF Adopting 

Release’’). The Form PF amendments adopted in 

May 2023 require large hedge fund advisers and all 

private equity fund advisers to file reports upon the 

occurrence of certain reporting events. The 

compliance dates were Dec. 11, 2023, for the event 

reports in Form PF sections 5 and 6, and June 11, 

2024, for the remainder of the Form PF 

amendments in the May 2023 SEC Form PF 

Adopting Release. See May 2023 SEC Form PF 

Adopting Release, section II.E. 

1040 Further Definition of ‘‘As a Part of a Regular 

Business’’ in the Definition of Dealer and 

Government Securities Dealer in Connection with 

Certain Liquidity Providers, Securities Exchange 

Act Release No. 34–99477 (Feb. 6, 2024), 89 FR 

14938 (Feb. 29, 2024) (‘‘Dealer Adopting Release’’). 

New Rules 3a5–4 and 3a44–2 further define the 

phrase ‘‘as a part of a regular business’’ as used in 

the statutory definitions of ‘‘dealer’’ and 

‘‘government securities dealer.’’ The compliance 

date is Apr. 29, 2025, for persons engaging in 

activities that meet the qualitative factors under the 

final rules. See Dealer Definition Adopting Release, 

section II.B. 

1041 Modernization of Beneficial Ownership 

Reporting, Securities Act of 1933 Release No. 11253 

(Oct. 10, 2023), 88 FR 76896 (Nov. 7, 2023) 

(‘‘Beneficial Ownership Adopting Release’’). Among 

other things, the amendments generally shorten the 

filing deadlines for initial and amended beneficial 

ownership reports filed on Schedules 13D and 13G, 

and require that Schedule 13D and 13G filings be 

made using a structured, machine-readable data 

language. The amendments are effective Feb. 5, 

2024. The new filing deadline for Schedule 13G 

will not be required before Sept. 30, 2024, and the 

rule’s structured data requirements will not be 

required until Dec. 18, 2024. Beneficial Ownership 

Adopting Release, section II.G. 

1042Reporting of Securities Loans, Securities 

Exchange Act Release No. 98737 (Oct. 13, 2023), 88 

FR 75644 (Nov. 3, 2023) (‘‘Rule 10c–1a Adopting 

Release’’). This rule requires any covered person 

who agrees to a covered securities loan on behalf 

of itself or another person to report specified 

information about the covered securities loan to a 

registered national securities association (currently 

FINRA is the only registered national securities 

association)—or rely on a reporting agent to do so— 

and requires the registered national securities 

association to make certain information it receives 

available to the public. Covered persons will 

include market intermediaries, securities lenders, 

and broker-dealers, while reporting agents include 

certain brokers, dealers, or registered clearing 

agencies. The rule’s compliance dates require that 

the registered national securities association 

propose rules pursuant to Rule 10c–1a(f) by May 2, 

2024, and the proposed rules shall be effective no 

later than Jan. 2, 2025; that covered persons report 

Rule 10c–1a information to a registered national 

securities association on or by Jan. 2, 2026 (which 

requires that the registered national securities 

association have implemented data retention and 

availability requirements for reporting); and that the 

registered national securities association publicly 

report Rule 10c–1a information by Apr. 2, 2026. 

Rule 10c–1a Adopting Release, section VIII. 

1043Short Position and Short Activity Reporting 

by Institutional Investment Managers, Securities 

Exchange Act Release No. 98738 (Oct. 13, 2023), 88 

FR 75100 (Nov. 1, 2023) (‘‘Short Position Reporting 

Adopting Release’’). Under the new rule, 

institutional investment managers that meet or 

exceed certain specified reporting thresholds are 

required to report, on a monthly basis using the 

related form, specified short position data and short 

activity data for equity securities. The compliance 

date is Jan. 2, 2025. See Short Position Reporting 

Adopting Release, section VI. In addition, the 

Commission adopted an amendment to the national 

market system (‘‘NMS’’) plan governing the 

consolidated audit trail (‘‘CAT’’) created pursuant 

to the Exchange Act to require the reporting of 

reliance on the bona fide market making exception 

in the Commission’s short sale rules. The 

Commission published the text of the amendment 

to the NMS plan governing the CAT (‘‘CAT NMS 

Plan’’) in a separate notice. The compliance date for 

the amendment to the CAT NMS Plan is July 1, 

2025. See SEC, Notice of the Text of the 

Amendment to the National Market System Plan 

Governing the Consolidated Audit Trail for 

Purposes of Short Sale-Related Data Collection, 

Securities Exchange Act Release No. 98739 (Oct. 13, 

2023), 88 FR 75079 (Nov. 1, 2023). 

1044Rule 605 Amendments, supra note 10. The 

Commission adopted amendments to rules 

requiring disclosures for order executions in NMS 

stocks, including expanding the scope of reporting 

entities, modifying the scope of orders covered by 

the rule, and modifying the information required to 

be reported under the rule. The rule has an effective 

date of June 14, 2024, and, with a few exceptions, 

a compliance date of Dec. 14, 2025. See Rule 605 

Amendments, section VII. 

1045Standards for Covered Clearing Agencies for 

U.S. Treasury Securities and Application of the 

Broker-Dealer Customer Protection Rule with 

Respect to U.S. Treasury Securities, Securities 

Exchange Act Release No. 99149 (Dec. 13, 2023), 89 

FR 2714 (Jan. 16, 2024) (‘‘Treasury Clearing 

Adopting Release’’). Among other things, the 

amendments require covered clearing agencies for 

U.S. Treasury securities to have written policies 

and procedures reasonably designed to require that 

every direct participant of the covered clearing 

agency submit for clearance and settlement all 

eligible secondary market transactions in U.S. 

Treasury securities to which it is a counterparty. 

The compliance date was Mar. 18, 2024, for covered 

clearing agencies to file any proposed rule changes 

pursuant to Rules 17Ad–22(e)(6)(i), 17Ad– 

22(e)(18)(iv)(C), and 15c3–3, which must be 

effective by Mar. 31, 2025. With respect to the 

changes to Rule 17Ad–22(e)(18)(iv)(A) and (B), (i) 

covered clearing agencies were required to file any 

proposed rule changes regarding those amendments 

no later than June 14, 2024, and (ii) those changes 

must be effective by Dec. 31, 2025, for cash market 

transactions encompassed by section (ii) of the 

definition of an eligible secondary market 

transaction, and by June 30, 2026, for repo 

transactions encompassed by section (i) of the 

definition of eligible secondary market transactions. 

Finally, the Commission amended the broker-dealer 

customer protection rule to permit margin required 

and on deposit with covered clearing agencies for 

U.S. Treasury securities to be included as a debit 

in the reserve formulas for accounts of customers 

Continued 

Several commenters requested that 

the Commission consider interactions 

between the economic effects of the 

proposed rule and other recent 

Commission rules.1035 Since the date of 

the Proposing Release, the Commission 

has adopted eight rules mentioned by 

commenters,1036 namely the Settlement 

Cycle Adopting Release,1037 the 

February 2024 Form PF Adopting 

Release,1038 the May 2023 SEC Form PF 

Adopting Release,1039 the Dealer 

Adopting Release,1040 the Beneficial 

Ownership Adopting Release,1041 Rule 

10c–1a Adopting Release,1042 the Short 

Position Reporting Adopting 

Release,1043 and the Rule 605 

Amendments.1044 The Commission has 

also considered the potential effects on 

entities that are implementing other 

recently adopted rules during the 

compliance period for these 

amendments, including the Treasury 

Clearing Adopting Release 1045 and the 


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and proprietary accounts of broker-dealers, subject 

to certain conditions. Compliance by the direct 

participants of a U.S. Treasury securities covered 

clearing agency with the requirement to clear 

eligible secondary market transactions is not 

required until Dec. 31, 2025, and June 30, 2026, 

respectively, for cash and repo transactions. See 

Treasury Clearing Adopting Release, section III. 1046Regulation S–P: Privacy of Consumer 

Financial Information and Safeguarding Customer 

Information, Securities Exchange Act Release No. 

100155 (May 15, 2024), 89 FR 47688 (June 3, 2024) 

(‘‘Customer Notification Adopting Release’’). The 

Commission amended Regulation S–P to require 

brokers, dealers, investment companies, registered 

investment advisers, and transfer agents registered 

with the Commission or another appropriate 

regulatory agency to adopt written policies and 

procedures for incident response programs to 

address unauthorized access to or use of customer 

information. These must include procedures for 

providing timely notification to individuals affected 

by an incident involving sensitive customer 

information with details about the incident and 

information designed to help affected individuals 

respond appropriately. Among other things, the 

amendments also broadened the scope of 

information covered by the safeguards rule and the 

disposal rule, and extended the requirements to 

safeguard customer records and information to all 

transfer agents. The compliance date for larger 

entities is Dec. 3, 2025, and for smaller entities, 

June 3, 2026. Customer Notification Adopting 

Release, section II.F. 

1047Some commenters assumed that the four 

proposed rules issued on Dec. 14, 2022, would be 

implemented simultaneously, and therefore stated 

that the baseline in the Proposing Release was 

inaccurate to the extent it did not contemplate that 

the other rules have gone into effect. See, e.g., 

Equity Market Structure Citadel Letter at 15. As 

discussed above, however, our baseline does not 

assume the adoption of proposed rules. Instead, the 

baseline changes incrementally with each adopted 

rule. To the extent those or other proposals are 

adopted in the future, the baseline in those 

subsequent rulemakings will reflect the existing 

regulatory requirements at that time. 

1048See infra section VII.D.6.b. 

1049See, e.g., SIFMA Letter II (stating that variable 

tick sizes could diminish the ability to compare 

execution quality using the Rule 605 disclosures); 

Citadel Letter II (stating execution quality statistics 

are important to understanding the effects of these 

amendments on market quality); AIMA Letter 

(suggesting finalization of the proposed Rule 605 

amendments would, along with the MDI round lot 

order definition, provide a much more informed 

economic baseline against which to assess other 

equity market structure proposals); see also infra 

section VII.D.6.a, discussing this topic. 

1050See, e.g., NYSE Continued Listing Standards, 

§ 802.01C, available at https://www.nyse.com/ 

listings/resources; Rulebook—The Nasdaq Stock 

Market, § 5400, available at https://listingcenter.

nasdaq.com/rulebook/nasdaq/rules. 

1051See Reg NMS Rule 610(d). A locked market 

occurs when the bid and ask price for a security are 

identical. A crossed market occurs when the bid is 

higher than the ask. 

1052The term ‘‘wholesaler’’ is not defined in 

Regulation NMS, but commonly refers to a brokerdealer acting as an OTC market maker that 

primarily focuses on attracting orders from brokerdealers that service the accounts of a large number 

of individual investors, referred to in this release as 

‘‘retail brokers.’’ 1053See Securities Exchange Act Release No. 

67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) 

(approving retail liquidity programs on a pilot basis 

for NYSE and NYSE Amex and granting rule 612 

exemption) (‘‘NYSE Retail Liquidity Program 

Approval Order’’); see also CBOE BYX Rule 11.24; 

Securities Exchange Act Release No. 68303 (Nov. 

27, 2012), 77 FR 71652 (Dec. 3, 2012) (CBOE BYX 

Retail Pilot Program Approval Order); and Nasdaq 

BX Equity Rule 4780; Exchange Act Release No. 

73702 (Nov. 28, 2014), 79 FR 72049 (Dec. 4, 2014) 

(NASDAQ BX Retail Pilot Program Approval 

Order). 

1054See discussion in supra section III.C.1. 1055See specifically, NYSE Retail Liquidity 

Program Approval Order, supra note 1053, at 

40679. The Commission stated that ‘‘[i]nternalizing 

broker-dealer[s] can offer sub-penny executions, 

provided that such executions do not result from 

impermissible sub-penny orders or quotations’’ by 

‘‘typically select[ing] a sub-penny price for a trade 

without quoting at that exact amount or accepting 

orders from retail customers seeking that exact 

price.’’ 

1056See, e.g., UTP Participant Input Specification 

(April 2024), available at https://www.utpplan.com/ 

DOC/UtpBinaryInputSpec_Fractional.pdf. 1057See Proposing Release, supra note 11, at 

80272 n.70 (citing to industry and academic 

Customer Notification Adopting 

Release.1046 These recently adopted 

rules were not included as part of the 

baseline in the Proposing Release 

because they were not yet adopted at 

that time, but they are part of the 

baseline in this analysis.1047 In response 

to commenters, this economic analysis 

considers potential economic effects 

arising from any overlap in compliance 

dates between these amendments and 

the other recent amendments.1048 It also 

considers interactions between these 

amendments and the Rule 605 

Amendments.1049

1. Tick Sizes 

Preexisting Rule 612 of Regulation 

NMS restricts the ability of venues to 

display, rank, or accept quotations in 

NMS stocks beyond a certain minimum 

quoting increment (or tick). This section 

discusses current regulation on tick 

sizes and Commission analysis showing 

that the current tick size acts as a 

binding price floor on the quoted spread 

a significant portion of the time for a 

large fraction of the share volume 

transacted in NMS stocks. 

a. Current Regulations 

Preexisting Rule 612 of Regulation 

NMS, which came into effect on August 

29, 2005, prohibited a national 

securities exchange, national securities 

association, ATS, vendor, or broker or 

dealer from displaying, ranking, or 

accepting quotations, orders, or 

indications of interest in any NMS stock 

priced in an increment smaller than 

$0.01 if the quotation, order, or 

indication of interest is priced equal to 

or greater than $1.00 per share. If the 

quotation, order, or indication of 

interest is priced less than $1.00 per 

share, the minimum pricing increment 

is $0.0001. Most listing exchanges 

require stocks listed on their exchanges 

to maintain a price greater than $1.00 

per share, and consequently $0.01 is the 

prevailing tick size for most quotes and 

orders for NMS stocks.1050 Preexisting 

Rule 612 of Regulation NMS effectively 

establishes $0.01 as the minimum 

spread that can be quoted for stocks 

priced equal to, or greater than, $1.00 

per share because the NBBO is 

determined by the best displayed round 

lot quotes, and exchanges are required 

to have rules in place to avoid and 

reconcile locked and crossed 

quotations.1051

While preexisting Rule 612 of 

Regulation NMS restricts quoting or 

submitting orders in sub-penny 

increments for NMS stocks priced 

greater than or equal to $1.00, it does 

not restrict trading in sub-penny 

increments. Sub-penny trading on 

exchanges and ATSs occurs primarily as 

a result of midpoint orders and 

benchmark trades. Benchmark trades, 

such as volume weighted average price 

(‘‘VWAP’’) and time weighted average 

price (‘‘TWAP’’) orders, may not be 

explicitly priced in an impermissible 

sub-penny increment, but the ultimately 

determined execution price may be in a 

sub-penny increment. Trading at subpenny increments also occurs as a result 

of broker-dealers, including some OTC 

market makers known as wholesalers, 

internalizing customer order flow at 

sub-penny prices.1052

Sub-penny trading on registered 

exchanges may also occur as a result of 

their RLPs. The Commission granted 

exemptions from Rule 612 to various 

national securities exchanges’ RLPs as a 

means to allow them to compete with 

OTC sub-penny price improvement.1053

Under the RLPs, exchanges can accept 

and rank certain quotes and orders from 

certain participants in sub-penny 

increments as small as $0.001.1054 The 

national securities exchanges designed 

the RLPs to attract retail orders by 

providing a potential for price 

improvement at sub-penny levels 

because ‘‘most marketable retail order 

flow is executed in the OTC markets, 

pursuant to bilateral agreements, 

without ever reaching a public 

exchange’’ and OTC market makers 

typically pay retail brokers for their 

order flow.1055 Quotes in RLP programs 

are not displayed. Instead, the 

appropriate SIP disseminates a flag 

indicating the side of the market for 

which an exchange has an RLP quote 

available at a price better than the 

NBBO. Because the exclusive SIP does 

not make known the price or the size of 

the RLP quote, market participants do 

not see the full liquidity available in 

RLP programs.1056 To date, RLPs have 

not attracted a significant volume of 

retail order flow.1057


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discussions on why RLPs may not attract significant 

retail order flow). 

1058See Lewis Letter at 33–34, attached to Virtu 

letter II. 

1059See Proposing Release, supra note 11, table 

4. 

1060The data derived in table 3 was derived using 

the same methodology as corresponding table 4 in 

the Proposing Release (PR table 4). See Proposing 

Release, supra note 11, at 80308. The only 

differences between the tables are that table 3 uses 

data for all trading days in 2023 (instead of from 

Jan. to May 2022 in PR table 4), and table 3, because 

of our policy choice to set the minimum tick size 

at 0.5c (for quotes and orders priced $1.00 or more 

for NMS stocks that have a TWAQS of $0.015 or 

less), adds tick size bins for quoted spreads from 

1.1c to 1.5c and 1.5c to 2c. 

1061Because of the $0.01 minimum quoting 

increment for NMS stocks priced equal to or greater 

than $1.00 per share, a stock cannot have a quoted 

spread less than $0.01 unless markets become 

locked or crossed. The existence of locked and 

crossed markets can in some cases result in time 

weighted quoted spread that are very slightly lower 

than $0.01. However, even for stocks with spreads 

most constrained by the tick, even a faction of a 

second spent with a higher spread would likely 

result in an average quoted spread higher than 

$0.01. For example, a large trade can exhaust 

liquidity deeper in the limit order book such that 

the stock’s quoted spread temporarily increases 

from $0.01. Thus, time weighed quoted spreads will 

virtually always be greater than $0.01. This makes 

$0.011 a more pragmatic minimum cutoff for 

empirical analysis than $0.01. 

1062For the share volume, 74.3% = 65.2% (i.e., 

Quoted Spread ≤ $0.011) + 9.1% (i.e., $0.015 

< Quoted Spread <= $0.02). For the dollar volume, 

46.8% = 31.5% (i.e., Quoted Spread ≤ $0.011) + 

15.3% (i.e., $0.015 < Quoted Spread <= $0.02). See 

supra section VII.B.2 for a definition of tickconstrained; see also Proposing Release, supra note 

11, table 4, which used the same methodology and 

estimated that, in the first six months of 2022, 56% 

of share volume transacted in NMS stocks with a 

quoted spread of < $0.011, while an additional 15% 

of share volume traded in stocks with a quoted 

spread of $0.011 < and <= $0.02. 

1063See, e.g., General Electric, GE Reverse Stock 

Split Frequently Asked Questions as of September 

21, 2021, at 1, available at https://www.ge.com/ 

sites/default/files/GE_Reverse_Stock_Split_

FAQs.pdf (last accessed July 27, 2024). See also 

FINRA, Stock Splits, available at https://

www.finra.org/investors/investing/investmentproducts/stocks/stock-splits. 

One commenter stated the ability to 

trade in increments of smaller than a 

penny in certain circumstances as 

means of suggesting that there may be 

no need for rulemaking.1058 However, it 

is not possible to post a displayed quote 

at an increment other than a penny. The 

economic forces that govern the 

tradeoffs in determining the tick size 

depend on the quote being displayed, 

ranked, and accepted. The empirical 

analysis also pertains to displayed 

quotes. 

b. Analysis of Quoted Spreads Under 

Current Ticks 

This section discusses empirical 

analysis by the Commission on the 

prevalence of trading at different quoted 

spread ranges, defined in the Proposing 

Release using the concept of 

TWAQS.1059 To document the 

prevalence of trading at different quoted 

spread ranges, table 3 presents data on 

trading volume in 2023 based on 

average time weighted quoted spreads 

throughout the entire year for NMS 

stocks with a quotation, order, or 

indication of interest priced equal to or 

greater than $1.00 per share.1060 The 

analysis breaks trading volume each day 

into one of 17 average quoted spread 

bins, beginning with stocks that have 

TWAQS less than or equal to $0.011.1061

Table 3 also reports the daily average 

number of stocks in each bin. 

The data analysis in table 3 indicates 

that under the current tick size regime 

in 2023, 65.2% of share trading volume 

(31.5% of dollar volume) occurred in 

stocks in the first average quoted spread 

bin of $0.011 or less. Table 3 also 

reports that an additional 9.1% of share 

volume (15.3% of dollar volume) 

occurred in stocks with quoted spreads 

between $0.011 and $0.015. In sum, in 

table 3, in 2023, approximately 74.3% of 

share volume (46.8% of dollar volume) 

transacted in NMS stocks (specifically, 

NMS stocks with a quotation, order, or 

indication of interest priced equal to or 

greater than $1.00 per share) which have 

a quoted spread that is likely to be 

constrained by the minimum pricing 

increment,1062 which as discussed both 

above (section VII.B.2) and below 

(VII.D.1) increases transaction costs. 

TABLE 3—SHARE VOLUME BY QUOTED SPREAD 2023 a

Quoted spread Share volume 

(%) 

Dollar volume 

(%) 

Average # 

stocks 

Quoted Spread ≤ $0.011 ............................................................................................................. 65.2 31.5 1,782 

$0.011 < Quoted Spread <= $0.015 ........................................................................................... 9.1 15.3 638 

$0.015 < Quoted Spread <= $0.02 ............................................................................................. 4.2 5.2 560 

$0.02 < Quoted Spread <= $0.03 ............................................................................................... 5.7 8.4 1,036 

$0.03 < Quoted Spread <= $0.04 ............................................................................................... 3.6 7.6 811 

$0.04 < Quoted Spread <= $0.05 ............................................................................................... 2.1 3.6 673 

$0.05 < Quoted Spread <= $0.06 ............................................................................................... 1.5 2.3 582 

$0.06 < Quoted Spread <= $0.07 ............................................................................................... 1.2 2.1 522 

$0.07 < Quoted Spread <= $0.08 ............................................................................................... 1.0 1.8 445 

$0.08 < Quoted Spread <= $0.09 ............................................................................................... 0.8 1.6 377 

$0.09 < Quoted Spread <= $0.10 ............................................................................................... 0.7 1.6 317 

$0.10 < Quoted Spread <= $0.11 ............................................................................................... 0.6 1.5 271 

$0.11 < Quoted Spread <= $0.12 ............................................................................................... 0.5 1.3 222 

$0.12 < Quoted Spread <= $0.13 ............................................................................................... 0.4 1.1 187 

$0.13 < Quoted Spread <= $0.14 ............................................................................................... 0.3 1.1 163 

$0.14 < Quoted Spread <= $0.15 ............................................................................................... 0.3 1.0 144 

$0.15 < Quoted Spread ............................................................................................................... 2.8 13.0 2,177 

aThis table provides share volume by stocks with different quoted spread profiles. To create this table, for each day the universe of stocks 

(identified by a unique stock variable) covered in the WRDS Intra-Day Indicators data are assigned into one of the 17 quoted spread bins based 

on that day’s time weighted quoted spread as computed by WRDS Intra-Day Indicators. Then all share and dollar trading volume across all trading days in 2023 is aggregated for each of the 17 quoted spread bins. Percentages based on these totals are then computed. This table also 

presents the daily average number of stocks in each bin. To compute this variable, for each trading day in 2023, the number of stocks in each 

bin is tabulated, then the average across all trading days is presented here. Certain items in this table 3 may also be affected by the MDI Rules 

once they are fully implemented. See infra section VII.C.3. 

c. Reverse Stock Splits 

A reverse split exchanges a fixed 

number of existing shares for a smaller 

number of new shares. The new shares 

have a higher price, but there are fewer 

of them.1063 For example, if an issuer 

undergoes an 8-for-1 reverse split, eight 

shares are exchanged for one share that 

is worth the same as the eight, 


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1064For example, suppose a stock trades at $10 

per share and is tick-constrained such that it trades 

with a quoted spread of $0.01, but could sustain a 

quoted spread of $0.004 if not for the penny tick. 

If the stock undergoes a 5-for-1 reverse split, then 

the share price would rise to $50 (5*$10) and the 

quoted spread would rise to $0.02 (5*$0.004). The 

reverse split thereby alleviates the tick constraint. 

The reverse split also reduces trading costs in this 

case. To see the reduction in costs, suppose an 

investor wants to submit a market order for $100 

worth of the stock. With a $10 price and a $0.005 

half-spread, this would entail purchasing five 

shares and paying a transaction cost of $0.025 (i.e., 

five times the half-spread of $0.005). With a $50 

price and a $0.01 half-spread, however, the market 

order would only entail purchasing two shares and 

paying a transaction cost of $0.02 (i.e., two times 

the half-spread of $0.01), thus reducing transaction 

costs by 25%. See infra note 1295 and surrounding 

discussion for empirical studies documenting a 

reduction in trading costs when tick-constrained 

stocks complete a reverse split. 

1065See Virtu Letter II at 25. 

1066 Id. at 25. 

1067See, e.g., Hemang Desai & Prem C. Jain, LongRun Common Stock Returns Following Stock Splits 

and Reverse Splits, 70 J. Business 3 (July 1997); Kim 

et al., Return Performance Surrounding Reverse 

Stock Splits: Can Investors Profit?, 37 Fin. Mgmt. 

2 (Summer 2008). 

1068For a discussion on the signal conveyed by 

stock splits, see, e.g., Maureen McNichols & Ajay 

Dravid, Stock Dividends, Stock Splits, and 

Signaling, 45 J. Fin. 3 (July 1990); David L. 

Ikenberry et al., What Do Stock Splits Really 

Signal?, 31 J. Fin. & Quantitative Analysis 3 (Sept. 

1996). The academic literature on signaling 

generally uses stock splits (rather than reverse 

splits) because standard databases do not include 

the announcement date of reverse splits, which 

makes the measurement of the market reaction to 

the announcement of a reverse split imprecise. 

Once the reverse split is completed, however, the 

academic literature documents negative returns— 

see id. 

1069See, e.g., Kelly Shue & Robert Townsend, Can 

the Market Multiply and Divide? Non-Proportional 

Thinking in Financial Markets, 76 J. Fin 5 (Oct. 

2021). This paper documents greater return 

responses to news in lower-priced stocks and 

hypothesizes that some investors think about stock 

price changes in terms of dollars rather than 

returns. The paper studies reverse stock splits and 

finds evidence consistent with this hypothesis. 

1070See Weld et al., The Nominal Share Price 

Puzzle, 23 J. Econ. Perspectives 2 (Spring 2009). 

The authors estimate the administrative costs of 

stock splits. Reverse stock splits are likely to have 

similar administrative costs. After adjusting for 

changes in the consumer price index from 2009 to 

2024, the paper’s estimated direct administrative 

cost of a split for a large issuer in 2024 is $365,000 

to $1,170,000. 

1071See The Tick Size Debate Revisited attached 

to MEMX Letter at 69. 

1072See Proposing Release, supra note 11, at 

80309. 

1073See Regulation NMS Adopting Release, supra 

note 4, at 37545 (justifying the 30 mil limit: ‘‘For 

quotations to be fair and useful, there must be some 

limit on the extent to which the true price for those 

who access quotations can vary from the displayed 

price . . . . To protect limit orders, orders must be 

routed to those markets displaying the best-priced 

quotations. This purpose would be thwarted if 

market participants were allowed to charge 

exorbitant fees that distort quoted prices’’); see also 

supra note 434 and surrounding discussion from 

the Regulation NMS Adopting Release on the 

potential—absent a fee cap—for high fee markets to 

take advantage of intermarket price protections. 

1074See id. at 37503 (the 30 mil access fee cap 

was chosen because ‘‘it will not seriously interfere 

with current business practices’’ and ‘‘[i]n the 

absence of a fee limitation, some ‘outlier’ trading 

centers might take advantage of the requirement to 

protect displayed quotations by charging exorbitant 

fees to those required to access the outlier’s 

quotations’’); see also supra note 357. 

1075See infra table 4 for a summary of 

transaction-based fee schedules for U.S. national 

equities exchanges as of Feb. 2024. 

1076While Rule 611 creates incentives for 

exchanges to use high fees and rebates in order to 

quote at the NBBO—see infra note 1120—not all 

exchanges compete on this margin (e.g., inverted 

exchanges). 

1077See infra section VII.D.2 for more discussion 

on why exchanges may not subsidize rebates from 

other sources of revenue; see also Eric Budish, et 

al., A Theory of Stock Exchange Competition and 

Innovation: Will the Market Fix the Market? 

(working paper May 22, 2019) available at https:// 

ssrn.com/abstract=3391008 (retrieved from SSRN 

Elsevier database). 

increasing the price by a factor of eight. 

All else equal, one would expect the 

quoted spread, which represents the 

per-share trading costs to also rise by a 

factor of eight. Thus, the cost of 

transacting in the stock, for a given 

dollar exposure, would remain constant. 

However, if a stock were tick 

constrained, undergoing a reverse split 

would cause the tick to become smaller 

relative to the (higher) stock price, 

thereby alleviating the tick constraint 

and reducing transaction costs.1064

Using this logic, one commenter 

pointed out that currently the problem 

that the Commission identifies with 

regard to tick constrained stocks could 

be solved without Commission action 

by issuers making the decision to 

undergo a reverse stock split.1065 The 

commenter further states, ‘‘[t]he fact that 

issuers do not discuss this indicates the 

issue is immaterial to them.’’ 1066 While 

the Commission agrees that a reverse 

split alleviates the tick constraint, there 

may be reasons that an issuer may 

choose not to undergo a reverse split 

apart from an assessment of the 

immateriality of tick constraints. 

Reverse splits have historically been 

associated with negative stock 

returns.1067 Research suggests that this 

may be because the market views stock 

splits as a signal,1068 and issuers may 

not wish to give the appearance of bad 

news with a reverse split. Reverse splits 

also change the share price, which may 

affect the trading characteristics of the 

stock.1069 In addition, the direct 

administrative costs of a stock split for 

a large issuer are estimated to be 

between $250,000 and $800,000 (as of 

2009).1070 Finally, an issuer may not 

capture all of the benefits of the 

liquidity arising from the reverse split 

and the alleviated constraints. In sum, 

though reverse stock splits may address 

tick constraints, they are an inefficient 

solution for tick constrained securities. 

One commenter agreed, stating that 

‘‘while issuers can make pricing in their 

securities more or less granular through 

reverse or forward splits, it’s not 

practical for the SEC and the industry to 

rely on them to do so.’’ 1071

2. Access Fees 

This section discusses current 

regulation on the access fee cap, the 

current practices at exchanges for 

setting access fees and rebates, and 

Commission analysis showing that most 

exchanges assess access fees close to the 

current access fee cap and use these 

access fees to principally fund rebates. 

a. Current Regulations 

Preexisting Rule 610(c) limits the fees 

that trading centers can charge for 

accessing protected quotations with 

prices of $1.00 per share or greater to 

$0.0030 per share (or 30 cents per 100 

shares). This level is commonly referred 

to as 30 mils.1072 Preexisting Rule 610 

also prohibits access fees in excess of 

0.3% of the price for stocks priced less 

than $1.00 per share. The 30 mil fee cap 

was adopted as a part of Regulation 

NMS in conjunction with the order 

protection rule and was implemented to 

prevent trading centers from charging 

excessive fees to orders that were 

required to trade with a protected 

quote.1073 The 30 mil fee cap was also 

set based on existing market practices at 

the time.1074 Rule 610(c) only regulates 

fees to access protected quotes; it does 

not regulate fees to access non-protected 

quotes, nor does it regulate rebates that 

exchanges can offer. However, the 30 

mil fee cap has become a central 

component of the structure of fees and 

rebates as access fees for non-protected 

quotes generally do not exceed the 30 

mil fee cap, nor do typical rebates.1075

b. Current Practices at Exchanges 

The transaction fee structure on an 

exchange currently takes one of three 

forms. The most common is makertaker, in which liquidity demanders 

(i.e., takers) are assessed the access fee 

and liquidity providers (i.e., makers) are 

offered a rebate. Exchanges can also be 

inverted (also known as taker-maker), in 

which liquidity demanders are offered a 

rebate and liquidity providers are 

assessed an access fee.1076 The last form 

of fee structure is flat; a flat exchange 

either charges one or both sides a fee but 

does not offer rebates. While the 

exchanges are free to subsidize rebates 

beyond what they earn through 

collecting access fees, in practice this 

does not appear to happen.1077 The 

difference between the average access 

fee charged and the average rebate paid 


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1078See Proposing Release, supra note 11, at 

80291 n.304 (‘‘Net capture’’ is the amount earned 

by the trading center for facilitating a transaction, 

which is typically the difference between the 

average access fee charged by the trading center and 

the average rebate paid by the trading center’’). It 

is common practice across exchanges to fund their 

rebates with transaction fees. In principle rebates 

could exceed access fees as, unlike access fees, 

there is no regulatory cap restricting the rebates that 

can be offered. However, it is unlikely that trading 

venues would offer rebates in excess of the fees 

collected as doing so would expose them to the 

possibility of large losses. See supra note 1101 and 

accompanying text for further discussion on 

exchanges’ net capture rates. 

1079As can be seen from table 4, which presents 

information on access fees and rebates for the 16 

operating exchanges, in practice the fee that is 

charged on an inverted fee venue to post liquidity 

is generally very close to the 30 mil access fee cap 

even though not constrained by Rule 610. 

1080As can be seen from table 4, the only flat 

exchange (LTSE) is one that does not levy either a 

fee or rebate and prior to adopting a maker-taking 

fee model another exchange (IEX) had charged both 

sides of the transaction 9 mils. See Proposing 

Release, supra note 11, at 80311. 

1081See table 4 for information on how often 

exchanges amend their fees. 

1082See Proposing Release, supra note 11, at 

80292. 

1083See Letter from Richard Steiner, Electronic 

Trading Strategist, RBC Capital Markets, to Brent 

Fields, Secretary, Commission (Oct. 16, 2018), 

available at https://www.sec.gov/comments/s7-05- 

18/s70518-4527261-176048.pdf (commenting on the 

transaction fee pilot); see also the Fee Tiers 

Proposal, supra note 437. 

1084See Chester Spatt, Is Equity Market Exchange 

Structure Anti-Competitive? (Dec. 28, 2020), 

available at https://www.cmu.edu/tepper/facultyand-research/assets/docs/anti-competitiverebates.pdf. However, not all exchanges offer 

volume-based tiers in their fee structures. For 

example, LTSE does not charge fees to transact. For 

exchanges like these, it is possible to determine 

with certainty the cost to transact prior to executing 

a trade. 

1085The Equity Data Plans disseminate SIP data 

over three separate networks: (1) Tape A for 

securities listed on the New York Stock Exchange 

(‘‘NYSE’’); (2) Tape B for securities listed on 

exchanges other than NYSE and Nasdaq; and (3) 

Tape C for securities listed on Nasdaq. These tapes 

are referred to as the ‘‘consolidated tapes.’’ The 

CTA Plan governs the collection, consolidation, 

processing, and dissemination of last sale 

information for Tape A and Tape B securities. The 

CQ Plan governs the collection, consolidation, 

processing, and dissemination of quotation 

information for Tape A and Tape B securities. 

Finally, the UTP Plan governs the collection, 

consolidation, processing, and dissemination of last 

sale and quotation information for Tape C 

securities. For details on exchange volume-based 

fees and rebates, see, e.g., Add and Remove Rates, 

Nasdaq, available at http://www.nasdaqtrader.com/ 

Trader.aspx?id=PriceListTrading2; New York Stock 

Exchange Price List 2024, NYSE, available at 

https://www.nyse.com/publicdocs/nyse/markets/ 

nyse/NYSE_Price_List.pdf; and Cboe U.S. Equities 

Fee Schedules EDGX Equities, Cboe, available at 

https://www.cboe.com/us/equities/membership/fee_

schedule/edgx/. See also the Fee Tiers Proposal 

supra note 437 at 76284–88, describing Commission 

concerns about the effect of tiers on competition 

among exchange members, conflicts of interest 

between members and their customers, and 

competition between exchanges. 

1086See Council of Institutional Investors Letter at 

4 (stating ‘‘It is our understanding that currently 

exchanges use volume-based tier schedules that 

depend on the current month’s trading volume. As 

a result, the per-transaction fee or rebate cannot be 

known when the trade occurs. This significantly 

impedes the ability of institutional investors and 

other market participants ‘to evaluate the total price 

of a trade at the time of execution and . . . [the] 

ability to evaluate best execution and order 

routing.’ ’’). 

1087See Harris Letter at 12 (‘‘Almost all retail and 

many institutional brokers pay the taker fee and 

keep the maker rebate when trading on behalf of 

their clients.’’). 

1088See E*Trade.com, Morgan Stanley Smith 

Barney LLC—Held NMS Stocks and Options Order 

Routing Public Report, 1st Quarter, 2024, at 2, 

available at https://cdn2.etrade.net/1/ 

24043013500.0/aempros/content/dam/etrade/ 

retail/en_US/documents/pdf/order-routing-reports/ 

2024/606-MSWM-2024Q1.pdf. 

1089See Proposing Release, supra note 11, at 

80330. 

1090A ‘‘non-directed order’’ means any order from 

a customer other than a directed order. See 17 CFR 

242.600(b)(56). A ‘‘directed order’’ means an order 

from a customer that the customer specifically 

instructed the broker or dealer to route to a 

particular venue for execution. See 17 CFR 

242.600(b)(27). 

is the net capture earned by the 

exchanges for facilitating a 

transaction.1078

The regulatory access fee cap is most 

relevant for maker-taker markets where 

the trader accessing a protected quote 

must pay the access fee. This is because 

the access fee cap applies only to fees 

for accessing protected quotations and 

does not apply to fees for posting 

quotations. On an inverted venue, the 

exchange is not restricted by preexisting 

Rule 610 in terms of the rebate that it 

can offer to access a protected quote or 

the fee to post a protected quote.1079

Flat rate venues, which do not offer 

rebates, do not appear to be 

economically constrained by the 

preexisting Rule 610(c) as their fees for 

both taking and adding liquidity are 

significantly lower than the 30 mil fee 

cap.1080

Fee/rebate schedules can be quite 

complex, and the fee schedules change 

frequently.1081 As was discussed in the 

Proposing Release,1082 the actual fee or 

rebate that an exchange member is 

assessed on most exchanges also 

generally depends on which tier a 

market participant falls into based on 

trading volume in that month, with 

higher-volume market participants 

typically receiving a higher rebate or a 

lower fee.1083 Exchanges file their fee 

and rebate schedules with the 

Commission and post them on their 

websites. While this means that the 

rebate and fee rates associated with each 

volume-based tier can be known at the 

time a market participant trades, market 

participants may not know which 

volume-based tier they will fall under at 

the time of the trade (and thus the fee 

or rebate rate that will apply to their 

particular trade) because the tier they 

will fall under is typically determined 

based on their trading volume during 

the current month, which is not 

finalized until the end of the month.1084

More specifically, the volume-based fees 

or rebates a market participant receives 

from an exchange are often determined 

by a market participant’s average total 

daily traded share volume on the 

exchange during the month as a 

percentage of either the average total 

daily market volume reported by one of 

the consolidated tapes during the month 

or as a percentage of the average total 

daily market volume reported by all 

consolidated tapes during the 

month.1085 It is therefore, as one 

commenter stated, difficult for market 

participants to forecast trading costs.1086

Hence, market participants currently 

typically have to make trading decisions 

without the ability to determine their 

full trading costs. 

Broker-dealers trading in an agency 

capacity may pass fees and rebates 

received from exchanges while working 

a customer’s order through to the 

customer, either directly or through a 

change in the commission charged for 

the order. One commenter stated that 

passing through transaction fees and 

rebates is not common.1087 The 

Commission is uncertain the extent to 

which transaction fees and rebates are 

passed through to customers, or in what 

form. It is possible that fees and rebates 

are passed through indirectly in the 

form of payment for order flow or in 

price improvement. For example, one 

broker-dealer’s 606 reports, in 

discussing orders routed to a 

wholesaler, acknowledged that 

exchange rebates may affect the 

wholesaler’s subsequent routing 

decision, but that those rebates could be 

used to provide price improvement to 

the broker-dealer’s customers or order 

flow payments to the broker-dealer.1088

As discussed in the Proposing Release, 

the Commission is uncertain of how 

much demand currently exists for 

rebates to be passed through to end 

customers.1089

Market participants who are not 

themselves broker-dealers may access 

information on exchange fees and 

rebates through reports available under 

Rule 606. With respect to held orders, 

Rule 606(a)(1) requires broker-dealers to 

produce quarterly public reports 

regarding their routing of non-directed 

orders 1090 in NMS stocks that are 

submitted on a held basis. Along with 

other information, these reports require 

the broker-dealer to report both the total 

dollar amount and per share average of 

net transaction fees paid and net 

transaction rebates received for different 


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81694 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

1091Rule 606(a)(1) requires broker-dealers to 

report separate information for market orders, 

marketable limit orders, non-marketable limit order, 

and other orders. See 17 CFR 242.606(a)(1) for the 

items that need to be disclosed in reports under rule 

606(a)(1). 

1092See 17 CFR 242.606(b)(3). In addition, under 

rule 606(b)(5)’s customer-level de minimis 

exception, broker-dealers need not provide upon 

request execution quality reports for customers that 

traded on average each month for the prior six 

months less than $1,000,000 of notional value of 

not held orders in NMS stocks through the brokerdealer. See 17 CFR 242.606(b)(5). 

1093See 17 CFR 242.606(b)(3)(iii) and (iv). 

1094Reports under rule 606(a)(1) are produced by 

broker-dealers at the end of the quarter and disclose 

information on average fees and rebates for each 

month in that quarter. Reports issued by brokerdealers to their customers under rule 606(b)(3) 

disclose summarized information on the handling 

of the customer’s orders for each calendar month 

over the prior six months. The broker-dealer must 

issue these reports to the customer within seven 

business days of receiving the customer’s request. 

1095Table 4 is constructed using the same 

methodology as table 5 of the Proposing Release, 

supra note 11, at 80311; the only difference is that 

table 4 herein uses data as of Feb. 2024 and 

computes fee revisions during the 2023 calendar 

year, whereas table 5 of the Proposing Release used 

data as of May 2022 and computed annual fee 

revisions from 2018 to June of 2022. Any 

differences between these two tables are due to 

changes in exchange fee schedules from May 2022 

to Feb. 2024. 

1096Panel A of table 4 provides the category of 

exchange, maker-taker, inverted, or flat/free, the 

number of fee revisions since Jan. 2018 as indicated 

by the number of transaction fee specific rule 19b– 

4 filings that the exchange has filed with the 

Commission, the date that each exchange’s website 

states that the fee schedule posted there is effective 

and the range of fees and rebates along with the 

number of categories of fees and rebates for 

transactions priced equal to, or greater than, $1.00 

per share. 

1097Some commenters have also stated that 

current transaction pricing practices introduce 

complexity into the market and reduce 

transparency. See Themis Letter at 7; BMO Letter 

at 3. 

1098See, e.g., New York Stock Exchange (NYSE), 

Equity Fees and Charges, NYSE.com, available at 

https://www.nyse.com/publicdocs/nyse/markets/ 

nyse-arca/NYSE_Arca_Marketplace_Fees.pdf 

(accessed June 18, 2024); see also Virtu Letter II at 

23 suggesting that the Commission could consider 

an alternative which would allow exchanges to 

offer differing fee schedules to retail and non-retail 

orders. 

1099The three are Cboe EDGX, MEMX, and MIAX 

Pearl. 

order types for each trading venue to 

which the broker-dealer reports routing 

orders.1091 Additionally, Rule 606(b)(3) 

requires broker-dealers to produce 

reports pertaining to order handling 

upon the request of a customer that 

places, directly or indirectly, one or 

more orders in NMS stocks that are 

submitted on a not held basis, subject to 

a de minimis exception.1092 For each 

venue to which the broker-dealer routed 

the customer’s orders, these reports 

require the broker-dealer to disclose, 

among other things, the average net 

execution rebate or fee for shares of 

orders providing liquidity and the 

average net execution rebate or fee for 

shares of orders removing liquidity.1093

However, these reports provide market 

participants with information only on 

historical average transaction fees and 

rebates and may not accurately reflect 

the current exchange fees and rebates a 

market participate will encounter at the 

time of its transaction.1094

c. Analysis of Current Access Fees and 

Rebates 

The Commission analyzes, in table 4, 

current fee and rebate schedules, based 

on Rule 19b–4 filings with the 

Commission, for each of the equity 

exchanges operating in the United 

States as of February 8, 2024,1095 as well 

as the transaction prices that each 

exchange posts.1096 What is apparent 

from this analysis is that the current 

structure of fees and rebates is complex 

and constantly changing.1097 Each 

exchange, except LTSE which does not 

charge transaction fees, filed an average 

of 13.6 Rule 19b–4 equity market fee 

filings with the Commission in 2023. 

Market participants interacting with all 

exchanges had to adjust to 218 total fee 

filings in 2023. Each filing can contain 

changes for numerous fee and rebate 

categories. 

The effect of the 30 mils fee cap as an 

anchor point is also apparent. For most 

exchanges the maximum fee assessed, 

presumably for non-protected quotes, is 

close to the 30 mils fee cap for protected 

quotes. The maximum rebate is 

generally in the vicinity of 30 mils, 

further suggesting the 30 mils access fee 

cap effectively limits what the 

exchanges offer as rebates. Some 

exchanges offer different access fees and 

rebate schedules for retail versus nonretail trades.1098

Panel B of table 4 provides 

information on the exchange’s fee 

schedules for stocks priced lower than 

$1.00. For these transactions, the fee 

schedules tend to be simpler. Most 

exchanges do not offer a rebate for 

transactions lower than $1.00 even if the 

exchange offers rebates for other 

transactions—only three exchanges offer 

any sort of baseline rebate.1099

Additionally, the exchanges tend to 

charge an access fee of 0.1% with some 

also charging the maximum access fee of 

0.3% of the share price. Only one 

exchange charges a fee of 0.1% to both 

sides of a transaction. 

TABLE 4—SUMMARY OF TRANSACTION-BASED FEE SCHEDULES FOR U.S. NATIONAL EQUITIES EXCHANGES AS OF

FEBRUARY 2024 a

Exchange Fee model Number of 

revisions 2023 

Date of fee 

schedule 

Fees 

(# of categories) 

Rebates 

(# of categories) 

Panel A: Fees and Rebates for Transactions Greater Than $1.00 

Cboe BZXb ..................... Maker-Taker ................... 42 1/2/2024 $0.0030 (1) $0.0016–$0.0031 (7) 

Cboe BYXc ..................... Inverted .......................... 9 2/1/2024 $0.0012–$0.0020 (10) $0.0015–$0.0020 (4) 

Cboe EDGAd .................. Inverted .......................... 14 2/7/2024 $0.0000–$0.0030 (12) $0.0016–$0.0024 (5) 

Cboe EDGXe .................. Maker-Taker ................... 44 2/1/2024 $0.00275–$0.0030 (3) $0.0020–$0.0034 (8) 

BXf .................................. Inverted .......................... 6 2/1/2024 $0.0020–$–$0.0030 (2) $0.0005–$0.0018 (7) 

Phlx (PSX) g .................... Maker-Taker ................... 4 2/1/2024 $0.0030 (1) $0.0020–$0.0033 (5) 

Nasdaq h .......................... Maker-Taker ................... 6 2/1/2024 $0.0030(1) $0.0013–$0.00305 (26) 

NYSE Arca i ..................... Maker-Taker ................... 11 2/1/2024 $0.0000–$0.0030 (6) $0.0000–$0.0032 (6) 

NYSE American .............. Maker-Taker ................... 7 1/3/2024 $0.0025–$0.0030 (3) $0.0016–$0.0030 (3) 

NYSE .............................. Maker-Taker ................... 16 1/12/2024 $0.0000–$0.00275 (5) $0.0004–$0.0030 (11) 

NYSE National ................ Inverted .......................... 5 1/3/2024 $0.0022–$0.0029 (4) $0.0007–$0.0030 (5) 

NYSE Chicago ................ Maker-Taker ................... 3 1/8/2024 $0.0010–$0.0030 (1) $0.0000 (0) 

IEXj ................................. Maker-Taker ................... 2 1/24/2024 $0.0000–$0.0010 (2) $0.0004 (1) 

MEMXk ........................... Maker-Taker ................... 22 2/1/2024 $0.00295–$0.0030 (2) $0.0015–$0.0033 (6) 

MIAX Pearl l ..................... Maker-Taker ................... 10 1/17/2024 $0.0024 (1) $0.00295 (1) 

LTSE m ............................ Free ................................ NA N/A $0.0000 (1) $0.0000 (1) 


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Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81695 

Exchange Fee Model Rebate Fee 

(%) 

Charged both 

sides 

Panel B: Fees and Rebates for Transactions Under $1.00 

Cboe BZX ........................................ Maker-Taker .................................... 0 ....................................................... 0.30 

Cboe BYX ........................................ Inverted ............................................ 0 ....................................................... 0.10 

Cboe EDGA ..................................... Inverted ............................................ 0 ....................................................... 0 

Cboe EDGX ..................................... Maker-Taker .................................... 0.00009 (per share) ......................... 0.30 

BX .................................................... Inverted ............................................ 0 ....................................................... 0.10 

Phlx (PSX) ....................................... Maker-Taker .................................... 0 ....................................................... 0.30 

Nasdaq ............................................ Maker-Taker .................................... 0 ....................................................... 0.30 

NYSE Arca ...................................... Maker-Taker .................................... 0 ....................................................... 0.10 

NYSE American ............................... Maker-Taker .................................... 0 ....................................................... 0.10 

NYSE ............................................... Maker-Taker .................................... 0 ....................................................... 0.10 

NYSE National ................................. Inverted ............................................ 0 ....................................................... 0 

NYSE Chicago ................................. Maker-Taker .................................... 0 ....................................................... 0.10 Yes. 

IEX ................................................... Maker-Taker .................................... 0 ....................................................... 0.09 

MEMX .............................................. Maker-Taker .................................... 0.075% (of value) ............................ 0.10 

MIAX Pearl ...................................... Maker-Taker .................................... 0.15% (of value) .............................. 0.250 

LTSE ................................................ Free ................................................. 0 ....................................................... 0 

aThe number of fee revisions is obtained by counting each Rule 19b–4 filing for each exchange that is not clearly marked for a non-transaction 

fee related purpose such as connectivity fees, listing fees, options fees, etc. To determine the fee and rebate information, the staff searched 

each exchange’s webpage for its current posted access fee and rebate schedule and collected information on access fees and rebates pertaining to non-auction trading in stocks priced equal to, or greater than, $1.00 per share. Sources for Current Access Fee Data were effective on 

the dates shown in panel A of table 4, and were accessed during February 2024 at the websites shown beneath the table. b https://www.cboe.com/us/equities/membership/fee_schedule/bzx/. c https://www.cboe.com/us/equities/membership/fee_schedule/byx/. d https://www.cboe.com/us/equities/membership/fee_schedule/edga/. e https://www.cboe.com/us/equities/membership/fee_schedule/edgx/. f https://www.nasdaqtrader.com/trader.aspx?id=bx_pricing. g https://www.nasdaqtrader.com/trader.aspx?id=psx_pricing. h https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2. 

iAll NYSE Exchange Family fees: https://www.nyse.com/markets/fees. 

j https://exchange.iex.io/resources/trading/fee-schedule/. (Note: that the majority of IEX trading occurs via non-displayed orders. IEX only pays 

rebates on displayed orders.) k https://info.memxtrading.com/equities-trading-resources/us-equities-fee-schedule/. 

l https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_01172024.pdf. m https://ltse.com/trading/faqs. 


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81696 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

1100 Volume-based tiers imply that the net capture 

varies by exchange member. To calculate an 

exchange’s net capture would require knowing the 

number and types of orders that are executed by 

each member, mapping these orders to the 

exchange’s fee schedule, calculating the net capture 

for each member, and then aggregating the net 

capture over all exchange members. 

1101 Intercontinental Exchange, the parent firm of 

NYSE, reports on page 53 of its 2021 Form 10–K 

filing that their net capture for U.S. equity 

transactions was approximately 4.2 mils in 2021. 

Nasdaq did not report its net capture in its Form 

10–K filing, however Nasdaq provides information 

on its investor relations web page which, when we 

average the relevant 2021 volumes, indicates that 

the average net capture across all Nasdaq platforms 

for U.S. equity transactions was 5.9 mils. See 

Nasdaq 2022/2021 Monthly Volumes, Nasdaq, 

available at https://ir.nasdaq.com/static-files/ 

465d2157-c476-4546-a9f7-8d7ad0c9be77). Cboe 

reports in its Form 10–K filing that its net capture 

for U.S. equity transactions was approximately 2 

mils. 

1102Non-auction orders exclude opening, closing, 

and reopening auctions. See table 7, note a for 

additional details regarding which orders are 

considered for estimation. 

1103One commenter stated that exchanges 

subsidize rebates with other sources of revenue as 

manifest by the fact that some market participants 

could receive rebates in excess of the 30 mil fee cap. 

See Healthy Markets Letter I at 23. Table 4 presents 

evidence consistent with the notion that in some 

cases rebates received may be in excess of 30 mils. 

However, the commenter did not provide any 

analysis to suggest that the net capture of the 

exchanges was, on average, negative. As discussed, 

the Commission believes that most exchanges, on 

average, earn approximately 2 mils per transaction 

priced greater than $1.00. One exception is IEX 

which earns an estimated 6 mils based on the 

information in table 4. 

1104See Budish Letter at 3. Bertrand competition 

is an economics model of competition on the basis 

of prices whereby firms set their price—net price in 

this instance—at marginal cost. 

1105The commenter also included similar 

estimates for IEX which ranged from 6.8–8.9 mils, 

see Nasdaq Letter II at 3. 

1106Subsequent analysis in section VII.D.2 

assumes that the assumed 2 mil net capture will 

continue to be valid following the implementation 

of the amendments. 

1107See Retirement Coalition Letter at 1 (‘‘in 

practice, this ‘cap’ has come to be used as the 

standard rate charged to access quotes at most 

exchanges, and almost all of those fees are then 

‘rebated’ to liquidity providers’’). 

1108The estimate for the 0.24% net capture is 

obtained by taking the total estimated net 

transaction fee across all exchanges for trading in 

shares priced below $1.00 ($83.2 million) and 

dividing this number by the total sub $1.00 dollar 

volume from Panel B of table 5 below ($34.2 

billion). 100*83.2 million/34.2 billon %0.24. 

1109To estimate the net capture in terms of mils, 

the Commission divides the dollar revenue from 

fees by the number of shares traded. The dollar net 

capture is 0.24%, see id.,) and the dollar volume is 

$34.2 billion, see table 5, Panel B, resulting in a 

dollar revenue of $82 million (0.0024*$34.2 

billion). With share volume of 112.6 billion, see 

table 5, Panel A, the net capture is 7.3 mils ($82 

million/112.6 billion). 

1110Table 5 is constructed using the same 

methodology as table 6 of the Proposing Release, 

supra note 11, at 80313; table 5 herein uses data for 

2023, whereas table 6 of the Proposing Release used 

data for the first half of 2022. 

Complex fee schedules and volumebased tiers mean that it is difficult for 

the Commission to determine the net 

capture on a given exchange (the 

difference between average fees levied 

and rebates paid).1100 Additionally, 

financial statements for exchange 

groups generally do not break down 

performance on a per-venue level and 

the financial statements generally 

combine auction access fees collected 

with regular trading access fees. 

Furthermore, some exchanges are 

privately held and thus do not release 

the same financial statements that 

public exchanges do. Using information 

from the financial statements of the 

three major exchange groups which 

collectively account for the 

overwhelming majority of trading 

volume on exchanges, the Commission 

estimates that the average total net 

capture is around 4 mils for all trading 

types.1101 However, the Commission 

understands based on staff 

conversations with industry members 

that the net capture for non-auction 

trading in stocks that have a price equal 

to or greater than $1.00 is likely close to 

2 mils on most exchanges,1102 and in 

the analysis in later sections where the 

net capture needs to be assumed, we use 

2 mils unless otherwise stated.1103 A 

commenter agreed stating that the net 

fee is typically only 2 mils per share, 

stating, ‘‘it is worth pausing to reflect on 

just how competitive this net fee is— 

this is about as close to Bertrand price 

competition as one sees.’’ 1104 Another 

commenter reported estimated trading 

related ‘‘all-in’’ costs to trade ranging 

1.9 to 3.4 mils over the 2017 to 2021 

period for the three largest exchange 

groups (Cboe, Nasdaq, and NYSE); 1105

these estimates are broadly in line with 

the estimated net-capture rates and 

consistent with the 2 mil net capture 

rate assumption used in the subsequent 

analysis.1106 Given the low net capture 

rate of 2 mils on most exchanges, the 

primary reason that access fees remain 

near 30 mils on most exchanges is likely 

to fund rebates.1107 For stocks trading 

below $1.00 the Commission estimates 

an average net capture of around 0.24% 

of the transaction volume.1108 This 

amount is close to the 0.30% access fee 

cap and arises because, as seen in panel 

B of table 4, much of the trading for sub 

$1.00 priced volume takes place on 

exchanges which set their baseline fee at 

or near 0.30% but do not offer baseline 

rebates for transactions under $1.00. On 

a per-share basis, this net capture of 

0.24% of transaction dollar volume 

corresponds to a net capture of 7.3 

mils.1109

Table 5 presents tabulations of the 

total share (Panel A) and dollar (Panel 

B) trading volume executed on the 16 

exchanges in 2023.1110 This table 

provides estimates for the total volume 

that executed below $1.00, and that 

which executed above $1.00. These 

numbers represent an estimate of the 

total number of shares that will have 

been subject to the access fees and 

rebates discussed in this release. 

TABLE 5—TRADING VOLUME BY EXCHANGE, EXCHANGE TYPE 2023 a

Exchange name Exchange type <$1 Volume 

(billions) 

>=$1 Volume 

QS<= $0.015 

(billions) 

>=$1 Volume 

QS > $0.015 

(billions) 

% of 

Exchange 

volume 

Panel A: Share Volume 

Off-Exchange .................................... ........................................................... 192.9 620.3 241.3 

Nasdaq .............................................. Maker-Taker ..................................... 26.8 226.2 88.9 26.9 

NYSE Arca ........................................ Maker-Taker ..................................... 27.5 139.3 30.4 15.5 

NYSE ................................................ Maker-Taker ..................................... 3.4 127.4 37.4 13.2 

Cboe BZX ......................................... Maker-Taker ..................................... 14.0 86.3 20.9 9.5 

Cboe EDGX ...................................... Maker-Taker ..................................... 21.1 98.2 23.3 11.2 

MEMX ............................................... Maker-Taker ..................................... 8.1 61.9 12.0 6.5 

IEX .................................................... Maker-Taker ..................................... 1.7 38.9 19.5 4.7 

Cboe EDGA ...................................... Inverted ............................................ 2.7 33.8 5.6 3.3 

Cboe BYX ......................................... Inverted ............................................ 2.6 20.4 2.8 2.0 

MIAX Pearl ........................................ Maker-Taker ..................................... 2.4 41.9 2.7 3.7 

NYSE National .................................. Inverted ............................................ 0.5 11.0 1.4 1.0 


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Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81697 

1111 2T ≡ shares 1.5T narrow spread shares + 493 

billion wider spread shares. Also, off-exchange 

trading volume has increased in recent years. See, 

e.g., Jonathan Brogaard & Jing Pan, Dark Pool 

Trading and Information Acquisition, 35 Rev. Fin. 

Stud. 2625 (2022). 

1112The fourth column of Panel A shows 905.1 

billion shares traded on exchanges with a price 

greater than or equal to $1.00 and a quoted spread 

of $0.015 or less; the fifth column shows 252.2 

billion shares traded on exchanges with a price 

greater than or equal to $1.00 and a quoted spread 

over $0.015. The total number of shares traded on 

exchanges with a price greater than or equal to 

$1.00 is therefore 1157.3 billion (905.1+252.2), and 

the fraction of these that a spread of $0.015 or less 

is 78% (905.1/1157.3). 

1113Table 6 is constructed using the same 

methodology as table 7 of the Proposing Release, 

supra note 11, at 80314. The only difference is that 

table 6 herein uses data for 2023, whereas table 7 

of the Proposing Release used data for the first six 

months of 2022. 

TABLE 5—TRADING VOLUME BY EXCHANGE, EXCHANGE TYPE 2023 a—Continued 

Exchange name Exchange type <$1 Volume 

(billions) 

>=$1 Volume 

QS<= $0.015 

(billions) 

>=$1 Volume 

QS > $0.015 

(billions) 

% of 

Exchange 

volume 

Nasdaq OMX PSX ............................ Maker-Taker ..................................... 0.3 7.5 1.9 0.8 

Nasdaq OMX BX .............................. Inverted ............................................ 0.5 6.7 2.6 0.8 

NYSE American ................................ Maker-Taker ..................................... 1.0 4.8 1.0 0.5 

NYSE Chicago .................................. Flat ................................................... 0.2 0.8 1.8 0.2 

LTSE ................................................. Flat ................................................... 0.0 0.0 0.0 0.0 

Total ........................................... ........................................................... 305.5 1,525.4 493.5 

Exchange Total .......................... ........................................................... 112.6 905.1 252.2 

Panel B: Dollar Volume 

Off-Exchange .................................... ........................................................... 65.3 19,744.9 24,508.4 

Nasdaq (TapeC) ............................... Maker-Taker ..................................... 9.1 9,008.3 9,402.3 30.4 

NYSE Arca ........................................ Maker-Taker ..................................... 7.6 6,433.3 3,107.1 15.8 

NYSE ................................................ Maker-Taker ..................................... 1.5 3,985.9 3,658.6 12.6 

Cboe BZX ......................................... Maker-Taker ..................................... 3.1 3,711.6 2,479.9 10.2 

Cboe EDGX ...................................... Maker-Taker ..................................... 6.2 3,450.0 2,371.1 9.6 

MEMX ............................................... Maker-Taker ..................................... 2.5 2,148.8 1,130.4 5.4 

IEX .................................................... Maker-Taker ..................................... 0.8 1,383.8 2,119.0 5.8 

Cboe EDGA ...................................... Inverted ............................................ 1.0 1,038.0 494.8 2.5 

Cboe BYX ......................................... Inverted ............................................ 0.9 657.2 275.3 1.5 

MIAX ................................................. Maker-Taker ..................................... 0.7 1,297.3 268.4 2.6 

NYSE National .................................. Inverted ............................................ 0.2 287.3 131.0 0.7 

Nasdaq OMX PSX ............................ Maker-Taker ..................................... 0.1 368.9 211.9 1.0 

Nasdaq OMX BX .............................. Inverted ............................................ 0.2 274.9 258.7 0.9 

NYSE American ................................ Maker-Taker ..................................... 0.4 165.5 97.7 0.4 

NYSE Chicago .................................. Flat ................................................... 0.1 39.6 236.0 0.5 

LTSE ................................................. Flat ................................................... 0.0 1.5 1.6 0.0 

Total ........................................... ........................................................... 99.4 53,996.9 50,752.2 

Exchange Total .......................... ........................................................... 34.2 34,252.0 26,243.9 

aThis table aggregates all trade information from the TAQ database for every trading day in 2023. Only trading volume reflecting normal trades 

during regular trading is included. Normal trades are identified in TAQ data by sale conditions ‘‘blank, @, E, F, I, S, Y’’ which correspond to regular trades, intermarket sweep orders, odd-lot trades, split trades, and yellow flag regular trades. The remaining share volume was aggregated 

by exchange, and the table denotes exchange type (maker-taker, inverted, flat, free). Share and dollar volume from exchange codes T and Q 

were combined into ‘Nasdaq.’ Panel A presents share volume totals and panel B presents dollar volume totals. Certain items in table 5 may also 

be affected by the MDI Rules once they are fully implemented. See infra section VII.C.3. 

Transaction fees for trades in stocks 

priced equal to or greater than $1.00 are 

generally levied per share transacted. 

From table 5 we see that in 2023, there 

were approximately 2 trillion shares 

transacted at prices equal to or greater 

than $1.00 per share across all venues, 

57% of which (1.16 trillion shares) were 

executed on a registered exchange.1111

Of these on-exchange transactions 

priced equal to or greater than $1.00 per 

share, approximately 78% were in 

stocks with quoted spreads of $0.015 or 

less.1112 These numbers provide the 

basis for estimating the total amount of 

access fees and rebates collected and 

distributed in transactions priced equal 

to, or greater than, $1.00 per share. For 

transactions less than $1.00 per share 

the access fee is generally levied as a 

percent of the transaction share price. In 

panel B we see that in 2023 there was 

approximately $34 billion transacted on 

exchanges in shares priced less than 

$1.00 per share. 

Panels A and B of table 6 break down 

the share and dollar volume statistics 

presented in table 5 by venue type: 

maker-taker, inverted, and flat/free.1113

The overwhelming majority (over 90%) 

of both dollar and share exchange 

trading volume occurs on maker-taker 

venues. Inverted exchanges capture 

about 5–7% of dollar and share volume, 

and the remaining share volume 

transact on flat/free exchanges. 


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1114These estimates are computed by assuming a 

30 mil access fee and 28 mil rebate on all 

transactions that occur on maker-taker or inverted 

exchanges and a 10 mil access fee (and 4 mil rebate) 

on the volume priced equal to, or greater than, 

$1.00 per share that occurs on IEX. For trading in 

sub $1.00 transactions, the various access fees and 

rebates for each exchange presented in Panel B of 

table 4 are multiplied by the corresponding dollar 

volume of trade in transactions priced less than 

$1.00 per share to compute the total access fees 

collected and rebates distributed for this volume. 

The figures are summed together to provide the 

estimates of total access fees collected and rebates 

distributed. 

1115This estimate presumes that for shares 

transacted in prices equal to or greater than $1.00 

per share on maker-taker venues the liquidity 

demander pays a 30 mil access fee and the liquidity 

provider receives a 28 mil rebate. On inverted 

exchanges the opposite occurs. On IEX it is 

presumed that liquidity demanders pay an 8 mil 

access fee and liquidity providers receive no rebate. 

For trading in sub $1.00 transactions the various 

access fees and rebates for liquidity suppliers and 

demanders are computed by taking the respective 

fees and rebates for sub $1.00 transactions for each 

exchange presented in Panel B of table 4 and 

multiplying them by the corresponding dollar 

volume of trade in transactions priced less than 

$1.00 to compute the total access fees collected and 

rebates distributed for liquidity-providing and 

demanding trades. The figures are summed together 

to provide the estimates of total access fees 

collected and rebates distributed. 

1116 IntelligentCross ATS, for example, offers 

matching processes for all NMS stocks eligible for 

trading, and disseminates bids and offers in realtime to subscribers to the ATS’s proprietary data 

feed, but these are not protected quotes. See 

IntelligentCross, Form ATS–N, Item 15 (Display) 

(dated Apr. 11, 2022) available at https://

www.sec.gov/Archives/edgar/data/1708826/ 

000170882622000002/xslATS-N_X01/primary_

doc.xml. 

1117See FINRA, ATS Transparency Data 

Quarterly Statistics, available at https://

www.finra.org/filing-reporting/otc-transparency/atsquarterly-statistics. 

1118See infra note 1442 for commenter discussion 

on ATS transaction fees. See also IEX Letter VI at 

5 for additional analysis supporting the conclusion 

that 10 mils is a representative transaction fee 

among ATSs. 

1119See IEX letter V at 2, 3. See also Proposing 

Release, supra note 11, at 80305. 

1120More specifically, Rule 611 requires trading 

centers to have policies and procedures that 

reasonably prevent trade-throughs. See Proposing 

Release, supra note 11, at 80286. A trade-through 

is a trade that executes at a price lower than a 

protected bid or higher than a protected offer. The 

NBBO is set by the best protected bid and offer; 

therefore, a trade that executes outside the NBBO 

is a ‘‘trade-through.’’ If an exchange does not have 

a limit order at the best quote, then it cannot 

execute against an incoming marketable order; 

rather the exchange would generally need to cancel 

the order or route it to another exchange with the 

best quote. The routing of marketable orders is 

prevalent. A recently published academic article 

finds that 34% of market orders sent to the NYSE 

in 2010–11 are routed. See Sida Li et.al., Refusing 

the Best Price? 2 J. FIN. ECON. 147 (February 2023). 

For example, suppose two liquidity providers want 

to sell a share in exchange for $10.002, net of fees 

and rebates. Suppose the first seller posts at 

exchange X, which offers a 30mil rebate, while the 

second seller posts at exchange Y, which offers a 

10mil rebate. The seller on exchange X is willing 

to quote at $10.00 to receive a net price of $10.003, 

while the seller on Y is not willing to quote at 

$10.00 because the net price would be only 

$10.001—the seller on Y must quote at $10.01. Rule 

611 will therefore direct marketable orders to the 

lower quoted price at exchange X. 

TABLE 6—VOLUME BY EXCHANGE TYPE AND ESTIMATED ACCESS FEE/REBATE ESTIMATES 2023 a

Price<$1 

(billions) 

Price>$1; TWAQS 

≤ $0.015 

(billions) 

Price>$1; TWAQS 

> $0.015 

(billions) 

% 

Total 

Panel A: Exchange Share Volume by Venue Type 

Maker-Taker ............................................................................. 106.2 832.4 237.9 92.7 

Inverted .................................................................................... 6.2 71.9 12.4 7.1 

Flat/Free ................................................................................... 0.2 0.8 1.8 0.2 

Panel B: Exchange Dollar Volume by Venue Type 

Maker-Taker ............................................................................. 31.9 31,953.4 24,846.4 93.9 

Inverted .................................................................................... 2.2 2,257.4 1,159.8 5.6 

Flat/Free ................................................................................... 0.1 41.1 237.6 0.5 

Panel C: Estimated Fees Collected and Rebates Distributed (Billions) 

Fees Collected ......................................................................... .............................. $3.41 .............................. ..............................

Rebates Distributed ................................................................. .............................. $3.08 .............................. ..............................

Exchange Capture ................................................................... .............................. $0.34 .............................. ..............................

Panel D: Total Estimated Net Fees by Liquidity Type (Billions) 

Demander ................................................................................ .............................. $2.97 .............................. ..............................

Provider .................................................................................... .............................. ($2.63) .............................. ..............................

Exchange Capture ................................................................... .............................. $0.34 .............................. ..............................

a Certain items in this table 6 may also be affected by the amendments in the MDI Rules once they are fully implemented. See infra section 

VII.C.3. 

Panel C provides an estimate of the 

total amount of access fees collected and 

rebates distributed.1114 In 2023 there 

were an estimated $3.41 billion in 

access fees collected across all 

exchanges and $3.08 billion in rebates 

distributed, resulting in a net capture to 

all exchanges of $340 million. 

Panel D of table 6 provides estimates 

of the net access fee paid by liquidity 

demanders and liquidity suppliers.1115

In 2023 liquidity demanders paid an 

estimated $2.97 billion in net access 

fees and liquidity providers received an 

estimated $2.63 billion in rebates. The 

difference of $340 million is the 

exchanges’ estimated net capture. 

Although not subject to Rule 610(c), 

because they do not post protected 

quotes, ATSs also often assess 

transaction fees.1116 As of the third 

quarter of 2023 there were 32 ATSs that 

reported trading volume to FINRA 

transacting a total of 73 billion 

shares.1117 Unlike exchanges, the fees 

that ATSs charge generally do not have 

a standard structure and are often 

negotiated between the ATS and the 

customer. Based on a review of item 19 

in form ATS–N, ATSs generally do not 

provide rebates, and when transaction 

fees are explicitly discussed, they are 

often in the range of 10 mils.1118

Table 4 indicates that many 

exchanges charge the maximum allowed 

fee, rebating nearly all of it as a 

compensation for liquidity provision. 

One commenter states, ‘‘access fees have 

been uniquely impervious to market 

forces.’’ 1119 Rule 611 generally causes 

marketable orders to be routed to those 

markets displaying the best-priced 

quotations.1120 As discussed in section 


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1121See Proposing Release, supra note 11, at 

80305 (‘‘the NBBO restricts the routing behavior of 

marketable orders and often forces liquidity 

demanders to pay the access fee to trade against a 

NBBO order. Exchanges are thus incentivized to 

attract more competitively priced liquidity with 

large rebates, which are funded by similarly large 

access fees, in order to capture more trading 

volume’’). The high rebate allows the liquidity 

supplier to offer a better quoted price—i.e., a higher 

bid or a lower offer—because the liquidity supplier 

only cares about the total proceeds from the sale 

(the liquidity supplier does not care whether the 

proceeds take the form of a rebate). 

1122That is, the need to execute against the 

protected quote first, before executing at other 

prices, would maintain a strong incentive for 

broker-dealers to route orders to the exchange, even 

in the face of high access fees. 

1123See Proposing Release, supra note 11, at 

80305 n.457. 

1124See id.; see also Yiping Lin, et al., A Model 

of Maker-Taker Fees and Quasi-Natural 

Experimental Evidence (working paper Feb. 8, 

2021), available at https://ssrn.com/ 

abstract=3279712 (retrieved from SSRN Elsevier 

database). Consequently, it could be harmful to an 

exchange to unilaterally reduce access fees and 

their associated rebates if other exchanges do not 

follow suit. Further, even if each of the exchanges 

lowered its fees, there would be the risk that a new 

exchange would see the opportunity and enter the 

market with high fees and rebates and thus capture 

market share, inducing the other exchanges to 

abandon their low fee models to remain 

competitive. 

1125See discussion in section VII.D.2.b. 

1126See Proposing Release, supra note 11, at 

80313. 

1127See Larry Harris, Quarter Penny Tick 

(working paper, Mar. 9, 2022) attached to Letter 

from Larry Harris (‘‘Quarter Penny Tick’’). 

1128Suppose an exchange family operates both a 

maker-taker venue and an inverted venue; further 

suppose that the maker-taker venue offers a 30mil 

rebate to liquidity suppliers, while the inverted 

venue charges a 30mil fee to liquidity suppliers. 

Liquidity suppliers would therefore be able to 

transact at two different net prices within the tick— 

e.g., the liquidity supplier could offer to sell at 

$10.00 on the maker-taker venue, which would 

result in a net price of $10.003; or the liquidity 

supplier could offer to sell at $10.00 on the inverted 

venue to net $9.997. The variation in fee schedules 

across the venues therefore allows for intra-tick 

pricing. See also supra section VII.C.2.b for a 

discussion of current state of the fees and rebates 

and the variation in pricing structure across 

exchanges. 

1129See IEX Letter I at 14. 

1130See Budish Letter at 4. 

1131See Virtu Letter II at 23. 

1132See id. 1133See id. 

1134See supra section VII.C.1.a for further 

discussion of exchange RLP programs. 

1135See supra section VI.C and section V.E for 

discussions on the expected time of the 

implementation of the MDI Rules. 

VII.B.3, a liquidity provider is generally 

indifferent between receiving 

compensation in the form of a rebate or 

in the form of a quoted spread, implying 

that an exchange can use rebates to 

induce quoting lower spreads, and 

hence the best prices.1121 The exchange 

can fund the rebate with an access fee 

charged to the liquidity demander, 

relying on Rule 611 to reduce the loss 

of liquidity demanding customers that 

would otherwise occur from such an 

increase in prices.1122 The exchanges 

profit from the difference between the 

access fees collected and the rebates 

paid. Were exchanges to unilaterally 

lower their access fees and rebates 

(without other exchanges making 

similar changes), liquidity providers 

would likely route their orders to 

another exchange.1123 Notably, research 

surrounding a Nasdaq experiment 

where it unilaterally lowered fees and 

rebates found that Nasdaq lost market 

share to other maker-taker venues with 

a higher rebate.1124 Table 4 also shows 

that even the maximum rebates are close 

to the access fees; doing otherwise 

would likely be unprofitable or 

risky.1125

As discussed in the Proposing 

Release, and as table 4 shows, the 

NYSE, Nasdaq, and Cboe exchange 

families each operate both a maker-taker 

venue as well as an inverted venue,1126

Commenters state that inverted venues 

can be used to achieve intra-tick 

pricing.1127 Specifically, the net price of 

a trade is the quoted price adjusted for 

exchange fees and rebates; the quoted 

price is constrained by the tick, but the 

net price can be between ticks.1128 To 

the extent that intra-tick pricing on 

inverted venues is a solution to the 

quoted price being constrained by the 

tick, it is a costly one. First, quote 

protection applies to the quoted bid or 

ask, not the net cost, implying that 

routing a market order to an inverted 

venue runs the risk of the order being 

routed elsewhere if the inverted venue 

is not at the NBBO. Research shows that 

inverted venues are less likely to be at 

the NBBO, a result that follows from 

revenue from rebates and from spreads 

being interchangeable assuming the 

market participant receives both.1129 As 

explained in section VII.D.1.b.ii, this 

leads to delays and increased cost. 

Second, the existence of inverted 

venues fragments liquidity compared to 

the situation where an exchange is able 

to offer orders to be placed at multiple 

prices within the quoted spread. One 

commenter agreed when discussing 

inverted venues, stating that: ‘‘different 

exchanges are optimal to use for 

different prices within the penny, which 

is a recipe for artificial fragmentation, a 

confusing paper trail, and overall excess 

complexity. Excess complexity, in turn, 

is a recipe for excess rents, agency 

conflict and distrust.’’ 1130

Lastly, one commenter stated that 

exchanges could circumvent barriers 

associated with the tick size and access 

fees through innovation, such as new 

order types.1131 The commenter stated 

that: ‘‘Lastly, if the tick size were really 

a significant barrier to competition for 

exchanges, they could innovate 

solutions to solve for this. For example, 

exchanges could develop an order type 

that functions within the current 

structure (limit order pricing and 

priority-ranked based on even penny 

ticks) but where an order could provide 

sub-penny price improvement if 

matched to a marketable order from a 

counterparty that met certain objective 

conditions (such as being sourced from 

a retail customer).’’ 1132 The commenter 

proceeded to describe a second novel 

order type that could allow for subpenny price improvement through 

reduced access fees for retail 

investors.1133 The order types the 

commenter lists as examples appear to 

solve for the specific problem of retail 

investors achieving price improvement 

on exchange, a solution that already 

exists through RLPs (though which do 

not have significant volume).1134 It is 

possible that a new order type designed 

to mitigate this problem might not work 

as intended. In contrast, allowing for 

more ticks in certain stocks as the 

Commission is adopting is a more 

straightforward and predictable way of 

achieving the same ends without 

requiring the need for order types 

designed to allow for sub-tick 

executions on exchanges. 

3. Round Lots, Odd-Lots, and Market 

Data Infrastructure 

Currently, information on odd-lot 

quotes inside the NBBO is available 

only to investors who subscribe to 

proprietary data feeds, and 

comprehensive odd-lot information is 

only available to market participants 

who subscribe to the proprietary data 

feeds of all the exchanges. The 

implementation of the MDI Rules will 

include odd-lot information inside the 

NBBO.1135 The MDI Rules also defined 

a round lot, which previously had not 

been defined in a Commission rule. 

Specifically, the MDI Rules establish a 

uniform round lot size of 100 shares for 

stocks priced $250 or less; 40 shares for 

stocks priced greater than $250 and less 

than or equal to $1,000; 10 shares for 

stocks priced greater than $1,000 and 

less than or equal to $10,000; finally, 1 

share for stocks priced greater than 

$10,000. These amendments modify the 

round lot definitions set by the MDI 

Rules by changing the evaluation period 

in which a stock’s share price is 

measured. The MDI Adopting Release 

defined round lots based on the stock’s 

average price in the preceding month— 

i.e., a stock’s round lot was updated 

every month based on the most recent 

month’s data. These amendments 


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1136See MDI Adopting Release, supra note 10, at 

18698–18701. 

1137See id. at 18698. 

1138See id. at 18699–18700. 

1139See id. at 18700–18701. 

1140The Operating Committees of CTA Plan and 

UTP Plan filed proposed amendments on Nov. 5, 

2021, which were published for comment in the 

Federal Register. See Securities Exchange Act 

Release Nos. 93615 (Nov. 19, 2021), 86 FR 67800 

(Nov. 29, 2021); 93625 (Nov. 19, 2021), 86 FR 67517 

(Nov. 26, 2021); 93620 (Nov. 19, 2021), 86 FR 67541 

(Nov. 26, 2021); 93618 (Nov. 19, 2021), 86 FR 67562 

(Nov. 26, 2021). 

1141See Securities Exchange Act Release Nos. 

95848 (Sept. 21, 2022), 87 FR 58544 (Sept. 27, 

2022); 95849 (Sept. 21, 2022), 87 FR 58592 (Sept. 

27, 2022); 95850 (Sept. 21, 2022), 87 FR 58560 

(Sept. 27, 2022); 95851 (Sept. 21, 2022), 87 FR 

58613 (Sept. 27, 2022). 

1142The Commission ordered the exchanges and 

FINRA to file a new plan regarding consolidated 

market data on Sept. 1, 2023. On Jan. 19, 2024, the 

Commission published notice of filing of a National 

Market System Plan for Consolidated Equity Market 

Data. See supra note 78. 

1143See MDI Adopting Release, supra note 10, at 

18741–18799. 

1144Commission staff will review and study the 

effects of the amendments adopted herein. See the 

introduction to section VII.D. 

1145See MDI Adopting Release, supra note 10, at 

18743 for the full discussion of the effect of 

changing the round lot size on the NBBO. 

1146See MDI Adopting Release, supra note 10, at 

18744, 18747 for the full discussion of the effect of 

changing the round lot size on transparency and 

execution quality. 

1147See MDI Adopting Release, supra note 10, at 

18747 for the full discussion of the effect of 

changing the round lot size on exchange 

competition and order routing. 

1148See MDI Adopting Release, supra note 10, at 

18748 for the full discussion of the expected costs 

of changing the round lot size. 

1149See MDI Adopting Release, supra note 10, at 

18749 for the full discussion of the effect of 

changing the round lot size on other rules and 

regulations. 

1150See MDI Adopting Release, supra note 10, at 

18753 for the full discussion of the effect of 

including odd-lot information inside the NBBO in 

its definition of core data. 

1151 Id. 

1152 Id. 

1153See MDI Adopting Release, supra note 10, at 

18759 for the full discussion of the costs associated 

with expanding core data to include odd-lot 

information inside the NBBO. 

1154 Id. 

1155See MDI Adopting Release, supra note 10, at 

18752 n.1945 and surrounding text. 

1156According to the 2022 Survey of Consumer 

Finances, available at https://www.federal

reserve.gov/econres/scfindex.htm?mod=article_

inline, out of a total number of households of 

approximately 131,000,000, 58% invested in 

equities in some fashion (e.g., held stock directly, 

invested in a stock mutual fund, etc.). Bd Gov. Fed. 

Res., Changes in U.S. Family Finances from 2019 

to 2022: Evidence from the Survey of Consumer 

Finances (Oct. 2023) at 19, available at 

update round lots every six months, 

with the round lot determined by the 

stock’s average price with a one-month 

lag—i.e., a stock’s round lot is updated 

in May of every year using its average 

stock price in March, and the round lot 

is updated again in November using its 

average stock price in September. 

In the MDI Adopting Release, the 

Commission established a transition 

period for the implementation of the 

MDI Rules.1136 The Commission’s 

approval of the MDI Plan Amendments 

will be the starting point for the rest of 

the MDI implementation schedule.1137

After approval of the MDI Plan 

Amendments, the next step will be a 

180-day development period, during 

which competing consolidators can 

register with the Commission.1138 Based 

on the times provided in the transition 

plan for implementation of the MDI 

Rules, the Commission estimated that 

the full implementation of the MDI 

Rules will be at least two years after the 

Commission’s approval of the plan 

amendment(s) required by Rule 

614(e).1139

The Operating Committees of the 

CTA/CQ Plan and UTP Plan filed the 

MDI Plan Amendments on November 5, 

2021.1140 The Commission disapproved 

the proposed amendments on 

September 21, 2022.1141 As a result, the 

participants to the effective national 

market system plan(s) will need to 

develop and file new proposed 

amendments as required by Rule 

614(e),1142 before the implementation 

period prescribed by the phased 

transition plan can commence. Because 

the implementation of the MDI Rules 

has been delayed, the end date of the 

implementation period cannot be 

estimated with certainty. 

The following discussion reflects the 

Commission’s assessment of the 

anticipated economic effects of the MDI 

Rules described in the MDI Adopting 

Release as they relate to the baseline for 

the adoption of these amendments.1143

The MDI Rules are part of the regulatory 

baseline for this rule because they have 

been adopted. Given that the MDI Rules 

have not yet been implemented, they 

have not affected market practice and 

therefore data that would be required for 

a quantitative analysis of a baseline that 

includes the effects of the MDI Rules is 

not available. It is possible that the 

baseline for this rule, and therefore the 

economic effects relative to the baseline, 

could be different depending on how 

the MDI Rules are implemented.1144

When adopting the MDI Rules, the 

Commission enumerated numerous 

economic effects specifically related to 

changing the round lot definition and 

including odd-lot information as a part 

of core data. For the change in the 

definition of round lots, these effects 

included: (1) a mechanically tighter 

NBBO for higher priced stocks due to 

the redefinition of the round lot 

sizes,1145 (2) increased transparency and 

better order execution,1146 and (3) 

potentially more orders for high priced 

stocks being routed to exchanges instead 

of ATSs.1147 The costs of changing the 

round lot definition included upgrading 

systems to account for additional 

message traffic, and modifying and 

reprogramming systems.1148 The 

Commission also discussed the 

expected effect that changing the round 

lot definition will have on other rules 

and regulations.1149

For the inclusion of odd-lot 

information inside the NBBO in core 

data,1150 these effects include reducing 

information asymmetries between 

investors who currently have access to 

odd-lot information through proprietary 

data feeds and those who do not, 

leading to better order execution and 

price efficiency.1151 Providing an 

alternative to proprietary data for some 

market participants will allow these 

market participants to reduce data 

expenses required for trading.1152 The 

costs of including odd-lot information 

inside the NBBO include: 1153 the cost of 

upgrading existing infrastructure and 

software to handle the dissemination of 

additional core data message traffic; the 

cost to SROs to implement system 

changes required in order to make 

regulatory data and other data needed to 

generate consolidated market data 

available to competing consolidators; 

the cost of technological investments 

market participants might have to make 

in order to receive the new core message 

traffic; and the cost to users of 

proprietary data whose information 

advantage will dissipate somewhat.1154

The MDI Rules do not require the 

competing consolidators to disseminate 

odd-lot information. However, the 

Commission estimated that at least one 

competing consolidator will 

disseminate the odd-lot information 

because the Commission believed that 

there will be demand for the data.1155

4. Affected Entities and Markets 

The amendments will affect trading in 

NMS stocks, particularly either on 

exchanges that charge high access fees 

or in stocks with lower quoted spreads, 

many odd-lots inside the spread, or 

higher prices. Therefore, the 

amendments will affect a wide variety 

of market participants, including 

national securities exchanges, other 

trading venues, exclusive SIPs and their 

data users, any future competing 

consolidators, broker-dealers operating 

order entry and order routing systems, 

and others who engage in the trading of 

NMS stocks, including investors.1156


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financeshttps://www.federalreserve.gov/ 

publications/files/scf23.pdf. 

1157Exchanges can also facilitate the routing of 

orders to other exchanges. 

1158Trade Reporting Facilities (TRFs) are 

facilities through which FINRA members report offexchange transactions in NMS stocks, as defined in 

SEC Rule 600(b)(47) of Regulation NMS. 

1159While the Commission is uncertain about the 

number of competing consolidators that will enter 

the market when exclusive the SIPs are retired, the 

Commission believes that the most likely outcome 

is three or more competing consolidators with at 

least one competing consolidator that is not 

affiliated with one of the exchanges currently 

operating the exclusive SIPs or an exchange that has 

sufficient proprietary data revenue that would 

create conflicting profit incentives. See MDI 

Adopting Release, supra note 10, at 18768–72 for 

further discussion on the number of competing 

consolidators that may enter the market. 

1160See supra note 862 and infra note 1780 and 

associated text for a further discussion on the 

nature of proprietary data feeds. 

1161See MDI Adopting Release, supra note 10, at 

18772–78. 

1162Based on information from broker-dealers’ Q2 

2023 FOCUS Report Form X–17A–5 Schedule I. 

This includes both carrying broker-dealers, who 

maintain custody of customer funds and securities, 

and introducing broker-dealers, who accept 

customer orders and introduce their customers to a 

carrying broker-dealer that will hold the customers’ 

securities and cash. In addition, the Commission 

acknowledges that the total number of brokerdealers is likely to increase as a result of the recent 

Dealer Adopting Release. The Dealer Adopting 

Release adopted new rules to further define the 

phrase ‘‘as a part of a regular business’’ as used in 

the statutory definitions of ‘‘dealer’’ and 

‘‘government securities dealer.’’ The Dealer 

Adopting Release estimated that up to 43 entities 

may be required to register with the Commission as 

a dealer or government securities dealer, which 

would increase the total number of broker-dealers 

affected by the amendments. 

1163Customer accounts are identified in CAT as 

accounts belonging to either the ‘‘Institutional 

Customer’’ account type, defined as accounts that 

meet the definition in FINRA Rule 4512(c), or the 

‘‘Individual Customer’’ account holder type, 

defined as accounts that do not meet the definition 

of FINRA Rule 4512(c) and are also not a 

proprietary account. 

1164See Securities Exchange Act Release No. 

84528 (Nov. 2, 2018), 83 FR 58338 (Nov. 19, 2018) 

(adopting new order handling disclosure 

requirements) at nn.59–60 and corresponding text. 

1165FINRA’s best execution obligation requires 

that, ‘‘A member must make every effort to execute 

a marketable customer order that it receives fully 

and promptly.’’ See FINRA Rule 5310 (Best 

Execution and Interpositioning), Supplementary 

Material para. .01, available at https://

www.finra.org/rules-guidance/rulebooks/finrarules/5310 (accessed Jun. 18, 2024). 

1166See infra note 1656. 

1167See infra note 1660. 

1168See, e.g., SIFMA Letter II; Virtu Letter II; 

Citadel Letter I; Equity Market Structure Citadel 

Letter; Citadel Letter II. See also Rule 605 Proposal, 

supra note 117. 

There are 16 national securities 

exchanges on which NMS stocks are 

traded that will be affected by the 

amendments. The exchanges compete 

with each other and other trading 

venues to attract order flow. Exchanges 

compete by setting the rules that dictate 

how orders routed to them interact 

given the broader requirements of the 

Exchange Act and rules thereunder. 

Such rules are coded into the systems of 

exchanges that match buy and sell 

orders. Exchanges also compete via their 

services and fee structures; they 

differentiate themselves with the access 

fees they charge or the rebates they pay 

out for particular order types, as well as 

their data and connectivity options.1157

A subset of national securities 

exchanges, the five listing exchanges, 

also compete to attract stock listings by 

setting rules for listing standards for 

securities. The listing exchanges are also 

responsible for tracking certain 

regulatory information regarding their 

listed stocks. 

Other trading venues, including 33 

ATSs and 238 other FINRA members, 

including OTC market makers, also 

compete with exchanges and each other 

to attract order flow in NMS stocks and 

can route orders to the various trading 

venues. The order flow they attract 

depends on a number of factors such as 

fees and price improvement over the 

NBBO, services such as order display 

features, segmentation of subscriber 

order flow and the ability of subscribers 

to select which category of order flow to 

interact with, among other aspects of 

execution quality. 

Pending the full implementation of 

the MDI Rules, the market for market 

data is serviced by the two exclusive 

SIPs and exchange proprietary feeds. 

The two exclusive SIPs collect trade, 

quote, and regulatory data from the 16 

exchanges and three trade reporting 

facilities,1158 consolidate the data, 

determine an NBBO, and disseminate 

those data directly to users or through 

vendors and broker-dealers. The 

exclusive SIPs can also collect 

information from the alternative display 

facility (‘‘ADF’’) operated by FINRA, 

though no one currently uses the ADF 

to display quotes. Upon full 

implementation of the MDI Rules, the 

exclusive SIPs will be retired, and an 

unknown number of competing 

consolidators will take over the 

collection, consolidation, estimation, 

and dissemination of these data.1159 The 

volume of data to be processed through 

these competing consolidators will be 

greater than that currently processed 

through exclusive SIPs, but competing 

consolidators will have flexibility to 

design data products tailored to 

different user types. In addition to the 

exclusive SIPs, the exchanges also 

disseminate market data to paying 

subscribers via proprietary data feeds. 

Some of these proprietary data feeds 

provide more data than the exclusive 

SIPs and are provided at a lower 

latency; however, the proprietary feeds 

are limited to individual exchanges 

while the SIPs contain consolidated 

data across all exchanges and also 

contain all off-exchange trades.1160

Following the transition to a competing 

consolidator model for market data, the 

Commission expects total fees for 

market data are likely to decline.1161

Broker-dealers typically route their 

own orders or their customers’ orders 

for execution to trading venues. There 

were 3,494 registered broker-dealers as 

of Q2 2023.1162 A portion of these 

broker-dealers focus their business on 

individual and/or institutional investors 

in the market for NMS stocks. 

According to CAT data, as of the end of 

2022, there were approximately 1,006 

registered broker-dealers that originated 

NMS stock orders on behalf of 

individual investors and approximately 

837 broker-dealers that originated NMS 

stocks orders on behalf of institutional 

investors.1163 Institutional investor 

orders are typically ‘‘not held’’ orders, 

which provides the broker-dealer with 

more time and price discretion to 

execute the order or to minimize price 

impact.1164 In contrast, broker-dealers 

must attempt to execute a marketable 

held order immediately; these orders 

better suit retail investors because retail 

orders typically have much lower price 

impact, which reduces the need for 

discretion in order handling.1165

Brokers-dealers serving individual 

investors often distinguish themselves 

by the customer service and financial 

advice they provide and the 

accessibility and functionality of their 

trading platforms. 

Many broker-dealers that handle 

customer accounts do not directly 

access national securities exchanges or 

ATSs for their orders. They use other 

broker-dealers to facilitate market access 

for them through those broker-dealers’ 

order entry systems. The Commission 

estimates that there are 1,161 brokerdealers with order entry systems that 

originate orders in NMS stocks in the 

minimum pricing increments; the 

amendments to Rule 612 may require 

changes to these order entry 

systems.1166 Of these broker-dealers, an 

estimated 270 broker-dealers operate 

smart order routers to facilitate order 

routing.1167

5. Amendments to Rule 605 

Several commenters requested the 

Commission consider interactions 

between the economic effects of these 

proposed amendments and the 

proposed amendments to Rule 605.1168

The amendments to Rule 605 were not 

included as part of the baseline in the 


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1169See Rule 605 Amendments, supra note 10. 

1170See supra note 1044. As an exception, after 

odd-lot order information sufficient to calculate 

best available displayed price is made available 

pursuant to an effective NMS plan, market centers, 

brokers and dealers will have six months to begin 

including price improvement statistics relative to 

best available displayed price in their Rule 605 

reports. See Rule 605 Amendments, supra note 10, 

at 26497. 

1171See infra section VII.E.6.a; see also supra 

section II. 

1172 17 CFR 242.605. 

1173The term ‘‘larger broker-dealer’’ refers to a 

broker-dealer that meets or exceeds the ‘‘customer 

account threshold,’’ as defined in Rule 605(a)(7) as 

broker-dealers that carry or introduce orders on 

behalf of 100,000 or more customer accounts 

through which transactions are affected for the 

purchase sale of NMS stocks. See Rule 605 

Amendments, supra note 10, at 26428 n.61; 17 CFR 

242.605(a)(7). 

1174Regulation NMS defines the term ‘‘market 

center’’ to mean any exchange market maker, OTC 

market maker, ATS, national securities exchange, or 

national securities association. See 17 CFR 

242.600(b)(55). 

1175See Rule 605 Amendments, supra note 10, at 

26428. 

1176See 17 CFR 242.600(b)(14) (defining the ‘‘best 

available displayed price’’ as, with respect to an 

order to buy, the lower of: the national best offer 

at the time of order receipt or the price of the best 

odd-lot order to sell at the time of order receipt as 

disseminated pursuant to an effective transaction 

reporting plan or effective national market system 

plan; and, with respect to an order to sell, the 

higher of: the national best bid at the time of order 

receipt or the price of the best odd-lot order to buy 

at the time of order receipt as disseminated 

pursuant to an effective transaction reporting plan 

or effective national market system plan. With 

respect to a midpoint-or-better limit order, the best 

available displayed price shall be determined at the 

time such order becomes executable rather than the 

time of order receipt) and 17 CFR 

242.605(a)(1)(ii)(M) through (Q). 

1177See MDI Adopting Release, supra note 10, at 

18753. 

1178 In the Rule 605 Amendments, the 

Commission acknowledged that it was still 

considering the proposed changes discussed in the 

Proposing Release and adopted herein, including 

accelerating the implementation of the round lot 

and odd-lot information definitions contained in 

the MDI Release and amending the definition of 

odd-lot information to include a new data element 

for the best available odd-lot orders available in the 

market. In the Rule 605 Amendments the 

Commission stated that, if it determined to adopt 

an amendment to the definition of odd-lot 

information to include a data element that identifies 

the best odd-lot orders available in the market, 

reporting entities would be required to use such 

information to determine the best available odd-lot 

price. See Rule 605 Amendments, supra note 10, at 

26428 n.719. 

1179See 17 CFR 242.600(b)(57) (defining 

‘‘midpoint-or-better orders’’) and 17 CFR 

242.605(a)(1)(ii). 

1180See Rule 605 Amendments, supra note 10, at 

26528. 

1181See Rule 605 Amendments, supra note 10, at 

26556–26557, 26568. 

1182See 17 CFR 242.600(b)(72) (defining the 

‘‘order size benchmark’’) and 17 CFR 

242.605(a)(1)(ii)(R). 

1183See 17 CFR 242.605(a)(1)(ii)(S), requiring the 

reporting of ‘‘the sum of, for each execution of a 

covered order, the greater of: the total number of 

shares executed with price improvement plus the 

total number of shares executed at the quote minus 

the order size benchmark, or zero.’’ The ‘‘total 

number of shares executed with price improvement 

plus the total number of shares executed at the 

quote minus the order size benchmark’’ (‘‘net size 

improvement’’) will only be a strictly positive 

number for those orders that are both eligible to 

receive size improvement and actually receive size 

improvement, and thus is equivalent to a measure 

of shares that are eligible to and that received size 

improvement. See Rule 605 Amendments, supra 

note 10, at 26428 n.1544. 

1184See 17 CFR 242.600(b)(18). 

Proposing Release because they were 

not adopted at that time. The 

Commission amended Rule 605 on 

March 6, 2024,1169 and the requirements 

of that rule are part of the baseline 

considered here. With certain 

exceptions, the amendments to Rule 605 

have a compliance date of Dec. 14, 

2025,1170 which is after the compliance 

dates of the amendments made by this 

adopting release. The following 

discussion reflects the Commission’s 

assessment of the anticipated economic 

effects of the amendments to Rule 605 

described in the Rule 605 Amendments 

as they relate to the baseline for the 

adoption of these amendments. Specific 

interactions between the expected 

economic effects of the amendments to 

Rule 605 and those of rules adopted 

herein will be discussed in detail in a 

later section.1171

Rule 605 requires disclosures for 

order executions in NMS stocks.1172 The 

Rule 605 amendments modified 

reporting requirements in several ways. 

First, the amendments expanded the 

scope of reporting entities subject to the 

rule to includelarger-broker-dealers 1173

in addition to market centers.1174 The 

amendments also enhanced the 

accessibility of the reported execution 

quality statistics by requiring all 

reporting entities to make a summary 

report available.1175

The Rule 605 Amendments also 

included amendments to the 

information required to be reported 

under Rule 605, some of which are 

expected to be relevant to the 

amendments to this Rule. First, the 

amendments to Rule 605 added 

requirements related to the reporting of 

price improvement statistics relative to 

the best available displayed price, 

which incorporates information about 

the best priced odd-lot orders, in 

addition to the preexisting requirement 

to report price improvement statistics 

relative to the NBBO.1176 The Rule 605 

Amendments acknowledged that, while 

under the MDI Rules odd-lot 

information will include pricing 

information about odd-lots priced better 

than the NBBO,1177 the MDI Rules have 

been approved but not yet implemented, 

and thus this information is not yet 

available. Therefore, the Commission 

stated that Rule 605’s price 

improvement statistics that are relative 

to the best available displayed price will 

not be required to be reported until six 

months after odd-lot order information 

needed to calculate the best available 

displayed price is made available 

pursuant to an effective national market 

system plan.1178

Second, the amendments to Rule 605 

require the separate reporting of nonmarketable limit orders that are priced 

at the midpoint of the NBBO or better 

(‘‘midpoint-or-better NMLOs’’), and 

additionally requires the reporting of 

information about the price 

improvement offered to these orders.1179

An analysis by the Commission in the 

Rule 605 Amendments indicates that a 

high percentage of midpoint-or-better 

NMLO share volume is submitted with 

IOC designations as compared to other 

NMLOs, confirming that many of these 

orders are submitted by traders with the 

intention of executing immediately 

against hidden or odd-lot inside-thequote liquidity, and that these orders 

tend to have different execution 

characteristics than other types of 

NMLOs.1180 Therefore, the Commission 

stated that market participants will 

benefit from an increase in transparency 

by the separate reporting of these orders, 

along with the required reporting of 

certain execution quality statistics that 

measure the cost of executing 

immediately, such as effective 

spreads.1181

Third, the amendments to Rule 605 

require the reporting of information 

regarding the extent to which orders 

received an execution at prices at or 

better than the quote for share quantities 

greater than the displayed size at the 

quote, i.e., ‘‘size improvement.’’ This 

information includes (1) a benchmark 

metric that measures the displayed size 

at the time of order receipt, which can 

then be compared to the number of 

submitted shares to determine the 

extent to which a trading venue handled 

orders that outsized available displayed 

depth,1182 and (2) for orders that 

outsized available displayed depth, the 

number of shares that received size 

improvement.1183

The amendments to Rule 605 also 

modified the definition of order size 

categories from order size categories 

based on numbers of shares, with orders 

less than 100 shares excluded, to order 

size categories based on a notional 

dollar value range, along with an 

indication that the category reflects 

orders that were for an odd-lot, a round 

lot, or less than a share.1184 The 

Commission stated in the Rule 605 

Amendments that one of the benefits of 


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1185See Rule 605 Amendments, supra note 10, at 

26523. 1186 Id. at 26543. 1187See Rule 605 Amendments, supra note 10, at 

26543–26544. 1188 Id. at 26579–26580. 

1189Compare table 8. 

1190One possible study design could focus on 

stocks close to the TWAQS threshold. Comparing 

stocks with similar levels of liquidity ex ante would 

better isolate the effect of the smaller tick size on 

market quality. 

1191See infra section III.C 

1192See supra section I.A.1 and note 994 for the 

definition and discussion of pennying. 

1193See supra section VII.C.1.a. 

1194See supra section III.C for further discussion. 

this change is to ensure that round lots 

for stocks with prices greater than $250 

are not excluded from Rule 605 reports 

following the change in round lot 

definition under the MDI Rules.1185

In the Rule 605 Amendments, the 

Commission stated that the amendments 

to Rule 605 will promote increased 

transparency of order execution quality, 

particularly for larger broker-dealers 

who were not required to disclose 

execution quality information under 

preexisting Rule 605, but also for market 

centers, whose execution quality 

information will be more relevant and 

easier to access because of 

improvements to existing Rule 605 

disclosure requirements.1186 The 

Commission stated in the Rule 605 

Amendments that this increase in 

transparency is expected to increase the 

extent to which market centers and 

broker-dealers compete on the basis of 

execution quality, as well as 

improvements in execution quality.1187

The Commission also stated that the 

amendments to Rule 605 will result in 

initial and ongoing compliance costs, 

the majority of which will be related to 

expanding the scope of reporting 

entities to include larger broker-dealers, 

but a significant portion of which will 

result from the need for market centers 

to update their systems to process and 

store the data necessary to prepare the 

amended reports.1188

D. Benefits, Costs, and Other Economic 

Effects 

The Commission expects the adopted 

minimum quoting increment will 

alleviate tick constraints and better 

allow prices to be determined by the 

forces of supply and demand, lowering 

transaction costs for investors. A lower 

access fee cap will further reduce the 

transaction costs of liquidity demanders 

in the predominant maker-taker 

structure. Making fees and rebates 

determinable at the time of trade may 

enhance broker-dealer order routing by 

helping mitigate a potential conflict of 

interest and providing clarity in terms of 

all in execution costs. Accelerating the 

inclusion of odd-lot information into the 

exclusive SIPs, accelerating the 

implementation of the round lot 

definitions, and amending the definition 

of odd-lot information to include the 

best odd-lot order, will accelerate some 

of the benefits of the MDI Rules, and 

could also lead to better order execution 

by enhancing benchmarking. The 

amendments will also impose 

compliance costs on various market 

participants. 

The Commission continually 

monitors the national market system 

and the operation of Federal securities 

laws. As discussed above, the national 

market system continually changes and 

the Commission, consistent with its 

oversight of the national market system, 

will monitor the impact of the adopted 

rules. With regard to the amendments 

adopted herein, by May 2029 (three 

years from the last implementation 

date), Commission staff will review and 

study the effects of the amendments in 

the national market system. Such a 

review and study might include, but 

would not be limited to, an 

investigation of: (i) general market 

quality and trading activity in reaction 

to the implementation of the variable 

tick size, (ii) the reaction of quoted 

spreads to the implementation of the 

amended access fee cap, and (iii) 

changes to where market participants 

direct order flow, e.g., to exchange 

versus off-exchange venues, following 

the implementation of the amendments. 

In studying the effect on market 

quality, a number of different metrics 

could be examined including quoted, 

realized, and effective spreads; 

cumulative depth from the midpoint 

across multiple price levels; and the 

cost of a round-trip trade for various 

trade sizes.1189 In such analysis, 

improvements in market quality for 

stocks affected by Rule 612 would 

correspond to reduced spreads 

(adjusting for fees or rebates) or a 

reduced cost of a round-trip trade.1190

To isolate the effect of Rule 610, the 

analysis might focus on those stocks not 

directly affected by Rule 612. Such 

analysis might focus on the effect of 

Rule 610 on quoted spreads (e.g., to 

examine how the quoted spread adjusts 

in response to changes in fees and 

rebates), on whether Rule 610 leads to 

any change in effective spread offexchange (due to adjustments to onexchange quotes), and on any migration 

of liquidity off-exchange. 

1. Modification of Rule 612 To Create a 

Half-Penny Tick 

The Commission is adopting 

amendments to Rule 612 that introduce 

one minimum pricing increment that is 

less than $0.01, i.e., $0.005, for quotes 

and orders priced $1.00 or more for 

NMS stocks that have a TWAQS of 

$0.015 or less during the evaluation 

period.1191 Hence, the amendments to 

Rule 612 will create a smaller tick size 

for some NMS stocks. 

The Commission expects that, on 

average, market quality will improve for 

the stocks receiving the smaller tick 

size. A smaller tick has two competing 

effects on market quality. First, a 

smaller tick leads to pricing that more 

effectively balances liquidity supply 

and demand, limiting distortions, and 

thus lowering transaction costs. Second, 

a smaller tick fragments liquidity in the 

order book into more price levels, which 

can increase complexity associated with 

implementing trades, and increases the 

incidence of pennying 1192—effects that 

can harm liquidity. A smaller tick can 

also increase message traffic which can 

be costly for market participants. The 

amendments will not change the tick for 

NMS stocks priced below $1.00, nor for 

stocks with time weighted average 

quoted spread always greater than 

$0.015 during an Evaluation Period and 

thus the tick size amendments are 

expected to have minimal if any effect 

on the trading environment for these 

stocks. 

a. Estimates of Percent of Trading 

Volume and Number of NMS Stocks 

Affected 

As discussed in section VII.C.1, prior 

to these amendments, the tick size for 

orders in NMS stocks priced equal to or 

greater than $1.00 was $0.01, and the 

tick size for orders in NMS stocks priced 

less than $1.00 was and remains 

$0.0001.1193 The amendments assign 

each NMS stock to one of two tick sizes: 

$0.005 or $0.01, depending on the 

stock’s time weighted average quoted 

spread during an Evaluation Period 

(specifically, assigning $0.005 for stocks 

with a TWAQS of $0.015 or less).1194

Table 7 presents estimates of the 

amount of share and dollar trading 

volume that would have been associated 

with the two tick sizes, as well as the 

sub $1.00 tick size, based on 2023 

trading volumes. It also presents 

estimates based on the Proposal which 

would have reduced tick sizes for stocks 

with TWAQS of $0.040 or less. 


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1195See Nasdaq Letter I at 11 (quoting the 

Proposing Release). 

1196We use the terminology ‘‘ticks intra-spread’’ 

or ‘‘ticks within the spread’’ to mean the number 

of quoting increments between the NBB and NBO 

(the quoted spread). For example, if the quoted 

spread is one penny wide (in a stock priced above 

$1), then we say that there is one tick intra-spread 

under the baseline. Under the baseline, symbols 

priced above $1.00 with a quoted spread between 

2 and 4 pennies would have 2 to 4 ticks intraspread. 

TABLE 7—ESTIMATED NUMBER OF STOCKS AND TRADING VOLUME IN EACH TICK SIZE GROUP a

Average quoted spread Tick Number of 

stocks 

Estimated % 

share volume 

Estimated % 

dollar volume 

All Stocks 

Spread <= $0.015 ........................................... $0.005 ............................................................ 1,788 66.2 42.9 

$0.015 < Spread ............................................. $0.01 .............................................................. 9,047 33.8 57.1 

Spread <= $0.04 ............................................. (Proposed Reduction to $0.005 or smaller) ... 4,333 84.8 66.5 

Price < $1 

......................................................................... $0.0001 .......................................................... 1,106 12.3 0.1 

a In this table, quoted spreads, and thus tick sizes, are determined by computing the time weighted quoted spread during regular trading hours 

as computed by the WRDS intra-day indicators for every sym_root and sym_suffix combination in the WRDS intra-day indicators dataset and taking the equal weighted average across all trading days in January–March 2023. Stocks with average quoted spreads less than $0.015 are assigned a $0.005 tick. All other stocks are assigned a $0.01 tick. A stock with a price less than $1.00 will still be assigned a tick size per the usual 

process, which would be in force should the stock’s price rise above $1.00. As long as the stock’s price remains below $1.00 the $0.0001 tick 

size would prevail. The designated tick size is applied to trading volume in May–October 2023 where share and dollar volume is obtained from 

the universe of stocks in WRDS intra-day indicators. New stocks are given a tick size of $0.01. The number of stocks assigned to each group is 

indicated in the Number of Stocks column and indicates the average number of stocks in each category (listings and de-listings can affect the 

daily number of stocks trading as well as if a stock’s price falls below $1). If a stock has a VWAP of less than $1.00, then that stock, as well as 

all of its trading volume for that day, is assigned to the $0.0001 tick size. 

This estimate may be an upper bound. As discussed in section VII.B.3, supra and infra section VII.D.2, rebates can lower the quoted spread 

(although not necessarily transaction costs). Thus, lowering the access fee, and thus the associated rebates, may lead to wider quoted spreads. 

Because of this, some stocks may have quoted spreads that meet the threshold for the smaller tick size in the current environment but may not 

meet that threshold once the access fee cap is reduced, leading to lower rebates offered. Additionally, all stocks, even those priced below $1.00, 

will be assigned a tick size via the usual process. If a stock price falls below $1.00 the applicable tick size will be $0.0001. So not all stocks initially assigned the $0.005 tick size will trade differently than the baseline. This table differs from table 3 because table 3 is based on daily average TWAQs and does not attempt to analyze the effect of the adopted amendments. 

Once implemented, the changes to the current arrangements for consolidated market data pursuant to the MDI Rules may impact the number 

of stocks and their estimated percentage volumes anticipated for each tick level. In particular, under the MDI Rules, NMS stocks priced $250 or 

more will receive reductions in round lot sizes which is anticipated to lower their quoted spreads; however, the effect on the reported numbers is 

likely small both because these stocks make up less than 4% of share volume and because they are unlikely to have quoted spreads less than 

$0.015. Based on an analysis of data from May–October 2023, the average quoted spread of a stock priced between $250 and $1,000 was 

$0.71, far greater from the $0.015 that will trigger a smaller minimum increment. Similarly, for stocks priced between $1,000 and $10,000 the average quoted spread was $3.85 and the only stock that had a value weighted average price greater than $10,000 already has a round lot size of 

one share and had an average quoted spread of $0.07. 

Table 7 indicates that, had the 

amendments been in place in 2023, 

approximately 66% of share volume and 

43% of dollar volume, associated with 

an estimated 1,788 individual stocks, 

would likely have been assigned the 

$0.005 tick size. The adopted Rules 

represent a significant reduction in the 

scope of the Rule compared to the 

proposal. Table 7 provides estimates of 

the number of stocks and volume that 

would have been affected if the 

Commission had implemented the Rule 

with the tick size thresholds as 

proposed (the proposal would have 

lowered the tick size for all stocks with 

TWAQS less than $0.04). The 

Commission estimates that there would 

have been 4,333 stocks receiving a 

smaller tick accounting for 84.8% 

(66.5%) of share (dollar) volume if all 

stocks with a TWAQS less than or equal 

to $0.04 received a smaller tick size. 

Consequently, the number of stocks 

receiving a lower tick size is more than 

halved under the adopted amendments. 

b. Effects on Market Quality 

For the stocks that will receive the 

$0.005 tick, the Commission expects 

market quality to improve. Smaller tick 

sizes present a market quality tradeoff 

between increasing pennying and 

complexity concerns—which can harm 

market quality—and reducing pricing 

constraints—which can improve market 

quality by reducing pricing distortions 

leading to an oversupply of liquidity 

relative to competitive levels. The 

Commission believes that market 

quality will, on average, improve for 

stocks receiving the smaller tick based 

on theoretical discussion, the 

Commission’s empirical analysis, as 

well as evidence and opinions 

expressed by commenters. For example, 

one commenter agreed with the 

presence of market distortions under 

current tick sizes, stating: ‘‘[t]he SEC 

correctly describes the problem of tickconstrained securities. Such securities 

are ‘not able to be priced by market 

forces’ because the current ‘rule 612 

minimum pricing increment of $0.01 

may now be too large for certain stocks, 

which, in turn, results in the pricing of 

such stocks being artificially 

constrained.’ Trading in these securities 

would be improved ‘if competitive 

market forces could establish prices in 

sub-penny increments, which could 

reduce quoted spreads,’ allowing these 

securities to ‘be priced more 

aggressively within the spread.’ ’’ 1195

The theoretical discussion provided 

below supports characterizing a smaller 

tick size as providing a pennying/ 

complexity versus pricing constraint 

tradeoff, and the empirical analysis 

presented in table 8 as well as other 

empirical research suggests that, for 

stocks with fewer than approximately 

two ticks intra-spread,1196 a reduction 

in the tick size on average improves 

market quality. A number of 

commenters agreed, and some 

commenters presented analyses 

suggesting that 2 to 4 ticks intra-spread 

may be optimal. Combined, this 

evidence suggests that the tick size 

reduction associated with these 

amendments will, on average, improve 


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Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81705 

1197The amendments will take stocks trading 

with 1–1.5 ticks intra-spread and increase the 

number of ticks intra-spread to up to 3. 

1198See section VII.B.2 

1199See, e.g., Rindi and Graziani Letter at 2 

(agreeing), see also Barardehi et al., supra note 231 

(for a more thorough discussion of this tradeoff). 

See also NASAA Letter at 9 (stating that the general 

concept that a narrower tick size will increase 

pricing efficiency), as well as discussion in Ingrid 

M. Werner, et al., Tick Size, Trading Strategies and 

Market Quality, 69 Mgmt. Sci. 3818 (2023). See also 

Budish Letter at 4 referring to a tick size that is too 

wide as producing rents via regulatory price 

constraints. 

1200Any price better than this will lead to an 

excess of liquidity demand which will push prices 

out again. 

1201Marginal cost in this context refers to the cost 

of providing an additional share of liquidity. If the 

revenue associated with providing a share of 

liquidity is less than the cost of providing that 

share, then liquidity providers are better off not 

providing liquidity than incurring a loss to provide 

liquidity. 

1202See, e.g., Robinhood Letter at 41, Virtu Letter 

II at 4, Tastytrade Letter at 20, AIMA Letter at 2, 

Brandes Letter at 2, UBS Letter at 10, and 

TradeStation Letter at 5, Lewis Letter attached to 

Virtu Letter II at p 33. See also supra note 994 and 

section VII.B.2 for a definition and discussion of 

pennying. See also Proposing Release, supra note 

11 at section V.D.1. 

1203See, e.g., Antitrust Division of the DOJ Letter 

at 5 and XTX Markets Letter at 3. 

1204See Dyhrberg et al., supra note 994 studying 

the effects of imposing a tick size on a crypto 

exchange that previously did not have a tick size. 

The authors report an improvement in market 

quality due largely to a reduction in pennying 

behavior. See also Virtu Letter II at 25 and Better 

Markets Letter I at 8. See also Budish Letter at 5. 

1205See, e.g., Virtu Letter II at 8, Fidelity Letter 

at 10. 

1206See, e.g., IEX Letter I at 12, Danny Mulson 

Letter at 1, Nasdaq Letter I at 2. 

1207See, e.g., Amy K. Edwards, et al., The Effect 

of Hidden Liquidity: Evidence from an Exogenous 

Shock (working paper Mar. 1, 2021), available at 

https://ssrn.com/abstract=3766512 (retrieved from 

SSRN Elsevier database) (‘‘Edwards, et al. (2021)’’). 

See also Danny Mulson Letter at 3 stating that a 

smaller tick size would lead to more hidden orders, 

specifically ‘peg offset dark orders’ which could 

harm price efficiency. 

1208See Themis Letter at 5,Virtu Letter II at 6, 10 

discussing how a smaller tick can weaken protected 

quotes. 

1209See, e.g., Virtu Letter II at 8. See, also Edwin 

Hu et al., 2018; supra note 1002; and Kee H. Chung 

et al., Tick Size Liquidity for Small and Large 

Orders and Price Informativeness: Evidence From 

the Tick Size Pilot Program, 136 J. Fin. Econ. 879 

(2020), who both report the opposite effect in the 

context of the Tick Size Pilot where stocks with 

wider ticks experienced more volatility. 

1210See id. see also e.g., Edwards, et al., (2021), 

supra note 1207. 

1211See supra this section. 

1212The pennying effect would be particularly 

acute for wide-quoted spread stocks with lower 

stock prices because a lower stock price reduces the 

amount of capital needed to supply a round-lot 

quote and hence make pennying less capital 

intensive. 

1213For example, if a stock has a quoted spread 

of ten cents and a $0.01 tick, gaining priority 

through price improvement would require 

narrowing the half- quoted spread (i.e., the distance 

between the current quote and the midpoint) by 

20%. If instead a stock has a quoted spread of $1.00 

with a $0.01 tick, a market participant would only 

need to improve the half-quoted spread by 2% to 

get to the front of the queue. 

market quality for the subset of stocks 

receiving the lower tick size.1197

i. Theoretical Discussion 

Tick sizes present an economic 

tradeoff.1198 All else equal, reducing the 

tick size improves market quality by 

reducing distortions associated with 

markets not being able to set prices that 

equate liquidity supply and demand in 

the presence of a discrete pricing 

grid.1199 In a competitive market, and in 

the absence of rebates or other price 

distortions, the prevailing bid or ask 

price will be the feasible price equal to 

or just worse than the price that equates 

supply and demand for the underlying 

asset.1200 This is because liquidity 

providers will not post bids and offers 

that would result in guaranteed trading 

losses—i.e., they will not post prices 

that do not bring in sufficient revenue 

to cover their marginal cost of providing 

liquidity.1201 Since there is competition 

along a finite pricing grid, they choose 

the closest feasible price just worse than 

the competitive one. The gap between 

the feasible price and the price that 

equates liquidity supply and demand— 

i.e., the competitive price—is a price 

distortion allowing liquidity providers 

to earn rents on liquidity provision. 

This pricing distortion is most 

relevant for stocks that are tickconstrained and diminishes as quoted 

spreads widen. To understand this, 

consider again the example of section 

VII.B.2. In that example, under a tick 

size of $0.005, the ask would be $10.015 

and the bid $10.005. However, with a 

tick size of $0.01, the ask would be 

$10.02 and the bid $10.00, implying a 

spread that is twice as wide. Now 

assume that the same issuer reduced the 

number of shares so that the stock 

increases in price 100-fold, but the 

underlying economics are the same. To 

achieve the same reduction in spread 

would not require any change to the tick 

size: an ask of $1,001.50 and a bid of 

$1,000.50 are feasible even with a tick 

size of one penny. 

While a smaller tick size increases 

competition, thereby reducing 

distortions and reducing transaction 

costs, there are potential costs raised in 

the proposing release and also by 

commenters which are discussed below. 

Pennying: The proposing release and 

commenters identified pennying as a 

risk of a smaller tick which can harm 

market quality.1202 Pennying occurs 

when limit order providers get to the 

front of the queue by providing 

economically trivial price improvement. 

It reduces the importance of time 

priority.1203 The risk of being pennied 

could discourage liquidity provision in 

lit markets, particularly by market 

participants that are slower to respond 

to changes in market conditions and 

could increase transaction costs for 

these investors.1204 To compensate for 

additional costs associated with a 

fragmented order book, liquidity 

providers may post less aggressive 

quotes leading to wider quoted spreads 

and worse market quality.1205

Market participants may respond to 

an increased risk of pennying by 

increasing their use of hidden or offexchange orders that do not display 

prices, and thus avoid exposing the 

price needed to beat in order to get to 

the front of the queue and increase the 

likelihood of a fill.1206 Increased use of 

hidden orders has been associated with 

worse market quality outcomes.1207

Some commenters expressed their belief 

that a narrower tick and increased 

pennying could lead some orders that 

previously were at protected prices to be 

traded through.1208 However, it is not 

clear from the commenters’ letters why 

this would occur given the order 

protection rule and broker’s best 

execution responsibilities. One 

commenter also suggested that narrow 

ticks could increase volatility.1209

However, existing research on the topic 

would suggest, if anything, an opposite 

effect.1210

In contrast to the tick size pricing 

distortion discussed above, which is 

most relevant for stocks that are tickconstrained,1211 the pennying effect will 

be most pronounced for stocks with 

wide quoted spreads because there are 

more intra-spread price levels and the 

cost of gaining priority over other 

liquidity providers, by updating the best 

price by a single tick, is lower with a 

smaller tick.1212 For example, a stock 

with a quoted spread of ten cents, and 

a $0.01 tick, will have 10 price levels 

within the quoted spread, whereas a 

stock with a $1.00 quoted spread and a 

$0.01 tick will have 100. Because price 

has first priority in order execution, in 

a price-time priority system where quote 

priority is awarded based on best price 

first and then arrival order second, a 

primary way to gain priority for a trader 

providing liquidity is to price-improve 

over existing orders. Without a small 

tick size relative to the quoted spread, 

getting to the front of the queue via 

price improvement will be more costly, 

requiring larger relative price 

concessions.1213 Because the (beneficial) 

pricing efficiency effect is greatest when 

quoted spreads are narrow, whereas the 

(detrimental) pennying effect is greatest 

when quoted spreads are wide, this 


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1214See Budish Letter at 4 and Harris Letter at 7 

supporting the use of quoted spread as the 

determinate of the tick size. See also infra section 

VII.D.1.b.iii. 

1215See Proposing Release, supra note 11 at 

section V.D.1 for a discussion of fragmenting 

liquidity. See also e.g., GTS Letter at 5 and CCMR 

Letter at 24. 

1216See, e.g., GTS Letter at 5, CCMR Letter at 24, 

and UBS Letter at 11. 

1217See UBS Letter at 11. 

1218 Id. See also TradeStation Letter at 6 

mentioning as an example of increased complexity 

that brokers would have to put systems in place to 

manage customers’ good-till-canceled trades that 

may remain open over a weekend when a tick size 

change is implemented. See also discussion in 

Lewis Letter attached to Virtu Letter II at 34–35. 

1219See, e.g., IEX Letter I at 13 discussing how 

order shredding with smaller ticks can increase 

information leakage, such as when quotes on other 

exchanges are cancelled when limit orders on one 

exchange begin to be executed, potentially signaling 

a large price moving trade. Brandes Letter at 2 states 

that increased complexity associated with more 

pricing increments would be to the detriment of 

longer-term investors. Equity Market Structure 

Citadel Letter at 2 states that for institutional 

investors, ‘‘[l]arger orders will be more complex to 

execute, as filling the entire order will require 

accessing multiple price levels, which can increase 

price impact.’’ 

1220See, e.g., Citadel Letter I at 5, 9 and Virtu 

Letter II at 8, 10 discussing the price impact of large 

trades under a regime of smaller ticks; stating that 

smaller ticks could increase price impact. 

1221Some commenters stated that smaller ticks 

would lead to more ‘‘flickering quotes,’’ which are 

defined in the Reg NMS release as quotes that 

flashed for a short period of time solely to earn 

market data revenues, but were not truly accessible 

and therefore did not add any value to the 

consolidated quote stream. However, the 

Commission believes that this is unlikely for 

reasons discussed in the Proposing Release note 195 

and surrounding text relating to advances in 

exchange technology. Other commenters defined 

‘flickering quotes’ more broadly simply as periods 

of time where the NBBO changes rapidly, see, e.g., 

IEX Letter I at 8 and Robinhood Letter at 20. Much 

of the concern these commenters expressed was 

with respect to the proposed $0.001 and $0.002 tick 

sizes which are not part of the adopted 

amendments, see IEX Letter I at 8 and Robinhood 

Letter at 20. As discussed here, the Commission 

acknowledges that a smaller tick will likely lead to 

more frequent changes to the NBBO and discusses 

those consequences herein. 

1222See IEX Letter I at 11–12. 

1223See, e.g., Themis Letter at 6 and CCMR Letter 

at 17 and MFA Letter at 1. Quote instability could 

increase the complexity associated with complying 

with Rule 611 as it could make it harder to 

determine which exchange currently has the best 

price. 

1224See Citadel Letter I at 2, 7. 

1225See Proposing Release, supra note 11, at 

80306. 

1226See, e.g., Budish Letter at 1 (‘‘Reducing the 

tick-size constraint for tick-constrained stocks will 

reduce excess rents from artificially constrained 

prices. These excess rents lead to a speed race to 

the top of the book, which increases complexity, 

and the rents come at the expense of investors via 

a higher cost of liquidity.’’), Antitrust Division of 

the DOJ Letter at 5, and XTX Markets Letter at 3. 

1227See supra note 993 for a discussion on the 

relationship between pennying and trading speed. 

See supra note 1202 and accompanying text for 

discussions regarding the amendments to Rule 612 

and pennying. 

1228See Virtu Letter II at 23. Sniping pertains to 

the ability to ‘‘pick off’’, by executing against a stale 

quote in response to new information before it can 

be updated. 

1229See STA Letter at 5. 

analysis suggests setting a minimum 

quoting increment on the basis of 

average spread. Commenters agreed.1214

Fragmenting liquidity: The proposing 

release and commenters also discussed 

a cost of a lower tick size as spreading 

the displayed orders over more price 

levels.1215 When tick increments are 

farther apart, all else equal, liquidity 

providers that may have various prices 

at which they are willing to provide 

liquidity must congregate their quotes at 

only the available quoting increments. 

Thus, there will be more depth at each 

level including at the NBBO. With more 

price levels due to a smaller tick size, 

market participants can more accurately 

tailor their quotes to the prices at which 

they are willing to provide liquidity and 

thus liquidity will naturally spread over 

more levels and there will be fewer 

resting orders at each price level, 

including the NBBO.1216

Fragmenting liquidity across multiple 

price levels may decrease costs 

associated with smaller orders, which 

would be able to source liquidity at 

improved prices due to a finer price 

grid.1217 However, it can increase the 

complexity and cost associated with 

sourcing liquidity for larger orders,1218

as the reduction in shares available at 

the top of the book will render it more 

likely that a market participant must 

source liquidity beyond the NBBO in 

order to execute a trade.1219 It could 

also increase the number of child orders 

a parent order needs to be divided into 

to execute, which could increase the 

overall complexity and likelihood of 

information leakage leading to increased 

transaction costs via increased price 

impact.1220

Quote Instability: Commenters also 

stated that less depth at the NBBO can 

lead to increased NBBO quote 

instability as trades are more likely to 

deplete depth at the NBBO prices.1221

One commenter presented evidence that 

lower quote stability is empirically 

associated with increased market 

making costs, which it states may deter 

liquidity provision.1222 While increased 

quote instability may occur in stocks 

receiving the lower tick, the lower tick 

itself will allow market forces to adjust 

the price of liquidity—i.e., the quoted 

spread—such that market makers are 

competitively compensated for the risks 

associated with providing liquidity. 

Increased instability in the NBBO could 

make it more difficult to determine 

which exchange has the best price at a 

given point in time and thus where to 

route an order.1223 This could be 

particularly true when markets are 

volatile.1224

Increasing (or decreasing) rents to 

speed: The Proposing Release stated that 

‘‘too small ticks may inefficiently award 

speed’’.1225 As discussed in the next few 

paragraphs, commenters also 

commented on the effects of tick size on 

speed. Investments in speed are a fixed 

and largely irreversible cost that some 

market participants choose to incur. 

Changing the tick size could change the 

profitability of such investments, that is, 

they could increase or decrease the rents 

to speed. As noted in section VIII.B.2, a 

narrower tick reduces rents that accrue 

when a liquidity provider can be first in 

line in a queue.1226 That is, narrowing 

the tick would be expected to reduce 

rents to speed. However, speed confers 

an advantage in implementing a 

pennying strategy: a trader can not only 

step ahead of another trader, but also 

potentially sell (or buy) an asset back to 

the other trader if the market moves 

unfavorably, replicating an option-like 

payoff.1227 The amendments are limited 

to stocks with spreads for which 

pennying is unlikely to be a dominant 

effect. Nonetheless, to the extent that 

pennying increases, it has the potential 

to increase the rents to speed. 

In the context of the proposal, one 

commenter stated that a smaller tick 

size would be expected to increase the 

frequency of sniping because smaller 

ticks generate faster and more frequent 

price changes.1228 While there will be 

more prices at which to trade, the 

underlying information is not changing 

(prices may change more rapidly, but 

the information of each price change is 

smaller). That is, sniping may become 

more frequent, but the profits per each 

individual snipe attempt would decline. 

However, and as stated above, the 

Commission does agree that a large 

number of ticks within the spread can 

make pennying more prevalent, and to 

the extent that profits are linked to 

speed, can increase the rents to speed. 

The adopted amendments imply fewer 

ticks intra-spread than the proposing 

amendments, reducing this effect. Thus, 

the Commission does not expect slower 

traders to be disadvantaged by the 

adopted amendments. 

Effect on thinly traded securities: One 

commenter stated that narrower quoted 

spreads due to a smaller tick would be 

harmful for liquidity, particularly for 

smaller and medium-sized companies 

and for thinly-traded securities.1229 This 

is because narrower quoted spreads 

would discourage some liquidity 

providers from entering the market. The 

Commission disagrees with this 


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1230See infra section VII.D.1.b.ii and Barardehi et 

al., supra note 231 for additional discussion of the 

tick size literature. 

1231See Retirement Coalition Letter at 2, Pragma 

Letter at 10. 

1232See supra note 1199 and surrounding text for 

additional discussion of the tick size tradeoff. 

1233See, e.g., Order Directing the Exchanges and 

the National Association of Securities Dealers, Inc. 

to Submit a Phase-in Plan to Implement Decimal 

Pricing in Equity Securities and Options; Pursuant 

to Section 11A(a)(3)(B) of the Securities Exchange 

Act of 1934, Securities Exchange Act Release No. 

42914 (June 8, 2000), 65 FR 38010 (June 19, 2000); 

Commission Notice: Decimals Implementation Plan 

for the Equities and Options Markets, SEC (July 24, 

2000), available at https://www.sec.gov/rules/other/ 

decimalp.htm. 

1234See Edwin Hu, et al. (2018), supra note 1002, 

for additional details about the Tick Size Pilot. 

1235See Hendrick Bessembinder, Trade Execution 

Costs and Market Quality After Decimalization, 38. 

J. Fin. & Quantitative Analysis 747 (2003). See also 

Michael A. Goldstein & Kenneth A. Kavajecz, 

Eighths, Sixteenths and Market Depth: Changes in 

Tick Size and Liquidity Provision on the NYSE, 56 

J. Fin. Econ. 125 (2000) and Charles M. Jones & 

Marc L. Lipson, Sixteenths: Direct Evidence on 

Institutional Execution Costs, 59 J. Fin. Econ. 253 

(2001), both examining the earlier tick size change 

from 1⁄8 to 1⁄16 of a dollar. See also Sugato 

Chakravarty, Venkatesh Panchapagesan & Robert A. 

Wood, Did Decimalization Hurt Institutional 

Investors?, 8 J. Fin. Mkts. 400 (Nov. 2005) and 

Sugato Chakravarty, Bonnie F. Van Ness, & Robert 

A. Van Ness, The Effect of Decimalization on Trade 

Size and Adverse Selection Costs, 32 J. Bus. Fin. & 

Acc. 1063 (June/July 2005), both suggesting that 

large institutional trades may have become more 

costly following decimalization. 

1236See Proposing Release, supra note 11, at 

80318–80322. 

1238See, e.g., CCMR Letter at 27, Virtu Letter II 

at 64. Lewis Letter attached to Virtu Letter II at 34. 

1239See CCMR Letter at 27. 

1240 Id. 

1241See Citadel Letter I at 12 (stating that the TSP 

‘‘provides no information on what would be 

expected to occur if minimum quoting increments 

were further reduced to levels that have never 

before been tested’’); and Virtu Letter II at 3 (‘‘The 

TSP studied the impact of a widened minimum 

quoting and trading increment for certain small 

capitalization stocks, and offered no analysis, data, 

or conclusions on the potential impact that a 

narrowed, sub-penny tick regime would have on the 

marketplace, the investor experience, or issuers. It 

is an apples-to-oranges comparison and is irrelevant 

as a basis for support’’). 

1242See supra note 990 and surrounding text for 

discussion of the term economic spread id. 

1243See also id. for a discussion of the concept 

of economic spread. 

1244See Barardehi et al., supra note 231. 

characterization. The academic research 

on the Tick Size Pilot (TSP), which 

increased the tick size for some smaller 

stocks from $0.01 to $0.05 between 2016 

and 2018, suggests that for many stocks 

affected by the TSP, particularly those 

with narrower quoted spreads, the TSP 

led to worse market quality.1230

Additionally, lowering excess rents 

and the oversupply of liquidity caused 

by tick size induced pricing distortions 

is likely to reduce aggregate depth 

across all price levels. However, this 

reduction is unlikely to be harmful to 

overall market quality, even for smaller 

or thinly traded securities, as it would 

relieve a distortion resulting in an 

oversupply of liquidity. As the amount 

of liquidity provision comes closer to 

equilibrium levels, quoted spreads 

narrow and queue lengths shorten, 

lowering transaction costs and 

increasing the likelihood that relatively 

slower fundamental and/or retail traders 

could interact with each other. This will 

reduce total transaction costs for these 

traders because one side would be 

earning the quoted spread on the 

transaction.1231

ii. Empirical Analysis 

This section presents the 

Commission’s empirical analysis, as 

well as a discussion of commenter 

analysis and views concerning the effect 

of a tick size reduction on various 

aspects of market quality. Based on 

these analyses, the Commission 

concludes that on average, stocks that 

receive the smaller $0.005 tick size will 

experience improved market quality— 

implying that, for these affected stocks, 

the predominant market quality effect of 

the smaller tick size will be an increase 

in pricing efficiency.1232

The academic literature examining 

the effect of tick sizes on financial 

markets largely studies two events: 

decimalization, which occurred in 

2001 1233 and reduced the tick from 1⁄16th of a dollar ($0.0625) to $0.01; and 

the TSP, which ran from October 2016 

to October 2018 and temporarily 

increased the minimum tick increment 

from $0.01 to $0.05 for a sample of 

small cap stocks.1234 Most of the 

literature surrounding decimalization 

suggests that, on average, decimalization 

was associated with a decline in quoted 

spreads consistent with the notion that 

lowering the tick size relieved 

distortions related to having a tick size 

that is too wide.1235

In the Proposing Release, the 

Commission supplemented existing 

research with its own analysis on the 

TSP.1236 As stated in the Proposing 

Release, market dynamics have changed 

dramatically in the more than two 

decades since decimalization. Most 

notably over that period, electronic, 

algorithmic, and high-frequency trading 

have come to dominate the trading 

landscape, whereas they were much less 

prominent in 2001. These changes 

diminish the relevance of evidence from 

these prior periods, making it desirable 

to supplement existing studies with 

evidence that is closer in time. 

Some commenters questioned using 

the TSP to estimate the effects of a 

reduced minimum pricing impact 

because the TSP affected only a subset 

of small cap stocks, did not contain 

ETPs, and did not affect access fee 

caps.1238 One of those commenters 

suggested that the TSP analysis was not 

applicable because it focused on stocks 

with quoted spreads much wider than 

the few cent quoted spreads 

contemplated by the amendments.1239

The same commenter suggested that the 

TSP was not applicable because it 

applied to a 5 to 1 tick size change, 

which is different from the tick size 

change in the amendments.1240 Some 

commenters went further and 

questioned whether anything could be 

learned from the TSP because it did not 

involve sub-penny tick sizes.1241

As explained in the following 

discussion, the Commission continues 

to believe that the TSP provides a 

meaningful environment to study the 

potential effects of a tick size change for 

the reasons articulated below, even as 

the TSP has limitations for determining 

the exact effect of the amendments to 

Rule 612. 

First, the economics of being tickconstrained do not depend on the 

absolute size of the tick in question. 

Rather, they depend on the relationship 

between the economic spread 1242

implied by the economics of the stock 

and the quoted spread that is possible 

given the tick size, regardless of the 

specific tick size. Specifically, when the 

economic spread is narrower than a 

single tick, the negative effects of being 

tick-constrained are expected to emerge 

for the reasons discussed in section 

VII.D.1.b.i above.1243 Those reasons are 

independent of the absolute size of the 

tick. They instead depend on the ratio 

of the market price of liquidity to the 

tick, i.e., the lowest quoted spread 

permitted by the tick size. In this 

context, the TSP analysis has merit, 

even as it includes some stocks with 

quoted spreads wider than 1.5 cents (the 

cutoff for the amendments), because its 

purpose is to gain insight into how 

stocks with various numbers of tick 

increments intra-spread react to 

changing the tick. Addressing this 

question necessitates considering stocks 

with wider quoted spreads. 

Second, as discussed above, a key 

factor in the economics of being tick 

constrained is the implied quoted 

spread relative to the tick size, not the 

market capitalization or any other the 

qualifying factors for the TSP. Because 

the economics of being tick-constrained 

do not depend on market capitalization, 

the findings derived from the TSP can 

be usefully applied to a broader section 

of the market. Also, one study,1244

referenced in the Proposing Release, 

specifically examined only the most 


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1245See Proposing Release, supra note 11, at 

80273 n.85. 

1246For example, the potential negative effects 

from sub-pennying would be higher from a 1:5 split 

compared to a 1:2 splits because the cost of gaining 

priority over other liquidity providers, by updating 

the best price by a single tick, is lower with a 

smaller tick. The risk liquidity fragmenting across 

price levels would also be higher with a 1:5 split 

as compared to a 1:2 split. See supra section 

VII.D.1.b.i for further discussion. 

1247See, e.g., Equity Market Structure Citadel 

Letter at 17, Craig Louis Letter attached to Virtu 

Letter II at 32–33, and Virtu Letter II at 16. See 

supra section VII.C.1.b for a discussion of the 

Commission analysis referred to by commenters. 

1248See 2004 Regulation NMS Proposing Release, 

supra note 31, at 11170. 

1249 Id.; see also Proposing Release, supra note 11, 

at 80280 (‘‘Minimum pricing increments that are 

too small can also add to complexity in trading and 

increase the risk of stepping ahead’’); see also supra 

note 994 for the definition and discussion of 

pennying. 

1250 Id. at 11171. Although Nasdaq and the 

exchanges permitted quoting in single penny 

increments, these markets allowed trades to be 

printed in increments below a penny. Although 

certain online brokers only accepted orders priced 

in one-cent increments, ECNs and Nasdaq market 

makers accepted orders and executed trades in subpenny increments. While market makers quoted 

through Nasdaq only in penny increments, they 

could display orders in ECNs in sub-pennies. 

Exchanges, where the majority of trading volume 

occurred, were bound by the Decimals 

Implementation Plan, which was ordered by the 

Commission, and which ultimately established 

$0.01 as the tick size for exchange quotes. Other 

market participants, however, were not so bound 

leading to non-standard quoting increments across 

various venues such as ECNs. 

1251 Id. at 11169. 

1252 Id. at 11170. 

1253These patterns are not driven by a change in 

sub-dollar trading (which may benefit from a 

narrower tick size); the patterns are not materially 

changed when symbol-days with average prices 

below $2 or $5 are dropped from the sample. 

1254This statistic is computed by comparing the 

average daily share volume in all securities covered 

by WRDS Intra-day indicators in 2005 and 2023. 

Additionally, total trading volume has also more 

than doubled over that same time period. Thus, 

there is more trading volume and more of it is 

trading in a tick-constrained environment. 

1255See Citadel Letter I at 12. 

1256 Id. 

1257 Id. (emphasis in original). 

liquid TSP stocks and removed stocks 

with very low prices.1245 The authors’ 

results indicate that, in this subset of the 

most liquid TSP stocks, all key findings 

of the TSP not only hold, but that the 

patterns of the results of the TSP on 

market outcomes tend to strengthen. 

Third, while the Commission 

acknowledges the difference between 

the TSP and the amendments with 

regard to tick size splits—the TSP was 

a 1:5 tick size change while the 

amendments provide a 1:2 tick size 

change for some stocks—the TSP 

provides meaningful information about 

the likely direction of the effects due to 

a tick size change: that is, whether 

market quality improves or declines 

when the tick size is changed. The 

actual effect of a 1:2 split may differ 

from that observed from the TSP’s 1:5 

split, but it is unlikely to go in the 

opposite direction if the TSP were to 

indicate a market quality improvement 

when the tick size is reduced. This is 

because the potential negative effects of 

too many ticks intra-spread would be 

stronger for the 1:5 split associated with 

the TSP than with the 1:2 split 

associated with the amendments.1246

Thus, it is unlikely that, were the TSP 

to show an improvement in market 

quality associated with a 1:5 tick size 

split for certain stocks, that there would 

have been an opposite effect with a 1:2 

tick size split. 

Some commenters stated that 

reducing the tick size below $0.01 was 

opposed to the conclusions and analysis 

provided by the Commission when 

adopting Rule 612 in 2005, and that the 

Commission did not provide analysis 

explaining why it was reversing its 

opinion.1247 The Commission disagrees 

that the analysis and conclusions 

associated with the initial proposal and 

adoption of Rule 612 are inconsistent 

with the analysis provided in the 

Proposing Release and repeated here. 

When initially proposing and adopting 

Rule 612, the Commission 

acknowledged that lowering the tick 

size from fractions to $0.01 improved 

the trading environment.1248 It also 

expressed concern, as stated by 

commenters, that further reducing the 

tick size for all stocks could harm 

market quality via pennying and 

reduced liquidity at the top of the 

book.1249 When originally proposing 

Rule 612, the Commission also provided 

an analysis of sub-penny trading and 

quoting and stated that there was, at the 

time, no industry standard for trading 

and quoting increments.1250 The 

Commission’s sub-penny analysis 

suggested that, at the time, sub-penny 

trading was primarily used to facilitate 

pennying because sub-penny trades 

congregated at $0.001 and $0.009 rather 

than having a uniform distribution or 

clustering midpoint prices (i.e., in 

$0.005 increments), justifying the use of 

some minimum pricing increment.1251

When adopting Rule 612, the 

Commission did not empirically analyze 

whether a minimum pricing increment 

of $0.005 would have harmed or helped 

market quality for some stocks, and 

specifically did not opine on a tiered 

tick structure such as is being adopted. 

The analysis provided therein was in 

the context of a uniform tick size 

applicable to all stocks. Within this 

context, the Commission concluded that 

‘‘the marginal benefits of a further 

reduction in the minimum pricing 

increment [below $0.01 for all stocks] 

are not likely to justify the costs to be 

incurred by such a move’’ 1252 The 

analysis provided in this release does 

not disagree with that assessment. 

Applying a tick size lower than $0.01 

for all stocks could cause harm to stocks 

with wide quoted spreads due to 

pennying concerns and fragmenting 

liquidity. 

Additionally, the need to address tickconstrained stocks has increased 

substantially in the subsequent nearly 

two decades as tick constraints have 

become more pervasive over time. Table 

3 indicates that in 2023, about 74% of 

share volume was associated with 

securities trading with quoted spreads at 

or below $0.015; following the same 

methodology, in 2005 the figure was 

about 54%.1253 This statistic understates 

the true increase in trading in tickconstrained securities because overall 

average daily trading volume has more 

than doubled over the same period of 

time.1254 Thus, precisely because 

average quoted spreads have been 

coming down, the benefits of alleviating 

the tick constraint have increased 

substantially since 2005. Additionally, 

as discussed throughout this section, 

there has been considerable research 

since the implementation of Rule 612 in 

2005 by the Commission, industry 

members, and academics surrounding 

tick sizes that did not exist when Rule 

612 was adopted. This research 

supports the notion that a tick size 

below $0.01 will likely improve market 

quality for some stocks. 

One commenter illustrated its 

disagreement with the Commission’s 

use of the TSP analysis by presenting a 

hypothetical TSP in which the tick size 

is increased from $0.01 to $0.15.1255 The 

commenter stated that such a change 

‘‘would have negatively impacted a 

greater range of stocks . . . and 

predictably liquidity conditions in those 

stocks would have meaningfully 

improved at the end of the pilot when 

the changes were reversed.’’ 1256 The 

commenter proceeded to state that ‘‘this 

experiment would not suggest that 

regulators should always reduce the 

minimum quoting increment for tickconstrained symbols by a factor of 

fifteen.’’ 1257 The commenter further 

stated that the TSP ‘‘merely reverted to 

the status quo after a failed 

experiment’’, and this ‘‘reversion 

provides no information on what would 

be expected to occur if minimum 

quoting increments were further 


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1258 Id. 

1259See, e.g., Barardehi et al., supra note 231. 

1260See supra note 1246 and surrounding text for 

additional discussion. 

1261More specifically, the commenter’s 

hypothetical assumes that the start of a large tick 

size increase would worsen liquidity, then 

concludes this means that evidence from the end 

of the TSP is uninformative because it simply 

reverses the effect. But, this conclusion is incorrect 

because the TSP results from both the imposition 

and conclusion of the TSP are what make the first 

assumption credible. 

1262See Citadel Letter I at 12. 

1263See infra section VII.F.1 for a discussion of 

reasonable alternative tick sizes. 

1264See Virtu Letter II at 15. 

1265See Barardehi et al., supra note 231. The 

authors control for market capitalization, dollar 

volume, average quoted spread, and return 

volatility, see analysis associated with their table 

11. 

1266See Proposing Release, supra note 11, section 

V.D.1. 

1267 Difference-in-differences is a statistical 

technique in which the effect that a treatment has 

on some response variable is estimated by 

comparing the average change in the response over 

time in the treatment group to the average change 

in the control group. 

1268Bin assignments are calculated according to 

the stock’s average quoted spreads for May and June 

of 2018, near the end of the TSP. Specifically, we 

use WRDS Intra-day indicators to collect the time 

weighted quoted spread for all TSP and control 

stocks for each trading day in May and June 2018. 

Then for each stock we calculate the equallyweighted average quoted spread across all trading 

days. Based on this average, TSP and control stocks 

are sorted into one of four bins. The first bin is for 

stocks with quoted spreads ($0.00, $0.06). 

Empirically, for stocks in the TSP, this bin includes 

stocks that nearly always traded at the minimum 

quoting increment of $0.05 during the TSP. The 

second bin is for stocks with quoted spreads in the 

range ($0.06, $0.09). For stocks in the TSP, this bin 

is said to include those stocks with one to two ticks 

intra-spread during the TSP. The third bin is for 

stocks that had quoted spreads of ($0.09, $0.15) or 

approximately 2–3 ticks intra at a $0.05 tick 

increment. The fourth bin is for stocks with quoted 

spreads greater than $0.15. The TSP had three test 

groups: the first group applied the $0.05 tick only 

to quoting, the second group applied the $0.05 tick 

to quoting and trading (with exceptions for 

benchmark and midpoint trades and for certain 

retail price improvement trades), and the third 

group applied the $0.05 tick to trades and quotes 

the same as the second group but also had a trade 

at rule applied. Barardehi et al., supra note 231 

provide similar analysis, and also expand the 

analysis in many dimensions. Their analysis finds 

evidence that all key results presented here are 

robust along many dimensions including the test 

group analyzed and to many other factors including 

fixed effects and volatility—factors that one 

commenter suggested that the Commission should 

consider in their TSP analysis, see Virtu Letter II 

at 17. 

reduced to levels that have never before 

been tested.’’ 1258

The Commission disagrees with this 

assessment in several respects and 

continues to believe that analysis of the 

TSP provides meaningful information 

for the effects of the amendments. The 

TSP enables analysis that empirically 

tests whether market quality depends on 

being tick-constrained. The TSP 

provides two events that can be used for 

this test: one at the start of the TSP 

when tick sizes were increased for 

certain stocks, and one at the end of the 

TSP where tick sizes for those same 

stocks were decreased. Academic 

research shows that the effects of both 

of these events are consistent with the 

theory that stocks with few ticks intraspread have worse market quality.1259

The Commission provided its own 

analysis of the end of the TSP; the end 

of the TSP involved a reduction in tick 

size, which directionally corresponds to 

what will happen under the adopted 

rule. This analysis found evidence to 

support the theory that stocks with too 

few ticks intra-spread have worse 

market quality. The Commission 

therefore disagrees that the TSP analysis 

‘‘provides no information’’ as to the 

effects of the adopted rules. 

The commenter states that ‘‘the end of 

the Tick Size Pilot provides no basis for 

suggesting that regulators should always 

reduce the minimum quoting increment 

for tick-constrained symbols by a factor 

of five.’’ The Commission does not 

reach the conclusion that regulators 

should always reduce the minimum 

quoting increment by a factor of five, 

and indeed the Commission is not 

adopting such a rule. As discussed 

earlier in this section, TSP analysis 

indicates that for stocks with 1–2 ticks 

intra-spread, reducing the tick size 

improves market quality on average. 

While the Commission is reducing the 

tick size by a factor of two rather than 

five for some stocks, the direction is 

likely to be the same as what was 

observed in the TSP, though the 

magnitude may be different.1260

Furthermore, the commenter assumes 

in the hypothetical experiment of a 

bigger increase in the tick size, that this 

increase would have ‘‘negatively 

impacted’’ stocks. However, the fact that 

causing stocks to become tickconstrained worsens their market 

quality is an assumption made by the 

commenter. Absent evidence, such as 

the evidence provided by the TSP, it is 

unclear upon what the commenter bases 

this assumption. The ability to make 

this inference, that being tickconstrained worsens market quality, is 

precisely why analyzing the TSP is 

valuable because it provides the 

empirical result which permits one to 

employ with confidence the 

commenter’s assumption in its 

hypothetical.1261

With regard to the commenter’s 

statement that the TSP conclusion 

‘‘provides no information on what 

would be expected to occur if minimum 

quoting increments were further 

reduced to levels that have never before 

been tested,’’ 1262 while it is true that the 

tick sizes in the adopted amendments 

are not among the tick sizes 

implemented in the TSP, this fact does 

not render the TSP analysis 

uninformative. The theory that stocks 

that are tick-constrained will trade 

better with more ticks intra-spread, 

successful as it was in predicting the 

market quality effects of the end of the 

TSP, can be reasonably relied upon to 

help determine the effects of the 

amendments. What matters is not the 

magnitude of the spread, or the size of 

the tick, but the number of ticks intraspread.1263

One commenter stated that the 

analysis in the Proposing Release 

should have accounted for both fixed 

effects and volatility, as well as other 

variables.1264 Barardehi et al. (2022) 

provide estimates that account for fixed 

effects and a number of control variables 

including volatility.1265 This paper 

shows that the results shown in the 

Proposing Release and repeated below 

are robust to these effects. 

Commission Empirical Analysis: The 

Proposing Release provided a review of 

the existing TSP empirical academic 

research.1266 This research consistently 

found that stocks that became tickconstrained by the TSP, on average, 

traded better across many market 

quality dimensions when their tick size 

was reduced from $0.05 to $0.01. Some 

analysis also showed that some stocks 

with wide spreads traded better with the 

$0.05 tick than with the $0.01 tick. The 

empirical analysis in the Proposing 

Release sought to identify the thresholds 

where the TSP tick size change 

transitioned from harmful, to benign, to 

beneficial. Specifically, table 8 provides 

analysis that examines the impact of the 

end of the TSP on a wider range of 

quoted spread profiles than simply tickconstrained or not. This analysis focuses 

on the end of the TSP, when the tick 

size was reduced from $0.05 back to 

$0.01, because that event more closely 

matches the amendments, which reduce 

the tick size. 

The analysis presented in table 8 uses 

a difference-in-differences methodology 

to study the effect of lowering the tick 

size from $0.05 to $0.01 on TSP stocks 

at the end of the TSP.1267 TSP treated 

and control stocks are assigned near the 

end of the TSP into one of four bins 

ranging from the most tick-constrained 

in the first bin to the least constrained 

in the fourth bin.1268 Key variables such 

as quoted depth and spreads were 

measured before and after the tick size 

was lowered, and difference-indifferences estimation methods were 


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81710 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

1269Ordinary least squares (OLS) regression refers 

to a statistical technique for estimating the linear 

relationship between an independent variable and 

dependent variables by minimizing the sum of 

squared errors between the estimate and the 

observed independent variable. The use of OLS and 

quantile regressions is common in the literature on 

the TSP pilot. 

1270The primary advantage to quantile 

regressions is that they are less sensitive to outliers 

that can affect mean inference in OLS. Thus, 

median regressions provide additional robustness to 

the analysis and ensure that results are not driven 

by outliers. 

1271 In this equation the variable Y denotes the 

response variable of interest such as quoted spread 

and depth. The subscripts j and t serve to index 

stocks and days respectively. a0, ap, ae, and b are 

coefficients (to be estimated), and uj,t is the error 

term. Pilotj is an indicator variable that equals 1 if 

stock j was in the treatment group, or 0 if stock j 

was in the control group. Eventt is an indicator 

variable which is equal to 1 if the day t was post 

the treatment event and equals 0 otherwise. Table 

8 reports the difference-in-differences estimator of 

b for a different response variable Y across the 

different quoted spread bins. One commenter 

criticized this model for failing to include fixed 

effects and not controlling for other criteria such as 

volatility. See Virtu Letter II at 15. A very similar 

analysis, which did consider fixed effects and a 

host of control variables including volatility, is 

included in Barardehi et al., supra note 231. Their 

analysis showed that all key results were 

economically unchanged when considering fixed 

effects and a host of control variables. 

1272 In this equation uj,t is the error term from the 

previous regression specification equation, supra 

note 1271, and the loss function is defined as: rt(u) 

= t max(u,0) + (1-t) max(-u,0) ; where 0 < t < 1. 

used to examine how these variables 

reacted to the tick size change. The 

analysis uses ordinary least squares 1269

and quantile (median) regressions 1270 to 

estimate the following regression 

model: 1271

Yj,t = a0 + apPilotj + aEEventt + b(Pilotj

× Eventt) + mj,t

where the quantile regression 

optimizes: 1272

TABLE 8—EFFECTS OF A REDUCTION IN TICK SIZE ON QUOTING AND TRADING OUTCOMES a

Spread bin # 

OLS Quantile (median) regression 

Quoted spread ($) May & June 2018 Quoted spread ($) May & June 2018 

1st 2nd 3rd 4th 1st 2nd 3rd 4th 

Depth (100 shares) ........................................... ***¥22.5 

[¥12.02] 

***¥5.30 

[¥7.09] 

***¥1.55 

[¥4.40] 

¥0.51 

[¥1.30] 

***¥11.8 

[¥16.99] 

***¥3.16 

[¥23.52] 

***¥0.96 

[¥17.81] 

***¥0.21 

[¥4.30] 

Depth ($1,000) .................................................. ***¥16.7 

[¥14.58] 

***¥8.41 

[¥10.94] 

***¥4.67 

[¥7.82] 

***¥2.06 

[¥3.66] 

***¥11.2 

[¥22.04] 

***¥7.27 

[¥20.70] 

***¥3.96 

[¥12.58] 

***¥1.48 

[¥4.14] 

Quoted Spread ($) ............................................ ***¥0.033 

[¥18.71] 

***¥0.027 

[¥6.46] 

*** 0.023 

[2.99] 

*** 0.12 

[5.51] 

***¥0.034 

[¥35.41] 

***¥0.031 

[¥10.31] 

** 0.012 

[2.03] 

*** 0.12 

[6.80] 

Relative quoted Spread .................................... ***¥0.0049 

[¥9.59] 

*¥0.00097 

[¥1.80] 

0.00034 

[0.53] 

*** 0.0046 

[3.30] 

***¥0.0041 

[¥8.54] 

***¥0.0014 

[¥6.89] 

0.00021 

[0.74] 

*** 0.0034 

[4.66] 

Effective spread ($) ........................................... ***¥0.027 

[¥4.97] 

¥0.026 

[¥1.43] 

*** 0.029 

[5.17] 

** 0.038 

[2.16] 

***¥0.026 

[¥58.10] 

***¥0.021 

[¥12.81] 

¥0.0018 

[¥0.63] 

*** 0.051 

[4.81] 

Relative eff. spread ........................................... ***¥0.0039 

[¥3.12] 

0.00043 

[0.17] 

0.0055 

[1.36] 

*** 0.0028 

[4.42] 

***¥0.0030 

[¥10.78] 

***¥0.0010 

[¥9.58] 

¥0.00013 

[¥1.09] 

*** 0.0016 

[3.23] 

Cancel-to-trade .................................................. *** 5.10 

[5.99] 

*** 6.69 

[6.38] 

*** 7.56 

[6.79] 

*** 18.8 

[8.84] 

*** 4.56 

[7.75] 

*** 5.49 

[7.79] 

*** 6.87 

[10.44] 

*** 12.3 

[10.61] 

Odd-lot rate (%) ................................................ *** 4.89 

[9.62] 

*** 5.61 

[8.04] 

*** 2.85 

[4.35] 

** 1.49 

[2.15] 

*** 5.59 

[8.02] 

*** 6.39 

[8.99] 

*** 3.29 

[4.72] 

** 1.85 

[2.51] 

Realized spread ($) ........................................... ***¥0.014 

[¥27.94] 

***¥.0099 

[¥7.43] 

.00037 

[0.12] 

*** 0.040 

[4.45] 

***¥0.014 

[¥48.36] 

***¥0.013 

[¥17.96] 

***¥0.0068 

[¥5.13] 

*** 0.038 

[5.64] 

Relative real. spread ......................................... ***¥.0024 

[¥11.82] 

¥.00032 

[¥1.36] 

¥.00039 

[¥1.25] 

** .0014 

[2.37] 

***¥.0014 

[¥14.08] 

***¥.00054 

[¥12.52] 

***¥.00013 

[¥2.77] 

*** .0012 

[3.65] 

Volume (1,000 shares) ...................................... 26.5 

[1.30] 

** 30.3 

[2.13] 

12.5 

[1.32] 

¥5.41 

[¥1.07] 

19.1 

[1.42] 

3.35 

[0.40] 

0.20 

[0.04] 

**¥3.25 

[¥2.44] 

Cum Depth 10c from mdpt ............................... ***¥0.17 

[¥3.93] 

***¥0.26 

[¥5.00] 

**¥0.27 

[¥2.59] 

**¥0.34 

[¥2.37] 

***¥0.49 

[¥5.51] 

***¥0.54 

[¥6.29] 

***¥0.45 

[¥4.91] 

**¥0.63 

[¥3.15] 

Cum Depth ¥10c from mdpt ............................ ***¥0.22 

[¥5.28] 

***¥0.19 

[¥3.74] 

***¥0.37 

[¥3.44] 

**¥0.45 

[¥2.83] 

***¥0.49 

[¥6.33] 

***¥0.42 

[¥5.21] 

***¥0.50 

[¥5.68] 

**¥0.79 

[¥2.75] 

CRT 10 round lots ............................................. ***¥0.026 

[¥19.56] 

¥0.001 

[¥0.19] 

*** 0.035 

[3.99] 

*** 0.14 

[1.03] 

***¥0.037 

[¥2.72] 

*** 0.085 

[2.75] 

*** 0.035 

[4.20] 

** 0.075 

[2.37] 

aThis table presents the effects of a reduction in minimum tick size from $0.05 to $0.01 cent on various quoting and trading outcome variables. The first bin is for 

stocks with quoted spreads ($0.00, $0.06). The second bin is for stocks with quoted spreads in the range ($0.06, $0.09). The third bin is for stocks that had quoted 

spreads of ($0.09, $0.15). The fourth bin is for stocks with quoted spreads greater than $0.15. A difference-in-differences regression with no control variables is estimated using data covering Control, Test Group 2, and Test Group 3 TSP stocks from 08/01/2018–11/30/2018. All observations are at the stock day level. For each 

outcome variable Yjt, listed in the left-hand side column, the table presents only the difference-in-differences coefficient estimates that indicate the effect of the TSP 

on the dependent variable. Estimates are performed by past quoted spread subsamples that decompose the sample based on average quoted spreads during May– 

June of 2018. Among the outcomes’ variables, the quoted spread refers to the distance between the NBBO midpoint and the NBBO quote. The effective spread is the 

distance between the NBBO midpoint and the realized trade price; the realized spread is the distance between a future NBBO midpoint (5-minutes ahead) and the 

trade price. Relative spread measures are calculated as the spread scaled by the NBBO midpoint. The cancel-to-trade ratio is the daily number of order cancellations 

divided by the number of trades, for displayed orders. The odd-lot rate is the percentage of trades in a day which executed against an odd-lot quote. CRT 10, or the 

cost of a round-trip trade of 10 round lots, measures the cumulative transaction costs from buying and then immediately selling 10 round lots. The CRT assumes that 

an order that is larger than the displayed depth at the best price will not execute in full at that price. Instead, the assumed unfilled portion will execute at worse prices 

until completely filled with displayed depth. All data are Winsorized at the 1% and 99% level. The numbers in the [ ] brackets reflect t-statistics that are based on twoway stock-and-date clustered standard errors. Symbols *, **, and *** reflect statistical significance at 10%, 5%, and 1% type-1 error levels. 

As discussed in the Proposing 

Release, this analysis provides evidence 

of a fundamental tradeoff between 

accurate pricing on one hand and 

incentives for liquidity provision on the 

other. Across all specifications, the end 

of the TSP was associated with a 

decrease in depth at the NBBO, when 

the tick size was reduced from $0.05 to 

$0.01, as signified by the negative and, 

in most cases, statistically significant 

coefficients reported. The reduction in 

shares available at the NBBO was the 

greatest for stocks with tighter quoted 

spreads and smaller for stocks with 

wider quoted spreads. The finding that 

tighter quoted spread stocks experience 

the greatest decline in depth at the 


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f3 E argmin L Po.s('Uj,t) 

ao,ap,a£,P j,t 
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81711 

1273See Citadel Letter I at 9. 

1274See Proposing Release, supra note 11, section 

V.D.1. 

1275See Citadel Letter I at 5. 1276See also Virtu Letter II at 6. 

NBBO is consistent with the idea that, 

for these stocks, the $0.05 tick was the 

most constraining, and so liquidity that 

would have naturally spread out within 

the quoted spread given a smaller tick, 

bunched at the wider tick increments, 

and that once the tick-constraint was 

relaxed this liquidity naturally spread 

out over the additional price levels. For 

less tick-constrained stocks, the 

bunching was less severe since liquidity 

already had some room to spread out. 

One commenter stated that the 

Commission did not provide any 

analysis of the effect of the proposal on 

displayed liquidity and liquidity deeper 

in the book, including with respect to 

less liquid securities and during times 

of market stress.1273 The Proposing 

Release did examine the effect of a tick 

reduction on displayed liquidity and 

cited academic literature for further 

analysis.1274 The same commenter 

stated that reducing the tick as 

presented in the proposal would reduce 

depth at the NBBO by more than 

82%.1275 The Commission 

acknowledges that, given the magnitude 

of the reduction in the proposal, it is 

conceivable that such a reduction could 

have occurred for some stocks. 

Barardehi et al. (2022) document that 

depth at the NBBO was 50% lower with 

the $0.01 tick compared to the $0.05 

tick. However, this was only true for 

tick-constrained TSP stocks. For stocks 

with wide quoted spreads, depth was 

only about 16% lower with the smaller 

tick size. The TSP was associated with 

a 1:5 tick size split, and the proposal 

that the commenter was commenting on 

would have created a 1:10 split for some 

stocks relative to the baseline. In 

contrast, the adopted amendments 

create a smaller split than either a 1:5 

or a 1:10 split. The Commission does 

expect depth at the NBBO to decrease 

for stocks receiving the smaller tick size 

with the TSP analysis providing a likely 

higher end estimate of the magnitude of 

the decrease since the TSP was a bigger 

change to the baseline than the adopted 

amendments. 

For stocks in the first or second bins, 

table 8 demonstrates that lowering the 

tick to $0.01 leads to significantly lower 

quoted spreads. These stocks went from 

having approximately 1–2 ticks inside 

the quoted spread, with a $0.05 tick, to 

having 1–10 ticks inside the quoted 

spread, with a $0.01 tick. This finding 

is consistent with the idea that for 

stocks that are tick-constrained the 

effect of decreasing the tick size will 

narrow quoted spreads by improving 

competition. For the stocks in the third 

and fourth bins, the story is different, as 

the reduction in the tick size leads to 

wider quoted spreads. These stocks 

went from having more than two or 

more ticks within the quoted spread, 

with a $0.05 tick, to having more than 

10 ticks within the quoted spread, with 

a $0.01 tick. This result is consistent 

with the idea that for wider quoted 

spread stocks, the prevailing effect of 

reducing the tick size was to increase 

transaction costs and widen spreads by 

fragmenting liquidity and increasing the 

risk of pennying which made trading 

more costly leading to wider quoted 

spreads. This pattern of results—namely 

narrower spreads for the first and 

second bins and wider spreads for the 

fourth—holds regardless of whether 

dollar spreads, relative spreads, OLS, or 

quantile regressions are used, suggesting 

this is a robust outcome of the end of 

the TSP. 

The pattern for effective spreads is 

similar to that observed for quoted 

spreads. Effective spreads measure the 

average realized transaction cost for 

trades as it measures the absolute 

distance between the realized trade 

price and the NBBO midpoint at the 

time of the trade. Effective spreads do 

not always equal quoted spreads 

because trades can execute inside the 

NBBO for numerous reasons, such as 

odd-lot trades, midpoint trades, and 

hidden orders. For stocks in bin one— 

i.e., stocks for which the $0.05 tick was 

the most restrictive—all specifications 

suggest that reducing the tick size was 

associated with a decrease in realized 

transaction costs as measured by 

effective spreads. For stocks in bin four, 

those with the widest quoted spreads 

prior to the tick size reduction, all 

specifications suggest that the reduction 

in the tick size leads to an increase in 

transaction costs, measured by effective 

spreads. For stocks in between these 

extremes in bins two and three, the 

results are not as uniform. For stocks in 

bin two, the sign of the coefficients for 

all estimates (dollar effective spreads, 

relative effective spreads, OLS, and 

quartile regressions) suggests lowering 

the tick size decreased effective spreads, 

although not all specifications agree as 

to statistical significance. The OLS 

regressions suggest that the effect was 

statistically insignificant, while the 

quantile regressions found a statistically 

significant effect and suggest that 

effective spreads decreased. For stocks 

in the third bin, the analysis did not 

find a consistent, statistically significant 

change in effective spreads, or in other 

words, moving from roughly two to 

three ticks within the spread to ten to 

fifteen ticks did not appear to reliably 

help or harm transaction costs as 

measured by effective spreads. 

These results, like the results for 

quoted spread, suggest that for stocks for 

which the narrowing of the tick size 

meant that the stock went from having 

less than 2 ticks within the quoted 

spread to 1–10 ticks within the quoted 

spread, the effect of reducing the tick 

was beneficial in terms of reducing 

transaction costs. For stocks with very 

wide quoted spreads, reducing the tick 

size appeared to harm liquidity, which 

is consistent with fragmentation and 

pennying being the prevailing effect. 

The theoretical discussion above 

suggests that executing a larger order 

may become more complex with a 

smaller tick size—meaning it may take 

visiting more venues as well as 

executing across more price levels to 

execute an order with a smaller tick 

size. This potential outcome is explored 

using the ‘‘cancel-to-trade’’ ratio. A 

higher ratio indicates more frequent 

canceling of orders per the amount of 

trading volume, and it is an indication 

that market participants are more active 

in managing their quotes and their order 

strategies. In this analysis, both the OLS 

and the quantile regressions confirm 

that a smaller tick resulted in a 

statistically significant increase in the 

cancel-to-trade ratio, suggesting more 

complexity. Additionally, the 

magnitude of the effect is increasing in 

the quoted spread, with wider quoted 

spreads having larger coefficients, 

suggesting a larger effect in the cancelto-trade ratio for stocks with wider 

spreads. This pattern is consistent with 

pennying and increased complexity 

having a greater impact on stocks with 

wider quoted spreads. These stocks are 

unlikely to receive the smaller tick size 

under the adopted amendments. 

The analysis also looks at the effect of 

lowering the tick size at the end of the 

TSP on the usage of odd-lot orders. 

Across all quoted spread bins, the usage 

of odd-lot orders increases when the 

tick size decreases. This finding is 

consistent with the notion that liquidity 

will be spread out over more levels 

leading to an increased use of odd-lot 

orders to allow liquidity providers to 

offer smaller levels of liquidity at finer 

price increments.1276 This result also 

suggests that a lower tick size increases 

the need for market participants to have 

ready access to odd-lot information 

given that the lower tick size can be 

expected to increase the usage of oddlot quotes. 


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81712 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

1277Effective spreads can be interpreted as what 

liquidity providers expect to earn from providing 

liquidity, assuming that prices do not change before 

the liquidity provider is able to unwind its position 

and realize its profit. Under this interpretation, 

realized spreads would proxy for what liquidity 

providers actually earn, taking into account that the 

market price may have moved against the liquidity 

provider before it could unwind its position. 

Effective Spread = Realized Spread + Price Impact. 

For a full mathematical decomposition of effective 

spreads into realized spread and price impact 

components see Peter N. Dixon, Why Do Short 

Selling Bans Increase Adverse Selection and 

Decrease Price Efficiency, 11 Rev. Asset Pricing 

Stud. 122 (2021) app. at 165. 

1278Realized spreads do not measure the actual 

trading profits that market makers earn from 

supplying liquidity. In order to estimate the trading 

profits that market makers earn, we would need to 

know at what times and prices the market maker 

executed the off-setting position for a trade in 

which it supplied liquidity (e.g., the price at which 

the market maker later sold shares that it bought 

when it was supplying liquidity). If market makers 

offset their positions at a price and time that is 

different from the NBBO midpoint at the time lag 

used to compute the realized spread measure (Rule 

605 realized spread statistics are measured against 

the NBBO midpoint 5 minutes after the execution 

takes place), then the realized spread measure is an 

imprecise proxy for the profits market makers earn 

supplying liquidity. 

1279See MEMX Letter at 10. 

1280 In the regressions we take the natural log of 

shares available. This conversion helps standardize 

shares available for stocks with different prices by 

making the interpretation in terms of percentage 

changes. See also e.g., STA Letter at 6 and CCMR 

Letter at 24 suggesting that a smaller tick size could 

affect depth deeper in the book. 

1281See analysis presented in Nasdaq Intelligent 

Tick Proposal, supra note 150; see also Justin Cox, 

et al., Increasing the Tick: Examining the Impact of 

the Tick Size Change on Maker-Taker and TakerMaker Market Models, 54 Fin. Rev. 417 (2019); Amy 

K. Edwards, et al., The Effect of Hidden Liquidity: 

Evidence from an Exogenous Shock (working paper 

Mar. 1, 2021), available at https://ssrn.com/ 

abstract=3766512 (2021) (retrieved from SSRN 

Elsevier database). 

1282Consider a numeric example. A market with 

a $0.05 tick is quoting asks of 500 shares at $10.05 

and 500 shares at $10.10. An investor wishing to 

purchase 700 shares would purchase 500 at $10.05 

and 200 at $10.10 for a total price of $7,045. If the 

tick shrinks to $0.01 and cumulative shares posted 

decline by 20%—for example—but those shares are 

spread evenly over the finer grid then there would 

be 80 shares at each price level from $10.01 to 

$10.10. An investor wishing to buy 700 shares 

would need to purchase 80 shares at each price 

level from $10.01 to $10.08 and 60 shares at $10.09 

for a total purchase price of $7,034. So even though 

total depth declined, the cost to execute a 500-share 

trade would decrease due to more efficiently 

spreading liquidity across more price levels. 

1283A round-trip trade refers to executing an 

order to buy or sell the stock and immediately 

reversing the position with an equal countervailing 

order. We compute the cost of a roundtrip trade 

following the methodology laid out in Griffith and 

Roseman (2019), supra note 1002 and Chung, et al., 

supra note 1209. The methodology uses MIDAS 

data to take snapshots of the order book at 15- 

minute increments throughout the trading day and 

calculates the transaction costs associated with 

walking the book up 5 or 25 round lots to execute 

a large trade. 

Effective spreads provide a measure of 

liquidity providers’ revenue for the 

immediate execution of an incoming 

order and the contrasting economic 

effects also have implications for how 

liquidity providers’ revenue will be 

affected by a lower tick. The effective 

spread captures the liquidity premium, 

paid by those submitting orders for 

immediate execution, and can 

theoretically be decomposed into two 

components: Effective Spread = 

Realized Spread + Price Impact.1277 One 

component of the effective spread is the 

price impact or adverse selection 

component. It is the change in the 

NBBO midpoint at the time of trade to 

some point in the future. This 

component of the effective spread 

captures the portion of the effective 

spread liquidity providers lose from 

trading with investors who are more 

informed than they are and is also 

referred to as the adverse selection 

component of the bid-ask spread. The 

remainder of the effective spread, after 

removing the adverse selection 

component, is the realized spread. This 

portion of the effective spread acts as a 

proxy 1278 for the compensation to the 

liquidity provider for its non-adverse 

selection costs. If a smaller tick 

decreases revenue for liquidity 

providers, by allowing bid and ask 

prices to more accurately reflect supply 

and demand, then this effect should 

manifest as a decrease in realized 

spreads for liquidity providers. 

However, if increased order book 

fragmentation and pennying risk 

increase the cost of providing liquidity, 

then liquidity providers will need to be 

compensated for these costs in order to 

provide liquidity and, thus, realized 

spreads will increase. To the extent that 

the two effects offset one another, 

realized spreads might not change. 

For tick-constrained stocks in bin one, 

the analysis indicates a decrease in 

realized spreads across all 

specifications, and when using dollar or 

relative realized spreads when the tick 

size was reduced from $0.05 to $0.01. 

This result is consistent with the notion 

that liquidity providers’ non-adverse 

selection revenues will decrease due to 

bid and ask prices being more reflective 

of supply and demand with a smaller 

tick. The opposite occurs for stocks with 

wide quoted spreads in bin four, where 

realized spreads increase significantly— 

consistent with liquidity providers 

needing to be compensated for the 

increased cost and complexity 

associated with trading a wide quoted 

spread stock in a small tick 

environment. For stocks in the middle 

two bins, the effect of lowering the tick 

size on realized spreads is unclear, as 

about half of the specifications indicate 

no change in realized spreads while the 

other half indicate lower effective 

spreads. 

One commenter states that the 

Proposing Release did not address how 

the rule would affect institutional 

transaction costs, given that 

institutional traders frequently trade, 

and are concerned with sourcing larger 

quantities.1279 However, as considered 

here, and in the Proposing Release, the 

Commission considered multiple 

measures of depth beyond the NBBO, 

and Barardehi et al. (2022) also 

considers more. This depth beyond the 

top of the book analysis uses MIDAS 

data to study how the tick size change 

affected liquidity deeper in the book. 

Analyzing liquidity deeper in the book 

is valuable because it gives an 

indication of how trading larger orders, 

which must go deeper in the book to be 

fulfilled may be affected by a change in 

the tick size. Specifically this analysis 

calculates the daily average cumulative 

shares available at $0.10 above and 

below the midpoint for control and 

treated stocks, and uses the same 

difference-in-differences analysis to 

examine the effect of reducing the tick 

size on cumulative depth.1280 Our 

analysis suggests that reducing the tick 

size also reduced the total depth 

available deeper in the book with the 

coefficient for bin 4—i.e., those with the 

widest quoted spreads—being the 

largest in magnitude. This finding is 

consistent with a smaller tick 

discouraging the posting of displayed 

liquidity due to pennying concerns for 

stocks with wide quoted spreads. 

These depth of book findings do not 

directly imply that trading deeper in the 

book became more expensive for two 

reasons. First, research suggests the use 

of non-displayed quotations increases 

significantly when the tick size is 

reduced.1281 Thus the decline in 

liquidity that we document is only a 

decline in displayed liquidity. Second, 

quotes tend to congregate at the price 

just worse than the quoter’s desired 

price so that the quoter does not lose 

money on a transaction. When a wider 

tick is tightened, quotes that were 

previously congregated at the wide tick 

will spread out at prices better than the 

previous tick allowed. Thus, a market 

participant taking liquidity from 

multiple price layers in the order book 

to fulfill an order will have some shares 

that transact at superior prices than it 

would have with the wider tick.1282

Table 8 also presents the effect of the 

TSP conclusion on the round-trip cost 

to transact a trade for 10 round lots 

(1,000 shares).1283 This analysis 

suggests mixed results for the effect of 

the tick size reduction on the cost of 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81713 

1284See Barardehi et al. (2022) Table 4. See also 

Citadel Letter I at 11 requesting an analysis of the 

joint impact on depth and quoted spread. See also 

Virtu Letter II at 18 stating that lower quoted 

spreads would harm markets by reducing the 

incentive to post liquidity. 

1285See Proposing Release, supra note 11, at 

80322–80323, including figure 2, which is also in 

Barardehi et al., supra note 231. 

executing a 10-round lot trade. For bin 

1 stocks, the total round-trip cost of a 

10-round lot trade decreased when the 

tick size was lowered—suggesting an 

improvement in liquidity deeper in the 

book. For stocks in bin 2 (i.e., less tickconstrained stocks), the effect was not 

clear. The OLS regressions suggested no 

effect, while the quantile regressions 

suggested an increase in trading cost. 

For stocks in bins 3 and 4 (i.e., those 

that were not tick-constrained by the 

$0.05 tick), the effect of lowering the 

tick size was to increase transaction 

costs for larger trades. These results 

cohere with the idea that when stocks 

are tick-constrained the pricing 

efficiency made possible by a smaller 

tick improves liquidity, and for stocks 

with wider quoted spreads a smaller 

tick harms liquidity by making 

individuals less willing to post 

displayed liquidity due to complexity 

and the risk of pennying. 

In conclusion, the analysis provided 

here suggests that, for stocks that were 

limited to just 1–2 ticks intra-spread by 

the $0.05 tick, the reduction to a $0.01 

tick provided an improved trading 

environment. Thus, trading in an 

approximate 1–10 tick range intraspread provided a superior environment 

to trading in a 1–2 ticks intra-spread 

range. One caveat here is that the 

analysis highlights a key tradeoff with a 

smaller tick for stocks with narrow 

quoted spreads. They tend to have less 

depth at the NBBO, but narrower quoted 

spreads. Thus, the total effect of this 

tradeoff on execution costs is largely a 

function of the size of the trade being 

implemented with smaller trades 

receiving improved terms while 

sufficiently large trades get worse terms 

with a narrower quoted spread. 

However, as discussed in greater detail 

in Barardehi et al. (2022), for tickconstrained stocks the point in terms of 

trade size at which a tick size reduction 

harms execution quality is quite large, 

around 50 round lots.1284 Additionally, 

for stocks with quoted spreads greater 

than $0.15, where a $0.01 tick implied 

more than 15 ticks intra-spread, a $0.05 

tick where there were only 3 ticks intraspread, appeared to provide a superior 

trading environment. For stocks with 

quoted spread between $0.10 and $0.15, 

it is not clear which tick size provided 

a superior trading environment. 

In figure 2, data analysis shows how 

the quoted spread of a stock during the 

TSP (‘‘pre-shock dollar quoted spread’’) 

correlates with how investor transaction 

costs, as captured by effective spreads, 

changed when the TSP ended. For 

stocks with an average of fewer than two 

ticks intra-spread (i.e., those with preshock quoted spreads of $0.10 or less), 

a reduction in tick size from 5 cents to 

1 cent significantly reduces effective 

spreads.1285 For stocks with an average 

of more than three ticks intra-spread 

(i.e., those stocks with pre-shock quoted 

spreads greater than $0.15), a narrower 

tick size increases effective spreads. 

These results are broadly consistent 

with the findings reported in table 8. 


ddrumheller on DSK120RN23PROD with RULES2
81714 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

1286One academic theoretical paper suggests that 

having a two-tick quoted spread is optimal. See 

Sida Li & Mao Ye, Discrete Prices, Discrete 

Quantities, and the Optimal Price of a Stock 

(working paper Mar. 8, 2021, revised Jul. 7, 2023), 

available at https://papers.ssrn.com/sol3/papers.

cfm?abstract_id=3763516 (retrieved from SSRN 

Elsevier database). The paper suggests that stocks 

reach their optimal price whenever the quoted 

spread is two ticks wide. While the paper advocates 

for a lower tick size, particularly for tickconstrained stocks, the two-tick quoted spread 

conclusion is the result of a highly stylized trading 

model which does not take into account pertinent 

factors from outside the model which likely affect 

quoted spreads such as considerations of time 

priority and pennying concerns. Conditional on 

there being non-infinitesimal tick and round-lot 

sizes, their model suggests that a two-tick wide 

quoted spread is optimal. Otherwise, their model 

suggests an optimal policy choice of infinitesimal 

tick and round-lot sizes. 

The Commission’s results in table 8 

provide useful information for 

predicting how the tick size reduction 

associated with the amendments may 

affect market quality for stocks priced 

at, or greater than, $1.00 per share and 

that receive the $0.005 tick size 

compared to the current baseline. For 

stocks with prevailing quoted spreads 

less than $0.015 there would generally 

be at most 1.5 ticks intra-spread with a 

$0.01 tick, or 3 ticks intra-spread with 

a $0.005 tick. The analysis in table 8 for 

bin one stocks suggests that 1–5 ticks 

intra-spread provides a better trading 

environment than does just one tick 

intra-spread.1286 Additionally, the 

results for bin 2 stocks suggest that 

moving from 1–2 ticks intra-spread to 5– 

10 ticks also generally improves market 

quality across most measures. In short, 

the TSP analysis suggests that stocks 

with fewer than 2 ticks intra-spread on 

average benefited from a tick size 

reduction. Consequently, this analysis 

provides support for the belief that 

reducing the tick size for stocks that 

generally have at most 1.5 ticks intraspread is likely to improve market 

quality for these stocks. One concern 

discussed earlier in this section is that 

a reduction that is too aggressive could 

harm market quality by providing too 

many ticks intra-spread. However, the 

analysis provided in table 8 does not 

support this outcome since the Tick 

Size Pilot stocks in bin 1 and bin 2 still 

saw market quality improvements, 

implying that narrow tick concerns 

didn’t yet dominate the effect on these 

stocks, it is unlikely that the smaller tick 

size reduction associated with this Rule 

would lead to small tick problems 

diminishing market quality. 

Additional Sources of Information: 

Commenters also suggested additional 

settings to identify when stocks are 

trading with the optimal number of ticks 

intra-spread. One commenter suggested 


ddrumheller on DSK120RN23PROD with RULES2ER08OC24.003</GPH>

Figure 2: Difference-in-Differences Effect of the end of the TSP on 

Dollar Effective Spreads 

I() 

C! 

"C I() 

ctl N Q) 0 ... . C. 

en 

~ 

Ua 

~ ... 

..!!l 

0 I() 

0~ 

,· 

I() 

0 

.06 .08 .1 .12 .14 .16 .18 

Pre-shock dollar quoted spread 

Source: Stocks in the TSP imposition period 08/12/2016-12/14/2016, where tick size 

increased from 1¢ to 5¢ for pilot stocks, are grouped into overlapping 6¢ intervals of 

average May and June 2016, i.e., pre-shock, quoted spreads: {(0,6¢),(1¢, 7¢), ... 

,(15¢, 21¢),(16¢, 22¢). Stocks in the TSP conclusion period 08/08/2018-11/20/2018, 

where tick size decreased from 5¢ to 1¢ for pilot stocks, are grouped into overlapping 

6¢ intervals of average May and June 2018, i.e., pre-shock, quoted spreads. For each 

intervals, the effect of a tick size change on dollar effective spreads is estimated via 

difference-in-differences quantile (median) regressions that control for date fixed 

effects and double-cluster standard errors by stock and date. Point estimates of the 

treatment effects along with the corresponding 95% confidence intervals are plotted 

against the median pre-shock quoted spread in the respective interval. See Proposing 

Release, supra note 11, at 80322-80323, figure 1. See also Barardehi et al., supra note 

231. 
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81715 

1287See CCMR Letter at 27. 1288Autorite` Des Marche`s Financiers (AMF), 

MiFID II: Impact of the New Tick Size Regime 

(March 2018), available at https://www.amffrance.org/sites/institutionnel/files/contenu_simple/ 

lettre_ou_cahier/risques_tendances/MiFID%20II

%20Impact%20of%20the%20New%20Tick%20

Size%20Regime.pdf. This paper was cited in 

Nasdaq Letter I at 10; Tradeweb Markets Letter at 

4; Robinhood Letter at 50–51; and IEX Letter I at 

13. 

1289See Rule 611 and supra note 226. 

1290See, e.g., Eros Favaretto et al., Impact of 

MiFID II Tick-Size Regime on Equity Markets— 

Evidence From the LSE, 29 Eur. Fin. Mgmt. 109, 

109–149 (2023). 

1291For example, Chung, et al., supra note 1209, 

which uses data from all US exchanges, and Griffith 

and Roseman (2019), supra note 1002, who use data 

from just Nasdaq produce opposite findings in some 

areas concerning the effect of the TSP on various 

dimensions of market quality—i.e., the effect of the 

TSP on the cost to trade very large orders. 

1292See supra note 1287. 

1293See infra section VII.D.1.b.iii for additional 

discussion of price as a determinate of tickconstrained securities and thus of the tick size. 

1294See Ingrid M. Werner et al., Tick Size, 

Trading Strategies and Market Quality, 69 Mgmt. 

Sci. 3818 (2023). 

1295See Why GE’s basis point spread was four 

times higher before its reverse split attached to 

MEMX Letter at 43–63; see also The Tick Size 

Debate Revisited attached to MEMX Letter at 64– 

70. 

1296See supra note 1064 for a numerical example 

showing the effect that a reverse split has on 

transaction costs for a tick-constrained stock. 

1297See Why GE’s basis point spread was four 

times higher before its reverse split attached to 

MEMX Letter at 43–63. Chart A of the study 

indicates that the reverse split caused the average 

quoted spread as a fraction of the share price to 

decline from approximately 8 basis points to 2 basis 

points. 

that the Commission should have 

considered the European Union’s tick 

size approach, associated with MiFID II, 

which assigns one of over 20 variable 

tick sizes based on trading price and 

number of transactions per day, and 

Japan’s tick size approach.1287

One paper on the European 

experience cited by commenters studied 

the effects of a new tick regime 

introduced by MiFID II on 511 stocks 

listed on Euronext Paris and found 

results similar to the TSP analysis in 

table 8.1288 In this study the authors 

point out that MiFID II led to tick size 

increases for 339 stocks and decreases 

for 82 stocks. Tick increases were 

followed by a widening of the quoted 

spread, an increase in depth near the 

top of the book, and a reduction in 

message traffic. Like the TSP analysis in 

table 8, tick decreases were followed by 

a narrowing of quoted spreads, 

reductions in depth at the top of the 

book, and an increase in message traffic; 

for a relatively wide price interval, 

depths remained unchanged. Table 8 

finds a reduction in the cost of a round 

lot trade when low quoted spread 

securities experience a reduction in the 

tick; similarly, the analysis of MiFID II 

documents a reduction in transaction 

costs when the tick is reduced and the 

size of the trade is held constant. In 

sum, the effects of a change in tick size 

on Euronext Paris largely mirror the 

effects documented with the TSP in 

table 8, indicating that the 

Commission’s analysis is documenting a 

generalizable phenomenon. 

However, there are several limitations 

to using studies of Europe’s tick size 

regime. Research based on experience 

with the E.U. regime is difficult to apply 

to this Rule because the criteria in this 

Rule for determining the tick size is the 

TWAQS, which is not a factor in the 

European setting. When tick sizes 

change in Europe, it is due to changes 

in price or trading volume which can 

simultaneously affect quoted spreads. 

The Commission is unaware of research 

using the tick sizes associated with 

MiFID II to identify the thresholds, in 

terms of quoted spread, where a stock 

likely benefits or is harmed by a 

modification of the tick size, and the 

commenter did not provide such 

research. 

In addition, it could be difficult to 

apply such analysis to the U.S. setting 

due to a number of structural 

differences between the European 

market and the U.S. markets. Key among 

these is that European financial markets 

are not as integrated as the U.S. national 

market system. For example, there is 

currently no consolidated tape or 

requirement to route orders to the 

exchanges with the best prices in the 

E.U.1289 This fact can affect inference in 

the context of analyzing this Rule 

because it means that existing studies of 

the effect of the European tick size 

regime are generally limited to one 

exchange (e.g., the London Stock 

Exchange).1290 This can be a significant 

limitation when trying to apply insights 

from European studies to U.S. markets 

because, as has been found in existing 

research, using data from one exchange 

as compared to across all exchanges can 

lead to opposite market quality effects 

being documented.1291

As discussed above, a commenter also 

suggested that the Commission should 

have considered the effects of tick size 

modifications in Japan to inform the 

appropriate thresholds for the tick size 

change considered in this Rule.1292 The 

Tokyo Stock Exchange (TSE) assigns 

tick sizes ranging from 0.1 (JPY) to 

100,000 (JPY) depending on the price of 

the security in question. Stocks in the 

TOPIX 100 index have a different tick 

size schedule than do other securities. 

Again, making inferences from the TSE 

to this Rule is difficult due to the 

structural differences between the way 

that the tick sizes operate. On the TSE, 

tick sizes are price determined, under 

this Rule, tick sizes depend on the 

prevailing quoted spread.1293

Additionally, trading in Japan is largely 

consolidated on the TSE, whereas in the 

United States it is considerably more 

fragmented suggesting the same issue 

relating to inference as can occur with 

the European studies. 

In considering the experience in the 

Japan markets, one study used the 

median quoted spread to divide stocks 

on the TSE and examines market 

quality.1294 These researchers find that 

a tick size reduction reduces quoted 

spreads for both the narrower and wider 

quoted spread stocks—although the 

effects are considerably larger for 

narrower quoted spread stocks. The 

results of this study are consistent with 

those in this release as it documents that 

for some stocks, particularly those with 

narrower quoted spreads, reducing the 

tick size can reduce quoted spreads. 

This study also documents that depth at 

the best prices also tends to decrease 

with a smaller tick. However, this study 

has limitations in the context of using 

it to determine the optimal tick to quote 

size ratio because the authors do not 

separate stocks using a nominal quoted 

spread threshold which would allow 

inference about how stocks with quoted 

spreads above or below a certain 

threshold were affected by the tick size. 

Rather, they simply bifurcate the sample 

in half which doesn’t apply a specific 

quoted spread threshold and so it is 

difficult to discern from their study 

what the optimal tick to quoted spread 

threshold will be. 

One commenter presented two 

industry studies based on reverse stock 

splits showing large reductions in 

percentage spreads and hence trading 

costs following reverse splits.1295 When 

a stock undergoes a reverse split, its 

share price rises. All else equal, one 

would expect quoted spreads to widen 

in proportion so that the trading cost 

remains constant as a percentage of 

price. If the stock is tick-constrained, 

however, a reverse split causes the 

current penny tick to become lower 

relative to the (higher) post-split price, 

relieving the tick constraint and 

reducing trading costs as a percentage of 

the trade amount.1296 One study 

presented evidence from GE’s eight-forone reverse split, and showed that 

trading costs—as measured by the 

quoted spread as a fraction of the stock 

price—fell 75%.1297 Another study 

presented evidence from five tickconstrained ETPs that underwent a fivefor-one reverse split; the study found 


ddrumheller on DSK120RN23PROD with RULES2
81716 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

1298See The Tick Size Debate Revisited attached 

to MEMX Letter at 64–70. The appendix of the 

study indicates that the reverse split caused 

transaction costs to fall by more than 40% for tickconstrained ETPs, with some ETPs experiencing 

cost reductions of 80%. The study further indicates 

at 66 that similar results, ‘‘can be achieved by 

amending the tick regime to simply allow more 

granular prices, without the need to change the 

price of the security in question.’’ 

1299Nasdaq Letter I at 8 provides some empirical 

analysis suggesting that 2 to 3 or maybe 2 to 4 ticks 

intra-spread is optimal. Pragma Letter at 1 uses data 

from stock splits to suggest that 1.5 to 4 ticks is 

optimal and that more than 4 is too many. RBC 

Letter at 3 cites research that 2 ticks intra-spread is 

optimal. CCMR Letter at 23 cites academic research 

suggesting 2 ticks intra-spread may be optimal. XTX 

Markets Letter at 4 suggests 2 to 4 ticks intra-spread 

as optimal. MMI Letter at 5 suggests 3–9 as optimal. 

IEX Letter I at 14 states for 2 to 4 ticks intra-spread. 

Budish Letter at 5 indicating that two or fewer is 

too few and suggesting that 2 to 4 may be 

reasonable. Harris Letter at 7 suggesting 2 ticks 

intra-spread. 

1300See Barardehi et al., supra note 231. 

1301 Id. 

1302One commenter stated that at 4 or more ticks 

intra-spread hidden orders become more prevalent 

which can harm market quality. See IEX Letter I at 

12. However, the smaller tick size implemented by 

the Rule will not result in 4 or more ticks for the 

associated stocks and so, even if true, the effect 

suggested by the commenter is unlikely to play a 

large role in market quality because the rule will 

not result in 4 or more ticks intra-spread for stocks 

receiving the $0.005 tick size. 

1303Other commenters expressing support for a 

$0.005 tick for stocks with narrow quoted spreads 

include Schwab Letter II at 6, STA Letter at 7, XTX 

Letter at 4. 

1304See Mitre Corp. Letter at 5. 

1305See IEX Letter I at 14. 

1306 Id. 

1307 Id. 1308See, e.g., Budish Letter at 4 and Harris Letter 

at 7. 1309See, e.g., T. Rowe Price Letter at 4, NYSE 

Letter I at 3, BlackRock Letter at 5, Citadel Letter 

I at 30. Optiver Letter at 1, 2. See also infra section 

VII.F.1.a for additional analysis of these 

alternatives. 1310See Citadel Letter II at 4. The Commission 

considers the effect of stocks moving between tick 

size regimes in section VII.D.1.d, infra. 

that trading costs for these ETPs 

declined substantially.1298 These 

studies are consistent with results in 

table 8 above—when the tick constraint 

is relaxed, the quoted spread becomes 

smaller relative to the share price, 

thereby reducing transaction costs. 

Some commenters provided explicit 

specifications of what they stated is the 

optimal tick to quoted spread range.1299

These commenters presented evidence 

and views typically suggesting that 2 to 

4 ticks intra-spread may be the optimal 

range. Given the analysis of these 

commenters, analysis presented here, 

and additional research,1300 the 

Commission believes that the 

amendments, which only reduce the 

tick size when prevailing quoted 

spreads fall below $0.015, are likely to 

improve market quality for these stocks 

on average and are unlikely to lead to 

detrimental pennying or complexity 

concerns. Specifically, while there will 

likely be less depth at the NBBO and at 

each price level, quoted and effective 

spreads are likely to decline such that 

the cost of executing small and medium 

size trades will likely decline. Pennying 

is unlikely to predominate. This is 

because, at most, the smaller tick size 

will result in 3 ticks intra-spread. The 

analysis contained in this release, 

additional research,1301 and 

commenters tend to agree that pennying 

is unlikely to be a dominant effect at 3 

ticks intra-spread.1302 In fact, 3-ticks 

intra-spread falls in the middle of the 2 

to 4 ticks intra-spread suggested as 

potentially optimal by many 

commenters.1303

The narrower quoted spreads from a 

smaller tick size may result in fewer 

opportunities for price improvement by 

retail wholesalers, which may cause 

execution quality for wholesalers as 

measured by price improvement 

statistics to appear worse. However, the 

prices that retail investors receive for 

trades in stocks receiving the lower tick 

size is likely to improve overall relative 

to the baseline due to a narrower quoted 

spread, even though the portion of their 

price labeled price improvement may 

decline. 

One commenter suggested generally 

that the Commission use simulations to 

determine the optimal tick size without 

providing details about how such a 

simulation could be structured.1304

However, it is unclear how such 

simulations would be structured, and 

the Commission is unaware of existing 

simulations or of existing frameworks 

for simulations studying the effect of 

tick sizes on market quality. Challenges 

associated with simulations include 

model accuracy and complexity, data 

quality, computational limitations, 

uncertainty and sensitivity, validation 

and verification, scalability, and the 

challenges associated with applying 

simulations to human behavior which is 

inherently unpredictable, and the 

challenges associated with modeling 

dynamic and evolving systems like 

financial markets. 

One commenter, while not opposing a 

half-cent tick for some stocks, stated 

that volume on inverted exchanges 

implied that there may not be a demand 

to trade with significantly narrower tick 

sizes.1305 Inverted venues, which as 

discussed in section VII.C.2.b, offer a 

rebate to liquidity demanders and 

charge a fee to liquidity providers 

effectively allow market participants to 

price orders within the tick by the 

amount of the rebate to liquidity 

demanders. The commenter states that if 

there were significant demand to trade 

within the tick size, then we would 

expect to see inverted exchanges 

capture significant market share among 

truly tick-constrained stocks.1306

This argument, however, does not 

take into account the fact that inverted 

exchanges are less likely to be at the 

NBBO than maker-taker exchanges and 

thus the risk of an order not being able 

to be fulfilled on an inverted exchange 

is higher.1307 If the inverted exchange 

cannot fill an order it would generally 

re-route it or cancel it, depending on the 

terms of the order. Both options are 

costly as re-routing orders usually 

involves a re-routing fee charged by the 

routing exchange and an access fee 

charged by the receiving exchange, 

which would make the trade more 

expensive to transact relative to just 

sending it first to a high volume makertaker exchange. The transfer would also 

take a small amount of time which 

could increase adverse selection risk for 

the re-routed order. Failing to execute 

the order is also costly as it could 

expose the trader to increased costs if 

the market moves against the trader in 

the time it takes to submit a new order. 

Consequently, market share on inverted 

exchanges may be low for reasons other 

than the stock being tick-constrained. 

For these reasons, low volume on 

inverted exchanges is not sufficient to 

identify demand to trade within the 

quoted spread. 

iii. Alternative Definitions of TickConstrained 

Some commenters supported using 

TWAQS to determine which stocks are 

tick-constrained.1308 Other commenters 

stated that other criteria, in addition to 

or in place of the quoted spread was 

needed to identify truly tick-constrained 

securities.1309 One commenter stated 

that adding additional criteria would 

decrease complexity as it would limit 

the number of stocks receiving a smaller 

tick size, and would prevent stocks from 

bouncing back and forth between tick 

regimes.1310 The Commission agrees 

with commenters that the quoted spread 

is sufficient to determine whether a 

stock is tick-constrained as a matter of 

principle but acknowledges that not all 

stocks receiving the lower tick size will 

react in the same manner to the tick 

size. The Commission has considered 

commenters’ views regarding variables 

other than quoted spread, and has 

conducted additional, supplemental 

analysis, presented in this section. 

Commenters’ suggestions for 

additional variables fell into three broad 

categories. The most common type of 

suggestion involved a depth measure, 

with commenters questioning whether a 


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1311See, e.g., Invesco Letter at 3 suggesting that 

we consider whether a stock had multiple bids and 

offers at the NBBO. BlackRock Letter at 5 suggesting 

we consider Average Quoted Size. Citadel Letter I 

at 30 suggesting we consider average size at the 

NBBO/Daily volume. Cboe, State Street, et al. Letter 

at 2 and BlackRock Letter at 5 suggesting we 

consider quote size at the NBBO to average trade 

size, NYSE Letter I at 3 suggesting a quote stability 

measure of how long it takes the NBBO to return 

to pre-trade levels after a trade takes liquidity at the 

NBBO. T. Rowe Price Letter at 4 suggesting that 

depth could be measured by how many exchanges 

are currently quoting the NBBO. 

1312See, e.g., BlackRock Letter at 5, Citadel Letter 

I at 30 (both suggesting trading volume as a measure 

of tick-constrained) and T. Rowe Price Letter at 4 

(suggesting a turnover-based measure of tickconstrained). 

1313See BlackRock Letter at 5. 

1314See, e.g., Citadel Letter I at 5–6 and 

BlackRock Letter at 5, Invesco Letter at 3, Virtu 

Letter II at 17. 

1315See, e.g., Citadel Letter I at 5–6 and 

BlackRock Letter at 5. 

1316See Invesco Letter at 3. 

1317See Cboe Letter II at 2, 6. 

1318Using WRDS Intra Day Indicators Data for all 

stocks priced over $5.00 without sym_suffix, the 

correlation between daily log quoted spread, log 

share volume, log price, and log average depth at 

the NBBO is ¥.39, .35, and ¥.49 respectively. See 

also Harris Letter at 7. 

1319See supra section VII.D.1.b.ii. 

1320The Proposing Release analysis divided 

stocks into four bins based on their prevailing 

quoted spreads prior to the conclusion of the TSP. 

The first bin is for stocks with quoted spreads 

($0.00, $0.06). The second bin is for stocks with 

quoted spreads in the range ($0.06, $0.09). The 

third bin is for stocks that had quoted spreads of 

($0.09, $0.15) or approximately 2–3 ticks intra at a 

$0.05 tick increment. The fourth bin is for stocks 

with quoted spreads greater than $0.15. 

1321The primary advantage of quantile 

regressions is that they are less sensitive to outliers 

that can affect mean inference in OLS. Thus, 

median regressions provide additional robustness to 

the analysis and ensure that results are not driven 

by outliers. 

1322 In this equation the variable Y denotes the 

response variable of interest such as quoted spread 

and depth. The subscripts j and t serve to index 

stocks and days respectively. a0, ap, ae, and b are 

coefficients (to be estimated), and mj,t is the error 

term. Pilotj is an indicator variable that equals 1 if 

stock j was in the treatment group, or 0 if stock j 

was in the control group. Eventt is an indicator 

variable which is equal to 1 if the day t was post 

the treatment event and equals 0 otherwise. Table 

8 reports the difference-in-differences estimator of 

b for a different response variable Y across the 

different quoted spread bins. 

stock with a narrow-quoted spread was 

actually tick-constrained if the sizes of 

the quotes were small.1311 Others 

suggested metrics based on trading 

volume.1312 Another commenter 

suggested price as a measure of tick 

constraint.1313

Some commenters stated that even 

stocks with the narrow quoted spread 

may not benefit from a smaller tick 

unless other criteria were met.1314 For 

example, commenters stated that 

reducing the tick size for stocks that 

have narrow quoted spreads, but low 

depth, could lead to pennying which 

could harm market quality.1315 Another 

commenter stated that if there is 

insufficient depth, a narrower tick size 

could harm market quality by 

fragmenting liquidity over multiple 

price levels—even if quoted spreads are 

tight.1316 Another commenter didn’t 

articulate specific mechanism by which 

harms that might arise due to failing to 

take into account other criteria, but 

encouraged the Commission to take a 

‘‘pragmatic approach’’ starting with a 

narrow set of ‘‘truly tick-constrained 

stocks’’ as defined by multiple 

criteria.1317

As discussed above, quoted spread 

reflects supply and demand forces in 

the market for liquidity provision. Many 

of the concerns of commenters regarding 

a smaller tick would be expressed by 

wider quoted spreads; for example, 

pennying could potentially reduce 

incentives for liquidity provision, 

raising quoted spreads. This argues in 

favor of quoted spread as the main 

criterion. Furthermore, it is unlikely 

that a stock which trades near $0.01 

nearly all the time does so at random 

and would continue to do so even if 

unconstrained. It is more likely that a 

stock trading with a quoted spread at 

the minimum pricing increment nearly 

all the time does so because the stock 

would trade with a narrower spread if 

that was possible, but the minimum 

quoting increment constrains the 

spread. Finally, quoted spread is 

correlated with depth, volume, and 

price.1318 For these reasons, it is likely 

that stocks with narrower quoted 

spreads will also have relatively high 

depth, and volume, and have lower 

prices. However, to fully address 

commenters’ concerns, the Commission 

has provided additional, supplemental 

analysis that examines whether there is 

meaningful variation of the effect of a 

reduction of tick size within those 

stocks that have lower quoted spreads. 

Specifically, the analysis presented in 

table 9 explores the question of whether 

stocks with similarly narrow quoted 

spreads respond differently to the TSP 

tick size change when conditioning on 

other factors suggested by commenters, 

such as depth, volume, or price. In sum, 

our analysis does not find evidence 

supporting the hypothesis that a 

narrower tick size is likely to harm 

stocks when considering criteria such as 

depth, volume, or price in addition to 

the quoted spread. Instead, our analysis 

suggests that across most market quality 

metrics stocks with high and low price, 

volume, or depth respond in a similar 

magnitude and direction to the same 

tick size change. For some market 

quality metrics, one subset of stocks 

may not have a statistically significant 

response to the tick size change. 

However, in no cases do we observe that 

stocks with high or low price, volume, 

or depth respond in opposite directions 

with magnitudes that are statistically 

significant. Thus, we find no evidence 

of a benefit from adding criteria to the 

tick size determination that would 

compensate for the considerably greater 

complexity that such an addition would 

cause. 

The analysis presented in table 9 

builds on the TSP analysis considered 

above, with a few modifications.1319

First, for brevity, we only report 

findings for bin 1 and bin 2 stocks—i.e., 

those stocks with narrower quoted 

spreads—because the final Rule will 

similarly only affect stocks with less 

than 2 ticks intra-spread.1320 We also 

only present quantile regressions. We 

obtain daily regular hours trading 

volume, value weighted average price, 

and depth at the NBBO information 

from WRDS Intraday indicators for all 

trading days in May and June 2018. We 

divide bin 1 and bin 2 stocks into 

quartiles based on their average volume, 

price, or depth at the NBBO. The 

analysis uses quantile (median) 

regressions1321 to estimate the following 

difference-in-differences regression 

model separately for the high and low 

quartile samples: 1322

Yj,t = α0 + αPPilotj + αEEventt + 

β(PilotjxEventt) + μj,t

By checking to see if market quality 

measures are affected differently for 

stocks with similarly narrow quoted 

spreads, but which have different depth, 

or price, or volume profiles, the analysis 

can show whether the effects of 

reducing the tick size depend on these 

additional characteristics in a manner 

that a quoted spread measure misses. 

The results are presented in table 9. 

Panel A presents the analysis that 

considers the effect of trading volume 

on a stock’s response to a reduction in 

the tick size. The analysis sorts and 

subdivides the treated and control 

stocks separately by volume into 

quartiles, and it then performs 

regressions on the top and bottom 

quartile of stocks separately. Columns 

one and two present the results for 

stocks with TWAQS less than or equal 

to $0.011, whereas Columns three and 

four present the results for stocks with 

TWAQS greater than $0.011 but less 

than or equal to $0.020. Columns one 

and three present the results for stocks 

in the bottom quartile of trading volume 

while columns two and four present the 

results for stocks in the highest quartile 

of trading volume. Panel B presents the 


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81718 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

same analysis as panel A but where 

stocks are sorted by price, and panel C 

does the same for depth at the NBBO. 

We consider the differential effect of the 

TSP on depth, quoted spreads, effective 

spreads, cancel-to-trade ratio, share of 

odd-lot volume, and realized spread. 

BILLING CODE 8011–01–P 


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Table 9: TSP Analysis Conditional on Volume, Price, and Depth at the NBBO 

Panel A: Trading Volume 

Quoted Spread Bin# 

Volume 

Depth ( I 00 shares) 

Depth ($1,000) 

Quoted Spread($) 

Relative quoted Spread 

Effective spread ($) 

Relative effective spread 

Cancel-to-trade 

Share of odd-lot volume 

Realized Spread 

Relative Realized Spread 

TWAQS :-:; $0.06 

Low High 

-0.028 -0.039*** 

(-1.24) (-3.49) 

-0.0037 

0.0049*** 

(-0.92) (-3.43) 

$0.06 < TWAQS:<=; $0.09 

Low High 

-0.0097 -0.035*** 

(-0.72) (-6.57) 

-0.0012 

0.00064 

(-0.39) (-1.41) 

0.015 0.027 

(0.29) (0.76) 

0.0079 0.00059 

(0.83) (0.91) 

0.00068 0.0020** 

* 

(1.45) (5.21) 

-0.0049 

0.0086*** 

(-1.13) (-7.39) 
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81719 


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spread 

volume 

Spread 

Quoted Spread Bin# 

Price 

Depth (100 shares) 

Depth ($1,000) 

Quoted Spread($) 

Relative quoted Spread 

Effective spread ($) 

Relative effective 

Cancel-to-trade 

Share ofodd-lot 

Realized Spread 

Relative Realized 

Low 

-0.0030 

(-0.99) 

Panel B: VW AP 

TW AQS :;:; $0.06 $0.06 < TWAQS::=; $0.09 

High Low High 

-0.012 -0.031 *** 

(-1.21) (-6.21) 

-0.0012 

0.00048*** 

(-0.61) (-4.74) 

-0.013 -0.0020 

(-0.24) (-0.05) 

-0.0026*** 

(-4.09) 

0.00076 0.0013*** 

(1.55) (3.42) 

-0.0062 -0.011 *** 

(-1.59) (-11.31) 

0.00035 0.00022*** 

(-0.38) (-12.28) 
81720 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 


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Spread 

spread 

volume 

Spread 

Quoted Spread Bin# 

Depth at the NBBO 

Depth (100 shares) 

Depth ($1,000) 

Quoted Spread($) 

Relative quoted 

Effective spread ($) 

Relative effective 

Cancel-to-trade 

Share ofodd-lot 

Realized Spread 

Relative Realized 

Panel C: Depth at NBBO 

TW AQS :;:; $0.06 

Low High 

0.00072 

(-1.15) 

5.83*** 

(4.35) 

0.0098*** 

(-8.28) 

1.81 

(1.25) 

$0.06 < TWAQS::=; $0.09 

Low High 

0.00015 

(-0.55) 

0.00013* 

(-1.76) 

-0.0026 

(-1.27) 

-0.00046 

(-0.50) 
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81721 

1323A result that is not statistically significant 

does not directly imply that there is no effect. 

Rather it implies that the test did not find enough 

evidence to overturn the hypothesis of no effect. 

This could be because (1) there is actually no effect, 

or (2) because the test did not have sufficient power 

to identify an existing effect. 

BILLING CODE 8011–01–C 

The results show that in most cases 

that there is relatively little 

disagreement in terms of how low and 

high characteristic stocks respond to the 

TSP. In panel A, which presents results 

sorted based on trading volume, 10 out 

of the 20 pairs of regressions agree on 

both sign and statistical significance. A 

pair refers to the high and low quartile 

group for the same market quality 

outcome and the same quoted spread 

group—e.g., columns one and two are a 

pair, and three and four are a pair. This 

means that in 10 out of the 20 regression 

pairs run, high and low trading volume 

stocks had market quality responses to 

the change in the tick size that were in 

the same direction and were statistically 

different from zero. A further 8 out of 

the 20 pairs agree on sign, but not 

statistical magnitude. This means that 

while the point estimators from the 

regressions indicate that both high and 

low volume stocks had market quality 

responses in the same direction, either 

one or both groups experienced an effect 

that could not be measured to be 

statistically different from zero.1323

Lastly, only 2 out of 20 pairs disagree 

on sign, but there are no cases where 

both effects reject the hypothesis of no 

effect. This means that while the 

coefficients for the effect of the 

reduction in the tick size on high and 

low volume stocks disagree in the 

direction of the effect, in at least one 

case the effect is not statistically 

distinguishable from zero. 

The story is similar for panel B which 

presents results for price. 11 out of 20 

regression pairs agree on sign and 

statistical significance. A further 7 out 

of 20 agree on the sign of the effect 

though not necessarily statistical 

significance while only 2 out of 20 

disagree on sign, but again in these 

cases neither result is statistically 

different from zero. Lastly in panel C, 

which presents results for the sort based 

on depth at the NBBO, 14 out of the 20 

regression pairs agree on sign and 

statistical magnitude, 4 out of 20 agree 

on sign, but not statistical magnitude, 

and only 2 pairs disagree on sign, but 

in these cases neither regression 

provides a statistically significant result. 

This analysis does not support the 

idea that failing to include price, 

volume, or depth-based criteria when 

determining which stocks receive a 

smaller tick size is likely to produce 

significant harm. In most cases, the 

analysis suggests that market quality is 

likely to respond similarly to a 

reduction in the tick size for stocks that 

are both high or low volume, price, or 

depth. It is possible that in some cases, 

some of the positive anticipated effects 

discussed above may be mitigated for 

certain subgroups of stocks. We fail to 

find evidence that certain subgroups of 

stocks will be significantly harmed by 

the amendments when only considering 

the time weighted quoted spread when 

assigning tick sizes. 

c. Effect on Message Traffic and Market 

Data 

One commenter stated that, since 

‘‘reducing the minimum pricing 

increments for quotations’’ will result in 

‘‘significantly more quotation 


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* Panel A presents results for the sample sorted on trading volume, panel B presents the results for price, and panel C presents the 

results for depth at the NBBO. Within each bin, stocks are sorted based on their average trading volume, price, and depth at the NBBO during 

May and June 2018. Each regression is estimated using quantile (median) regressions. The 3 tables - one for each panel - present the effects of 

a reduction in minimum tick size from $0.05 to $0.01 cent on various quoting and trading outcome variables. A difference-in-differences 

regression with no control variables is estimated using data covering Control, Test Group 2, and Test Group 3 TSP stocks from 08/01/2018 -

11/30/2018. All observations are at the stock day level. The same model is used for all outcome variables. For each outcome variable Y;,, the 

table presents only the difference-in-differences coefficient estimates that indicate the effect of the TSP on the dependent variable. The outcome 

variables are: Depth ($1,000) is dollar value of depth at the NBBO measured in $1,000s. The quoted spread refers to the distance between the 

NBBO midpoint and the NBBO quote. The effective spread is the distance between the NBBO midpoint and the realized trade price; the realized 

spread is the distance between a future NBBO midpoint (5-minutes ahead) and the trade price. Relative spread measures are calculated as the 

spread scaled by the NBBO midpoint. The cancel-to-trade ratio is the daily number of order cancellations divided by the number of trades, for 

displayed orders. The odd-lot rate is the percentage of trades in a day which executed against an odd-lot quote. Share of odd-lot volume is the 

odd-lot rate reported in WRDS Intra Day Indicators and equals l00*(Odd lot Messages)/(Trades for Odd lots). Similar to the analysis in table 

8, stocks are divided into quoted spread bins based on average quoted spreads during May-June of 2018. Results are presented for only bin 1 

and bin 2 stocks; see supra note 1234 for details on bin assigmnent. Regressions on the highest and lowest quartiles within each bin are 

performed; cells are darkly shaded if the regression estimates differ in sign between the highest and lowest quartiles within a bin, and cells are 

lightly shaded if the regression estimates agree in sign and in statistical significance between the highest and lowest quartiles within a bin. Depth 

(100 shares) is number of shares available at the NBBO in 100s. All data are Winsorized at the 1 % and 99% level. The numbers in the () 

paratheses reflect t-statistics that are based on two-way stock-and-date clustered standard errors. Symbols*, **,and*** reflect statistical 

significance at 10%, 5%, and 1 % type-I error levels. 
81722 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

1324See SIFMA Letter II at 21, stating that it is 

concerned about the impact of the amendments on 

‘‘consolidated market data, capacity costs and CAT 

data requirements.’’ 

1325See SIFMA Letter II at 21, 43; see also Citadel 

Letter II at 4–5 and FIF Letter at 10–12. 

1326See, e.g., BlackRock Letter at 5, GTS Letter at 

5, FIF Letter at 1, 6–8, RBC Letter at 4, IBKR Letter 

at 5, Fidelity Letter at 17. 

1327See Tradeweb Letter at 2. 

1328See STA Letter at 6. 

1329See Budish Letter at 5. 

1330See, e.g., Goldman Sachs Letter at 8 and RBC 

Letter at 4. 

1331See discussion surrounding supra notes 239 

to 250. 

1332See FIF Letter at 7 referencing Phil 

Mackintosh, More Ticks, More Messages (Oct. 27, 

2022), available at https://www.nasdaq.com/ 

articles/more-ticks-more-messages. The research 

provided by the exchange provided three data 

points, the baseline case with no increase in ticks, 

a 1:5 increase and a 1:10 increase which are 

associated with 0%,100% and 500% increase in 

message traffic. If message traffic is the variable on 

the vertical axis and the tick size change the 

horizontal axis, then all three of these data points 

fall on the line . Substituting in the number 1, to 

indicate the number of ticks added intra-spread 

yields an increase in message traffic of 1.2, or a 20% 

increase. 

1333See Fidelity Letter at 17. 

1334The proposal would have added 9 ticks for 

the stocks receiving the $0.001 tick size, 4 ticks for 

the stocks receiving the $0.002 tick size, and 1 

additional tick for the stocks receiving the 0.005 

tick. Using the methodology provided by the 

commenters suggesting that each additional tick 

would increase message traffic 20% relative to the 

baseline suggests that stocks receiving the $0.001 

tick would have an estimated message traffic 

increase of 180%, for stocks receiving the $0.002 

tick the estimated increase in message traffic would 

be 80%, and for stocks receiving that $0.005 tick the 

increase in message traffic would be 20%. Using the 

same methodology as used to create table 7 to 

estimate the amount of trading volume that would 

have been associated with each of the proposed tick 

sizes based on 2023 data suggests that 

approximately 50% of trading volume would have 

received the $0.001 tick, approximately 25% of 

trading volume would have been associated with 

the $0.002. Combining these figures suggests that 

message traffic associated with the proposal would 

have increased approximately 125%. Thus, if a 

125% increase in message traffic is expected to be 

associated with a 10% increase in infrastructure 

costs, then assuming that costs are proportional to 

message traffic, then a 15% increase in message 

traffic will be associated with just over a 1% 

increase in infrastructure costs associated with the 

amended Rule. 

1335See NYSE Letter II at 10–11. 

1336See FIF Letter at 10–12, SIFMA Letter II at 

43. 

1337See Consolidated Audit Trail, LLC, 2023 

Financial and Operating Budget, available at 

https://www.catnmsplan.com/sites/default/files/ 

2024-01/01.17.24-CAT-Q4-2023-Budget-vsActual.pdf. 

1338See SEC, Joint Industry Plan; Order 

Approving an Amendment to the National Market 

System Plan Governing the Consolidated Audit 

Trail; Notice (Joint Industry Plan), Securities 

Exchange Act Release No. 98290 (Sep. 6, 2023), 88 

FR 62628 (Sep. 12, 2023) at 62680 & n.1077. 

1339The relation between total CAT cost and 

volume is complex and driven by both volume and 

the complexity of processing the additional 

information and may not always be linear. See 

Letter from Brandon Becker, Chair, CAT NMS Plan 

Operating Comm., to Vanessa Countryman, Sec’y, 

SEC at 3 n.11 (Mar. 27, 2024), available at https:// 

catnmsplan.com/sites/default/files/2024-03/ 

03.27.24-Proposed-CAT-NMS-Plan-AmendmentCost-Savings-Amendment.pdf. However, one 

commenter speaking generically about server and 

technology cost associated with message traffic 

stated that these costs were ‘‘proportional to the 

increase in message traffic.’’ See FIF Letter at 9. 

Consequently, there is uncertainty regarding the 

exact relation between CAT costs and equity 

message traffic. However, to facilitate estimates of 

the effect of the amendments on CAT costs, the 

Commission makes the assumption that CAT costs 

are linear in message traffic—knowing that there is 

uncertainty regarding the exact relation. However, 

without some assumption about the relation 

between CAT costs and message traffic, no 

inference could be made. To the extent that CAT 

costs are convex or concave—rather than linear— 

in message traffic then the actual costs associated 

increments within a penny-wide spread 

for a given security,’’ these amendments 

will ‘‘significantly increase the capacity 

requirements for market participants to 

process these additional quotation 

messages.’’ 1324 Specifically the 

commenters stated that the additional 

message traffic could impact CAT costs 

which they state was not analyzed by 

the Commission.1325

Commenters also stated that increased 

message traffic can increase market 

participants’ technological needs in 

terms of computing and processing 

requirements.1326 Some commenters 

stated that more message traffic could 

slow down markets as it would take 

more time for market participants to 

process the increased data, this could in 

turn disrupt trading strategies.1327

Another commenter stated that 

increased message traffic would lead to 

increased technology costs in terms of 

server, processor, and storage 

requirements needed to deal with 

increased message traffic.1328 One 

commenter stated that significant 

increases in message traffic can cause 

technological difficulties for the 

exchanges.1329 Another commenter 

stated that increased message traffic 

would give an advantage to 

sophisticated algorithmic traders who 

have a greater capacity to manage the 

cost of the data and could better apply 

the data itself.1330

The Commission recognizes the 

potential for these costs articulated by 

the commenters, and considers the 

information provided. However, the 

Commission expects these effects, 

including the effect on CAT costs, to be 

mild. This conclusion stems from 

experience in options markets, which, 

as discussed above, experience 

considerably more message traffic than 

equity markets without significant 

adverse effects.1331 It also stems from 

research provided by commenters that 

gives a framework for estimating the 

increase in message traffic and the costs 

of such an increase which will now be 

discussed suggesting an estimated 

overall increase in technology costs to 

market participants of approximately 

1%, and an estimated increase in CAT 

costs of approximately $4.1 million. 

The amendments add one additional 

tick intra-spread for some stocks. The 

Commission expects the increase in 

message traffic from this increase to be 

mild. One commenter referenced 

research performed by one of the 

exchanges suggesting that each 

additional tick intra-spread adds 20% to 

message traffic.1332 This research 

suggests message traffic could increase 

20% for stocks receiving the smaller tick 

size. The Commission expects 74% of 

share volume to receive the smaller tick, 

and the remaining share volume to be 

unchanged by the amendments. 

Multiplying 74% by 20% suggests that, 

based on the information provided by 

commenter, it is reasonable to believe 

total message traffic may increase by 

about 15% due to the amendments. 

Accordingly, the costs associated with 

this increased message traffic on most 

market participants are expected to be 

relatively small. One commenter 

estimated that the proposed rule would 

lead to an increase in total infrastructure 

costs of 10% due to increased message 

traffic.1333 Using the above methodology 

we estimate that if the proposal would 

have led to an increase in message 

traffic related costs of 10%, as suggested 

by the commenter, and if the costs of 

message traffic are proportional to the 

increase in message traffic, then by this 

reasoning, the adopted amendments, 

which create fewer ticks, will be 

associated with an increased 

infrastructure costs of approximately 

1%.1334 Additionally, another exchange, 

commenting on the Proposing Release 

which had more and smaller ticks than 

the adopted amendments, estimated that 

the increase in message traffic due to the 

proposal would be relatively small 

compared to historical variation.1335

Commenters asked the Commission to 

estimate the effect of the tick size 

reduction on CAT costs via the 

mechanism of increased message 

traffic.1336 The fourth quarter 2023 CAT 

cloud hosting services costs were $30.47 

million,1337 or $121.88 million if 

annualized. Further, a recent order 

approving an amendment to the NMS 

plan governing CAT stated that equity 

message traffic accounted for 23% of 

total CAT message traffic (with options 

traffic accounting for the remainder).1338

Thus, estimated CAT costs associated 

with equity message traffic equal 

$121.88 million * 23% = $28.03 million. 

Under the assumption that CAT costs 

are linear in message traffic,1339 an 


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with the amendments would be higher or lower that 

what is estimated here. 

1340See Joint Industry Plan, supra note 1338. 

1341See Citadel Letter I at 8, Virtu Letter II at 8, 

10, Citigroup Letter at 4, SIFMA Letter II at 41–42, 

and Lewis Letter attached to Virtu Letter II at p 35. 

See also Lewis Letter attached to Virtu Letter II at 

33 (pointing out that the need to manage increased 

message traffic could lead proprietary data feed to 

become more expensive independent of market 

participant reliance such data products). SRO fees 

are subject to the rule filing process under Exchange 

Act section 19(b) and Rule 19b–4. 15 U.S.C. 78s(b); 

17 CFR 240.19b–4. 

1342See supra section VII.D.1.b.i (discussing the 

smaller tick size fragmenting depth across more 

price levels). 

1343After the MDI Rules are implemented, 

consolidated market data is expected to contain 

depth information for five price levels beyond the 

NBBO, which will help mitigate the effects of a 

reduction in displayed depth at the NBBO from a 

reduction in tick size. See MDI Adopting Release, 

supra note 10, at 18625–30 and 18755–59 for 

further discussions on the content and effects of 

MDI depth of book data. 

1344This could increase the usefulness of both 

exchange proprietary depth of book feeds and MDI 

odd-lot information and depth of book data relative 

to SIP data for stocks with a 0.5 cent tick. However, 

as discussed below, the usefulness of MDI depth of 

book data in comparison to exchange proprietary 

depth of book data may decrease for these stocks. 

1345See supra note 1334 and accompanying text 

(estimating increased infrastructure costs of 

approximately 1% due to an increase in message 

traffic). 

1346SRO fees are subject to the rule filing process 

under Section 19(b) and Rule 19b–4. 15 U.S.C. 

78s(b); 17 CFR 240.19b–4. 

1347SIFMA Letter II at 41–42 stated that the Rule, 

by making NMS data under MDI less competitive 

with proprietary feeds, will offset some of the 

benefits of the MDI Rules. 

1348The MDI NMS data includes information on 

five round lot price levels outside the NBBO. The 

tick reduction implies that the levels may be $0.005 

apart from each other; without the tick reduction, 

the levels would be at least $0.01 apart. Therefore, 

the tick reduction may result in five levels that 

cover orders that are $0.025 outside the NBBO, 

whereas without the tick reduction the five levels 

would cover orders that are $0.05 outside the 

NBBO. It is possible that MDI NMS data will 

include depth that is greater than $0.025 outside the 

NBBO for stocks receiving a tick reduction—this is 

because each displayed level is required to 

comprise at least one round lot worth of shares, and 

odd-lot orders will be aggregated with other orders 

to form a level with a sufficient number of shares 

(with the displayed price equaling the least 

competitive price among the aggregated orders). 

That is, if there is not enough liquidity at a given 

price point within $0.025 of the NBBO, then a price 

point further outside the NBBO will be displayed. 

1349See MDI Adopting Release, supra note 10, at 

18625 nn.387, 388 (discussing levels of depth used 

in order routing and analysis finding that a 

significant percentage of the total notional value of 

all depth of book quotations for both liquid and 

illiquid stocks falls within the first five price 

levels). 

1350See MDI Adopting Release, supra note 10, at 

18731 (discussing analysis showing that only a 

small percentage of orders execute outside the 

NBBO). 

1351See supra section VII.D.1. 

1352See, e.g., SIFMA Letter II at 41–42 and 

Citadel Letter I at 8. 

increase in equity message traffic of 

15% would correspond to an increase in 

CAT costs according to the following 

formula: $28.03 million * 15% 

(expected increase in message traffic) 

≈$4.1 million. Based on this data, we 

estimate CAT costs would increase by 

an estimated $4.1 million per year due 

to increased equity message traffic 

associated with the smaller tick size. 

The CAT NMS Plan requires 

participants and industry members to 

fund the CAT. The funding model for 

the CAT NMS Plan allocates the costs to 

fund CAT among participants and the 

members of a national securities 

exchange or a member of a national 

securities association.1340

Commenters stated that a smaller tick 

size will fragment liquidity in the order 

book and reduce the displayed liquidity 

at the NBBO, which in turn reduces the 

information about liquidity available in 

the market for market participants who 

do not receive depth of book 

information from proprietary data 

feeds.1341 These commenters stated that 

this could increase reliance on and the 

subsequent cost of proprietary data 

products due to the increased need for 

the data and simply due to additional 

data points. 

The Commission acknowledges that, 

in addition to lowering transaction 

costs, the amendments will likely also 

spread depth across more price points 

in the limit order book and reduce 

depth at the NBBO in some stocks with 

a 0.5 cent tick, which could increase the 

complexity and cost associated with 

sourcing liquidity for larger orders.1342

However, the inclusion of odd-lot 

information in consolidated market data 

is anticipated to help to mitigate this 

effect, and the eventual inclusion of 

depth of book information in 

consolidated market data due to the 

implementation of the MDI Rules 

should also help mitigate this effect.1343

Fragmentation of liquidity in the limit 

order book will increase the precision 

and usefulness of information about 

depth of book quotes and odd-lot quotes 

inside the NBBO for some stocks with 

a 0.5 cent tick because orders in these 

stocks will be displayed at half-penny 

increments rather than at penny 

increments, which provides more 

precise information.1344 This will 

increase demand for depth of book data, 

which could cause more market 

participants that currently only 

subscribe to SIP data to purchase 

exchange proprietary depth of book 

feeds. It could also cause some market 

participants that only subscribe to SIP 

data and who previously would not 

have purchased MDI depth of book data 

or odd-lot information to decide to 

purchase one or both of these MDI data 

elements when they become available. 

The Commission acknowledges that the 

amendments could increase the cost 

associated with producing exchange 

proprietary data feeds and MDI data, but 

the cost increases may not be 

significant.1345 Any changes in the 

prices of exchange proprietary data 

feeds would be subject to the SRO fee 

filing process.1346

After the MDI Rules are fully 

implemented, commenters stated that 

the amendments could decrease the 

benefits of MDI data, which will include 

depth of book data for prices with 

quotes that are five levels outside of the 

NBBO.1347 The tick reduction will likely 

alter the information in MDI data for 

some stocks with a 0.5 cent tick, making 

MDI depth of book data less informative 

while increasing the informativeness of 

MDI odd-lot information. The tick 

reduction may generally result in MDI 

depth of book data showing information 

on fewer shares in the order book for 

some stocks with a 0.5 cent tick. More 

specifically, it may no longer include 

some information on orders that are 

$0.03 to $0.05 away from the NBBO in 

some stocks with a 0.5 cent tick.1348

However, the effects of the loss of this 

information may not be significant 

because the MDI depth of book data 

would still show five round lot price 

levels of depth and many market 

participants may not need more than 

five levels of depth of book 

information.1349 Additionally, for stocks 

with a 0.5 cent tick, information about 

depth within $0.025 of the NBBO may 

be more valuable than information 

about depth that is deeper in the book 

(e.g., between $0.03 and $0.05 of the 

NBBO), because only a relatively small 

portion of marketable orders execute at 

prices outside the NBBO.1350 Further, 

for stocks that have the $0.005 tick, MDI 

odd-lot information about odd-lots 

inside the NBBO will likely be more 

valuable because it will show these oddlots on a finer grid—as long as the 

NBBO spread is $0.01 or more, the tick 

reduction allows investors using MDI 

NMS data to see odd-lots at finer halfpenny increments. For stocks that retain 

the one cent tick size, the tick size 

amendments are unlikely to affect the 

informativeness of MDI depth of book 

data or odd-lot information because the 

amendments are unlikely to change the 

trading environment, including odd-lot 

quotes inside the NBBO and depth in 

the limit order book.1351

Commenters stated that reducing the 

tick size would make MDI data less 

competitive with exchange proprietary 

data feeds.1352 The tick reduction may 


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1353 In the MDI Adopting Release, the 

Commission stated that it believes that the total fees 

for the equivalent of consolidated market data are 

likely to decline because of the MDI Rules, but 

recognizes uncertainty about how the effective 

national market system plan(s) will set the fees for 

data content underlying consolidated market data 

offerings and how SROs will set the fees for 

connectivity necessary to receive the data content 

underlying consolidated market data as well as how 

the competing consolidators will price their 

services. See MDI Adopting Release, supra note 10, 

at 18772. 

1354This would apply to both market participants 

that would have self-aggregated the MDI depth of 

book data and odd-lot information or purchased it 

from a competing consolidator. See MDI Adopting 

Release, supra note 10, at 18793–95 for discussions 

on market participants substituting consolidated 

market data for exchange proprietary feeds. 

However, as discussed above, demand for MDI 

depth of book data could increase for market 

participants that currently rely on SIP data. 

1355See MDI Adopting Release, supra note 10, at 

18793–95 for discussions on market participants 

substituting consolidated market data for exchange 

proprietary feeds and related transfers. 

1356See infra section VII.D.4.b for additional 

discussions of why low latency traders may not 

substitute odd-lot information from the exclusive 

SIPs for exchange proprietary feeds. 

1357See 17 CFR 242.612(a)(1), defining the 

evaluation period to assign a tick size as ‘‘(i) the 

three months from January through March of a 

calendar year and (ii) the three months from July 

through September of a calendar year during which 

the Time Weighted Average Quoted Spread of an 

NMS stock shall be measured by the primary listing 

exchange to determine the minimum pricing 

increment for each NMS stock,’’ and 17 CFR 

242.612(b)(1), and specifying the pricing increment 

will be operative ‘‘(i) the first business day of May 

for the Evaluation Period from January through 

March and continue through the last business day 

of October of the calendar year, and (ii) the first 

business day of November for the Evaluation Period 

from July through September and continue through 

the last business day of April of the next calendar 

year.’’ 

1358See NYSE Letter I at 4. 

1359See FIA PTG Letter II at 2, Optiver Letter at 

2, and MMI Letter at 6. 

1360See NYSE Letter I at 4. 

1361See Pragma Letter at 6. 

1362See FIA PTG Letter II at 2, UBS Letter at 13, 

Citigroup Letter at 2, BlackRock Letter at 9, Hudson 

River Letter at 3, JPMorgan Letter at 4, Morgan 

Stanley Letter at 3, State Street Letter at 3, and MMI 

Letter at 6. 

1363See TradeStation Letter at 5. 

1364See Mitre Corp. Letter at 5 and MEMX Letter 

at 16. 

1365See RBC Letter at 3, T. Rowe Price Letter at 

4, and IEX Letter I at 7. T. Rowe Price and IEX both 

suggested a 1-month gap. RBC suggested ‘‘an 

appropriate amount of time to be informed of any 

changes in order to implement them, and to 

minimize errors as much as possible.’’ 

1366See Proposing Release, supra note 11, at 

80324. 

1367Likewise, two stocks with equal average 

quoted spreads may not be equally tick-constrained. 

For example, one stock with a $0.02 average quoted 

spread could have a $0.01 quoted spread 40% of 

the time while another has a $0.01 quoted spread 

10% of the time. The effect of the Rule on market 

quality could differ in much the same way as the 

effects described in this paragraph. Additionally, 

some commenters inquired about how stock splits 

and reverse splits would be handled; see SIFMA 

cause some market participants that 

currently utilize exchange proprietary 

depth of book feeds, and would have 

replaced them with MDI depth of book 

data and odd-lot information if it was 

available at a lower cost,1353 to no 

longer substitute MDI depth of book 

data and odd-lot information for 

proprietary feeds.1354 Proprietary feeds 

will likely gain certain advantages over 

MDI depth of book data as a result of the 

tick reduction. First, self-aggregators 

and competing consolidators relying on 

MDI depth of book data may not be able 

to provide information on depth for 

orders that are between $0.03 and $0.05 

away from the NBBO for some stocks 

that have been assigned a $0.005 tick 

size because the MDI depth of book data 

only provides data on depth at 5 round 

lot price levels. Second, in cases where 

there is insufficient liquidity at a given 

price level to form a round lot due to the 

reduction in the tick spreading liquidity 

out across more levels, self-aggregators 

and competing consolidators relying on 

MDI depth of book data will not be able 

to provide information on depth at each 

price point beyond the NBBO, but will 

rather only have information on 

liquidity that is aggregated over 

multiple price points to compose a 

round lot; proprietary feeds, on the 

other hand, can offer information on 

available liquidity at each price point. 

These two advantages may lead some 

market participants that would have 

substituted MDI depth of book data for 

exchange proprietary depth of book 

data, if it was available at a lower cost 

once it was implemented, not to do so 

due to the tick reduction. To the extent 

this occurs, it would result in a transfer 

from competing consolidators and the 

market participants who would have 

substituted MDI depth of book data for 

their proprietary feeds to exchanges, 

because these market participants will 

continue paying, and exchanges will 

continue to receive revenue, for their 

proprietary data feeds.1355 On the other 

hand, to the extent that the tick size 

reduction increases the usefulness and 

demand for depth of book data—as 

discussed above—some market 

participants that currently rely on SIP 

data may be able to satisfy their 

increased data needs by purchasing MDI 

odd-lot information and depth of book 

data from a competing consolidator 

once the MDI rules are 

implemented.1356

d. Analysis of the Length of Evaluation 

and Operative Periods 

The adopted amendments specify 

three-time periods that govern tick 

assignment.1357 First are the periods 

that a new tick size is operative. The 

adopted rules update the tick size twice 

a year, so they set this period at six 

months. Second, the rules set the ticks 

based on two backward-looking threemonth Evaluation Periods over which 

NMS stocks’ TWAQS is measured; if the 

TWAQS is at or below $0.015 during 

this Evaluation Period, then the stock 

will be assigned a half-penny tick. 

Otherwise, it will receive a penny tick. 

Finally, there is a one-month gap 

between the Evaluation Period and the 

initiation of the subsequent tick size. 

The January through March Evaluation 

Period will determine the tick for the 

May through October operative period. 

Likewise, the July through September 

Evaluation Period will determine the 

tick for November through April of the 

subsequent calendar year. 

Commenters highlighted a tradeoff 

with respect to the proposed backwardlooking evaluation period. On one hand, 

a short period ‘‘uses the period 

immediately closest in time to measure 

securities’ behavior to ensure that tickconstrained names are selected using 

the most recent and relevant basis 

. . .’’ 1358 On the other hand, a short 

period may place too much emphasis on 

idiosyncratic and unrepresentative 

events.1359

Commenters also highlighted a 

tradeoff regarding the proposed length 

of the operative period. Frequent 

updating will allow tick assignment to 

more quickly react to changes in the 

‘‘market environment and individual 

stock behavior . . .’’; 1360 quicker 

updating would thereby ‘‘reduce how 

often and for how long a stock’s tick size 

stays outside the optimal range.’’ 1361

However, more frequent updating may 

impose costs in terms of adjustments to 

algorithms, operations, trading models 

and systems,1362 customer 

complaints,1363 and tick size 

oscillation.1364

Commenters also discussed the 

importance of a gap between the 

proposed evaluation period and the 

beginning of the subsequent tick size to 

give industry time to update systems 

and avoid disruptions.1365 The proposal 

did not include a gap between the 

evaluation period and the subsequent 

tick size, so the Commission has 

evaluated the tradeoffs in response to 

commenters’ concerns. 

The Commission acknowledges, as it 

did in the Proposing Release,1366 that 

quoted spreads are not static from day 

to day. It is possible that a stock could 

have a narrow quoted spread during an 

evaluation period, and thus be assigned 

a $0.005 tick, and then during the 

following operative period it could 

experience points in time where the 

quoted spread is much wider.1367


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Letter II at 42 and Virtu Letter II at 18. Stock splits 

and reverse splits can mechanically affect the bidask quoted spread and are not considered in the 

evaluation periods, thus it is possible that a stock 

could temporarily be misassigned to a tick size due 

to a split or reverse split. These effects would be 

temporary and would rectify in the next evaluation 

period. See supra section III.C.8 for further 

discussions of how tick sizes are assigned following 

a stock split or reverse split. 

1368See supra note 11, at 80324. 

1369The evaluation periods in this analysis were 

chosen to cover a range of time periods for both the 

evaluation period and the operative effective period 

suggested by commenters who suggested time 

horizons ranging from monthly updating to annual 

updating, see, e.g., Pragma Letter at 6, BlackRock 

Letter at 9, FIA PTG at 2, UBS at 13. Although 

commenters suggested 6-month evaluation periods, 

the analysis here considers five-month evaluation 

period specifically so that the evaluation period 

would not encompass two tick regimes when 

combined with a six-month operative period and a 

one month lagged implementation. For example, 

consider the six-month operative period spanning 

May to October (which includes a one month lagged 

implementation); the next six-month evaluation 

period would span April to September, thus 

including two distinct tick regimes. The five-month 

evaluation period would only span May to 

September, which is wholly contained in the most 

recent operative period. An evaluation period that 

encompasses two tick regimes may be less 

informative of the appropriateness of the current 

tick assignment; therefore, table 10 uses a fivemonth evaluation period instead of a six-month 

evaluation period. 

1370The operative periods were chosen to cover 

a range of intervals, and to fit evenly into a twelvemonth calendar year. In this way, any changes to 

the tick size would occur in the same month(s) of 

each year. 

1371For example, suppose the month is April 

2018. To compute the statistics for an evaluation 

length of three months and an operative length of 

six months, the tick size for May 2018 through 

August 2018 is set by the symbol’s TWAQS from 

January 2018 through March 2018. The statistics in 

the table are determined by symbols’ trading during 

the May 2018 through August 2018 period (the 

operative period). This process is repeated for every 

month from January 2018 to June 2022, and the 

table summarizes results across all months. 

1372See supra section VII.D.1.b.ii for a discussion 

of the effect of the reduction in the tick on quoted 

spreads, and section VII.D.2 for a discussion of the 

effect of the reduction in the access fee cap on 

quoted spreads. 

Likewise, a stock could have a wide 

quoted spread during an evaluation 

period and therefore be assigned a $0.01 

tick, yet subsequently trade with a 

narrower spread such that a $0.005 tick 

would be beneficial. The extent to 

which these outcomes occur will 

depend on the length of the evaluation 

period, the operative period, and the lag 

between the two. 

The Commission evaluates the 

tradeoffs mentioned above by 

computing diagnostic statistics for many 

different combinations of evaluation 

and operative periods. The four panels 

of table 10 each present different 

diagnostics: panel A estimates the 

fraction of aggregate share volume that 

is misassigned to a tick of $0.01, panel 

B estimates the fraction of aggregate 

share volume that is misassigned to a 

tick of $0.005, panel C estimates the 

rates of false positives, and panel D 

estimates the rates of false negatives. 

Table 10 is similar to table 10 of the 

Proposing Release,1368 which estimated 

in the context of the proposal the 

fraction of aggregate volume that would 

receive a tick reduction yet trade with 

too many intra-spread ticks during the 

subsequent three months. Table 10 

herein extends this analysis by: 

computing a wider range of diagnostic 

statistics, computing the statistics on a 

rolling basis for a 4.5-year sample, 

computing the statistics for a wide 

variety of period lengths, and 

incorporating a one-month lag between 

the evaluation period and the 

implementation of the tick updates as 

provided for in the adopted 

amendments. 

Each diagnostic in table 10 is 

computed for sixteen combinations of 

evaluation and operative periods—four 

evaluation period lengths, and four 

operative period lengths. The evaluation 

period lengths include: one month, 

three months (as suggested in the 

proposal and finalized in the adopted 

amendments), five months, and twelve 

months.1369 The operative period 

lengths include: one month, three 

months (as suggested in the proposal), 

six months (as in the adopted 

amendments), and twelve months.1370

The calculations incorporate a onemonth lag between the evaluation 

period and the implementation of the 

updated tick size—which was not part 

of the proposal but is part of the 

adopted amendments. Further, each 

diagnostic is computed for every month 

from January of 2018 to June of 2022. 

That is, the Commission simulates the 

tick assignment procedure on a rolling 

basis for every month of the 4.5-year 

sample and computes the diagnostics at 

every month.1371 Each diagnostic is 

therefore computed under each of the 

sixteen combinations of periods and for 

each of the 54 months in the sample, for 

a total of 864 calculations per 

diagnostic. The panels in table 10 

summarize the diagnostics over the 54 

months and present a single number for 

each of the sixteen combinations of 

periods. 

The diagnostics computed in table 10 

are subject to the following caveat: they 

are estimated from historical data in 

which the access fee cap was set at 30 

mils, and stocks were constrained by the 

$0.01 tick. The amendments will reduce 

the access fee cap to 10 mils for all 

stocks and will reduce the tick to $0.005 

for stocks that maintain a TWAQS at or 

below $0.015 during the evaluation 

period. These changes are likely to have 

two opposing effects on quoted spreads: 

the reduction in the access fee cap will 

put upward pressure on quoted spreads, 

while the reduction in the tick will 

allow quoted spreads to fall below $0.01 

for some NMS stocks.1372

This caveat implies that the estimates 

in table 10 will be systematically 

different from the same statistics 

calculated with realized data—i.e., data 

after the rule is implemented. However, 

the purpose of the analysis in table 10 

is to detect patterns in how the 

diagnostics vary across combinations of 

evaluation and operative periods. These 

patterns are likely to be robust to the 

aforementioned caveat. For example, 

suppose the reduction in the access fee 

cap causes a stock’s quoted spread to 

widen by 20 mils; this effect would 

occur whether the Evaluation Period is 

three months or twelve months, and 

whether the operative period is one 

month or six months, etc. Therefore, 

table 10 can still inform the choice of 

evaluation and operative period. The 

subsequent discussion of table 10 will 

further highlight when a diagnostic may 

be over- or under-estimated. 

Panel A of table 10 estimates the 

fraction of aggregate share volume that 

is misassigned to a tick size of $0.01. A 

stock’s volume is misassigned to a 

penny tick if its average TWAQS is 

above $0.015 during the most recent 

evaluation period, yet trades with a 

TWAQS below $0.015 in the operative 

period. This trading volume would have 

benefited from a lower tick of $0.005 in 

those subsequent months and is 

therefore considered a false negative. 

The fraction of aggregate share volume 

that is a false negative is reported in 

panel A. Further, this fraction is 

reported for every combination of 

evaluation period and operative period. 

Looking at the false negatives in panel 

A, the table demonstrates that shorter 

periods tend to reduce the percent of 

volume that is misassigned to a $0.01 

tick. One can pick any evaluation length 

shown in the table (1, 3, 5, or 12). For 

that evaluation length, the fraction of 

aggregate share volume that occurs with 

a $0.01 tick and maintains a TWAQS at 

or below $0.015 is increasing in the 

operative period. In other words, more 

frequent updating provides greater 

benefits, on average, for any choice of 

evaluation period. For example, an 

evaluation period of 3 months with a 1- 

month operative period will misassign 

9.4% of trading volume to a tick of 

$0.01; if the same evaluation period is 

used but the tick is updated annually, 

then the fraction of misassigned trading 

increases to 12.9%. Similarly, one can 


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1373The empirical analysis in section VII.D.1.b.ii, 

suggesting that a lower tick size benefits tickconstrained stocks, is an ‘‘on average’’ result. While 

the Commission expects that a lower tick would on 

average decrease transaction costs for tickconstrained stocks, the Commission cannot rule out 

the possibility that for some of these stocks, a 

smaller tick could lead to wider quoted spreads. For 

these stocks, if quoted spreads increase to a 

sufficient degree, then the stock could be reassigned a wider tick after the next evaluation 

period. 

1374 If false positives are over-estimated, as 

discussed in the previous paragraph, then the 

relative importance of false negatives becomes 

greater still. 

1375The greater prevalence of false negatives may 

be due to the existing $0.01 tick size effectively 

censoring the observed quoted spreads at the penny 

tick. For symbols near the $0.015 threshold, the 

prevalence of false positives and negatives should 

be approximately equal—i.e., a symbol with a 

quoted spread of $0.0149 is as likely to cross over 

the $0.015 threshold (and be a false positive) as a 

symbol with a quoted spread of $0.0151 is likely to 

cross under the $0.015 threshold (and be a false 

negative). When we move away from the threshold, 

however, the low-tick symbols are more likely to be 

constrained by the penny tick—if we see a TWAQS 

of $0.012, the true market-clearing quoted spread— 

i.e.,unconstrained by the minimum tick—is likely 

lower than $0.012 because the TWAQS is censored 

at $0.01; if we see a TWAQS of $0.018, however, 

this censoring is less important. Therefore, the 

likelihood that a symbol with a TWAQS of $0.012 

crosses over the $0.015 threshold (and is recorded 

as a false positive) is lower than the likelihood that 

a symbol with a TWAQS of $0.018 crosses under 

the $0.015 threshold (and is recorded as a false 

negative). 

1376To take an extreme example, suppose every 

stock’s quoted spread increases by $0.10 

immediately after new ticks are assigned. This 

implies that no stock should have a tick of $0.005. 

In this case, the evaluation and operative periods 

that assign the least amount of trading to the $0.005 

would do best. Conversely, suppose that quoted 

spreads fall by half immediately after new ticks are 

assigned; in this case, the periods that assign more 

trading to the $0.005 tick would generally do better. 

1377 In the statistics and medicine literature, the 

false positive rate is related to a test’s specificity, 

while a false negative rate is related to a test’s 

sensitivity. 

pick any column corresponding to the 

operative period (1, 3, 6, or 12) and 

observe that the prevalence of false 

negatives is increasing with the length 

of the evaluation period. These patterns 

are consistent with commenters’ views 

that more recent (and relevant) data 

tend to increase the benefits of the 

amendments. 

A tick size can be misassigned in a 

second way: a stock may be assigned a 

tick of $0.005 yet end up trading with 

an average quoted spread over $0.015. 

This trading volume may not fully 

benefit from the lower tick and is 

therefore considered a false positive. If 

the quoted spread widens sufficiently, 

relative to the quote, then the stock 

could trade in a range of ticks intraspread that may harm market 

quality.1373 The fraction of aggregate 

volume that is a false positive is 

reported in panel B of table 10 for every 

combination of evaluation period and 

operative period. This is analogous to 

table 10 of the Proposing Release, but 

with a quoted spread threshold of 

$0.015 instead of 10 or 15 ticks to align 

with the adopted amendments. 

Panel B shows that, for the adopted 

rule choices of a 3-month Evaluation 

Period and a 6-month operative period, 

3.4% of share volume will receive a 

$0.005 tick yet trade in an environment 

with an TWAQS over $0.015. It is 

possible that the reduction in the tick 

size could cause a worse trading 

environment for some of this fraction of 

trading volume, compared to what the 

trading environment could have been 

had the stock retained a $0.01 tick. This 

effect will not be indefinite because, if 

a stock’s quoted spread remains 

elevated, then at the end of the next 

evaluation period the stock will be 

assigned a wider tick—mitigating the 

negative consequences of having a tick 

size that is too narrow relative the 

quoted spread. 

The false positive statistics in panel B 

of table 10 further show that less 

frequent tick updating tends to result in 

more volume trading with a smaller tick 

yet a relatively wide quoted spread. 

This can be seen by the increased 

prevalence of false positives as one 

moves left-to-right along a row—for any 

chosen evaluation period, a longer 

operative period results in more volume 

trading at a low-tick yet relatively wide 

quoted spread. This pattern is consistent 

with commenters’ views that more 

frequent updating is better at adapting 

to changing market trends and stock 

behavior. Similarly, moving down any 

given column shows that increasing the 

evaluation period tends to reduce the 

amount of volume in low-tick stocks 

with wide quoted spreads; this pattern 

is consistent with commenters’ views 

that short evaluation periods may, in 

some circumstances, assign stocks to the 

$0.005 tick on the basis of transient 

events, and that these stocks may not be 

able to sustain the tick reduction. 

The estimates of false positives in 

panel B of table 10 are likely to be overestimates for two reasons. First, the 

threshold for tick misassignment is 

chosen at a quoted spread of $0.015, 

which corresponds to three intra-spread 

ticks. The above analysis on the Tick 

Size Pilot indicates that the trading 

environment does not deteriorate until 

the number of intra-spread ticks is well 

above three. Hence, the chosen 

threshold is conservative. Second, and 

as previously discussed, the estimates in 

panel B are constructed from historical 

data in which stocks were constrained 

by the $0.01 tick. Once these 

amendments are implemented the 

stocks assigned a $0.005 tick will be 

able to trade at quoted spreads below 

$0.01; this will have a mechanical effect 

of lowering the stocks’ TWAQS and 

thereby keeping more volume under the 

$0.015 quoted spread threshold. 

By comparing the magnitudes of the 

false negatives and false positives in 

panels A and B of table 10, we can 

assess the relative importance of the two 

ways in which a tick may be 

misassigned. The false negatives are 

generally substantially larger and 

exhibit greater variation within the 

table.1374 This implies that the 

incremental effect of the choice of 

period length will be greater for the 

share of volume that is misassigned to 

a $0.01 tick than for volume that is 

misassigned to a $0.005 tick. For 

example, the difference between the 

highest and lowest fraction of false 

negatives is 12.3%—this is the increase 

in aggregate share volume at a 

misassigned $0.01 tick when moving 

from 1-month periods to 12-month 

periods—while the difference between 

the highest and lowest fraction of false 

positives is only 1.8% of aggregate share 

volume.1375

An advantage of panels A and B of 

table 10 is that they estimate the 

prevalence of false negatives and 

positives as fractions of aggregate share 

volume; these panels therefore show the 

amount of aggregate trading that is 

misassigned to a tick. A disadvantage of 

panels A and B is that they do not 

condition on the aggregate level of 

quoted spreads. Some combinations of 

evaluation and operative periods may 

do relatively well when aggregate 

quoted spreads are high, and some 

combinations may do better when 

aggregate quoted spreads are low.1376

Panel C and D of table 10 address the 

aforementioned disadvantage of panels 

A and B by estimating rates of false 

negatives and positives. The false 

negative rate conditions on the amount 

of low- quoted spread volume, while the 

false positive rate conditions on the 

amount of high- quoted spread 

volume.1377 Specifically, the rate of 

false negatives is measured as the 

amount of share volume that occurs 

with a tick of $0.01 and a TWAQS 

under $0.015, divided by the total 

amount of share volume that occurs 

with a TWAQS under $0.015. 

Analogously, the rate of false positives 

is measured as the amount of share 

volume that occurs with a tick of $0.005 

and a TWAQS over $0.015, divided by 

the total amount of share volume that 


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occurs with a TWAQS over $0.015. In 

the context of the evaluation period, a 

low false negative rate signifies effective 

identification of stocks that would 

benefit from a tick reduction, while a 

low false positive rate suggests effective 

avoidance of assigning a reduced tick to 

stocks that would not benefit from it. In 

contrast to panels A and B, patterns in 

panels C and D of table 10 are likely to 

be more robust to market-wide changes 

in quoted spreads. 

Panel C of table 10 presents results for 

the false negative rates across 16 

combinations of evaluation periods and 

operative periods. The pattern for false 

negative rates is similar to the fraction 

of share volume inappropriately 

assigned a $0.01 tick in panel A—as the 

period lengths shorten, the false 

negative rates decrease. For example, an 

evaluation period of 3 months with 

monthly updating typically fails to 

assign a tick reduction to 12.8% of 

volume that would benefit from it. If the 

same evaluation period is used but the 

tick is updated annually, then the rule 

would fail to assign a tick reduction to 

19.3% of volume that would benefit 

from it. The pattern holds moving down 

columns and moving across rows from 

shorter to longer periods. This lends 

support to commenters’ views that more 

recent data—from shorter evaluation 

periods and more frequent updating— 

tends to do a better job at assigning a 

low tick to stocks that will benefit from 

it in the operative period. 

False positive rates are reported in 

panel D. The pattern for false positive 

rates is consistent with results in panel 

B on the fraction of volume 

inappropriately assigned a $0.005 tick— 

shorter evaluation periods and longer 

operative periods tend to have higher 

false positive rates, indicating that more 

trading is potentially harmed from 

having too narrow of a tick. For every 

column, the highest false positive rate 

occurs with an evaluation length of 1 

month, and the lowest false positive rate 

occurs with an evaluation length of 12 

months. This indicates that short 

evaluation periods may put more weight 

on transient events, as some 

commenters stated. Similarly, for every 

row the false positive rate is highest 

with an operative period of 12 months, 

and the rate is lowest with an operative 

period of 1 month. This indicates that 

infrequent updating increases the risk 

that a stock is stuck at an 

inappropriately low tick for many 

months. 

The contrasting patterns in the rates 

of false positives and negatives 

illustrates a tradeoff highlighted by 

commenters (and discussed at the 

beginning of this section). A short 

evaluation period uses the most recent 

and relevant information, which on 

average reduces the false negative rate; 

however, a short evaluation period also 

places more emphasis on short-term and 

volatile events, which raises the false 

positive rate. 

TABLE 10—EFFECT OF THE EVALUATION PERIOD ON INAPPROPRIATE TICK ASSIGNMENT

Length of operative period in months 

1 

(%) 

3 

(%) 

6 

(%) 

12 

(%) 

Panel A: Fraction of aggregate share volume assigned a $0.01 tick with a subsequent TWAQS below $0.015 (i.e., false negatives) 

Length of evaluation period in months: 

1 ........................................................................................................ 8.5 9.4 10.7 12.9 

3 ........................................................................................................ 11.4 12.4 13.7 15.8 

5 ........................................................................................................ 13.1 14.1 15.3 17.3 

12 ...................................................................................................... 17.0 17.8 18.9 20.8 

Panel B: Fraction of aggregate share volume assigned a $0.005 tick with a subsequent TWAQS above $0.015 (i.e., false positives) 

Length of operative period in months: 

1 ........................................................................................................ 3.1 3.3 3.8 4.3 

3 ........................................................................................................ 2.6 2.9 3.4 3.8 

5 ........................................................................................................ 2.6 2.9 3.2 3.6 

12 ...................................................................................................... 2.5 2.7 2.9 3.2 

Panel C: False negative rates 

Length of operative period in months: 

1 ........................................................................................................ 12.8 14.2 16.2 19.3 

3 ........................................................................................................ 17.4 18.8 20.6 23.6 

5 ........................................................................................................ 19.9 21.2 23.0 25.9 

12 ...................................................................................................... 25.7 26.9 28.6 31.2 

Panel D: False positive rates 

Length of operative period in months: 

1 ........................................................................................................ 8.5 9.4 10.9 12.6 

3 ........................................................................................................ 7.2 8.2 9.6 11.2 

5 ........................................................................................................ 7.1 8.1 9.3 10.6 

12 ...................................................................................................... 6.8 7.5 8.4 9.5 

aFor every month from January 2018 to June 2022, the Commission simulates the tick assignment procedure under 16 combinations of evaluation and operative period lengths. The evaluation period determines the number of prior months to use when averaging each stock’s quoted 

spread; a TWAQS of $0.015 or below during the evaluation period causes the stock to receive a tick of $0.005 during the subsequent tick assignment interval. The operative period determines the length of each tick assignment. 

All the statistics in the tables are computed using data beginning one month after the evaluation period. For example, suppose the month is 

April 2018. To compute the statistics for an evaluation length of 3 months and an operative length of 6 months, the tick size for May 2018 

through August 2018 is set by the stock’s TWAQS from January 2018 through March 2018. The statistics in the table are determined by stocks’ 

trading during the May 2018 through August 2018 period (the operative period). This process is repeated on a rolling basis for every month from 

January 2018 to June 2022, and the table summarizes results across all months. 


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1378The false positive rates are generally lower 

than usual (e.g., below those in Panel B), likely 

because quoted spreads narrowed after March of 

2020. 1379See Citadel Letter I at 6–7. 1380See supra note 1299. 

TWAQS is determined by computing the time weighted quoted spread during regular trading hours as computed by the WRDS intra-day indicators for every sym_root and sym_suffix combination in the dataset. When calculating a stock’s TWAQS during an evaluation period, the stock’s 

daily TWAQS is averaged across all trading days in the evaluation period. 

When assigning volume to a TWAQS bucket in an operative period, the TWAQS on a given day for a particular stock is used. That is, if a 

stock trades with a TWAQS of $0.011 on Monday but the same stock has a TWAQS of $0.016 on Tuesday, then its volume on Monday is assigned to the sub-$0.015 category while its Tuesday volume is assigned to the over-$0.015 category in the operative period. 

The universe of securities in the WRDS intra-day indicators dataset is used. 

Panel A computes the fraction of total aggregate share volume that occurs in stocks that would have been assigned a $0.01 tick yet subsequently trade at a TWAQS of under $0.015 in the operative period. These stocks would benefit from a $0.005 tick instead of a $0.01 tick. 

Panel B computes the fraction of total aggregate share volume that occurs in stocks that would have been assigned a $0.005 tick yet subsequently trade at a TWAQS of over $0.015 in the operative period. These stocks may not benefit from the $0.005 tick. 

Panel C computes false negative rates. The false negative rate is the fraction of share volume that is assigned a tick of $0.01 among the 

share volume that trades with a TWAQS under $0.015 in the operative period. 

Panel D computes the false positive rates. The false positive rate is the fraction of share volume that is assigned a tick of $0.005 among the 

share volume that trades with a TWAQS above $0.015 in the operative period. 

Table 11 further explores 

commenters’ discussions about the risk 

of placing too much emphasis on 

transient market conditions. In 

particular, panels A and B of table 11 

computes rates of false negatives and 

positives—similar to panels C and D of 

table 10—but does so using only the 

evaluation period that ends with March 

of 2020. The one-month evaluation 

period includes only March of 2020; the 

three-month evaluation period covers 

January to March of 2020; the fivemonth evaluation period covers 

November of 2019 to March of 2020; the 

twelve-month evaluation period covers 

April of 2019 to March of 2020. In this 

way, panels A and B of table 11 

demonstrate what may happen if an 

unusual market event causes an 

inappropriate tick assignment. These 

panels show that a one-month 

evaluation period performs particularly 

poorly when that month is March of 

2020. Specifically, the one-month 

evaluation period exhibits a 

substantially higher false negative 

rate.1378 A three-month evaluation 

period consistently has the lowest false 

negative rate—it has the benefit of 

recent data without an over-reliance on 

short-term fluctuations. Finally, the 

false positive rates in panel B 

approximately double when moving 

from a six-month operative period to a 

twelve-month operative period, 

indicating that infrequent tick updating 

can lead to stocks getting stuck with an 

inappropriately low tick for an extended 

period. 

Panels A and B of table 11 add to our 

understanding of the tradeoff presented 

by the evaluation period. Table 10 

suggests that short evaluation periods 

tend to reduce false negatives but 

increase false positives. Given that false 

negatives (vs. false positives) tend to be 

more prevalent and vary more across 

evaluation periods, table 10 suggests 

that a one-month evaluation period may 

be best. However, table 11 shows that a 

one-month evaluation period may 

substantially increase false negatives 

when the evaluation period includes a 

period of unusual market stress. 

While panels A and B of table 11 

includes March of 2020 in the 

evaluation period, one commenter also 

provided, in the context of the 

Proposing Release, analysis using March 

of 2020 in the operative period. This 

commenter stated that during times of 

market stress, ‘‘many symbols would be 

trading with far more price levels intraspread than contemplated under the 

Proposal, thereby further increasing the 

liquidity-related harms . . .’’ The 

commenter further showed that, were 

the proposed rule in effect, most 

symbols receiving a tick reduction 

would have experienced over ten intraspread ticks during March of 2020, and 

many stocks would have experienced 

over twenty intra-spread ticks.1379

The Commission acknowledges that 

quoted spreads generally widen during 

periods of market stress, and this may 

result in stocks trading with more intraspread ticks than is desirable; the rise in 

intra-spread ticks may then compound 

the market stress. Relative to the 

proposal, the amendments reduce the 

severity of such an outcome by reducing 

the number of stocks that receive a tick 

reduction, and by reducing the size of 

the tick reduction. To further examine 

this issue, the Commission conducts its 

own analysis with March of 2020 as the 

operative period. In particular, the 

Commission simulates tick assignment 

in February of 2020 under the 

parameters of the amendments, and 

then examines the outcome during 

March of 2020. The simulation is done 

for a range of evaluation periods—a onemonth evaluation period uses January of 

2020 to determine which stocks receive 

the $0.005 tick in March (allowing for 

a one-month lag), a three-month 

evaluation period uses November of 

2019 to January 2020 to assign ticks, a 

five-month evaluation period uses 

September of 2019 to January 2020, and 

a twelve-month evaluation period uses 

February of 2019 to January 2020. The 

Commission then examines the fraction 

of aggregate share volume that would 

have received a $0.005 tick under the 

amendments yet traded with a wide 

quoted spread during an operative 

period of March 2020. 

Results are presented in panel C of 

table 11. Each row corresponds to an 

evaluation length of 1, 3, 5, or 12 

months. Each column corresponds to a 

quoted spread threshold of $0.015, 

$0.02, or $0.05. The upper-left 

number—21.4%—indicates that 21.4% 

of aggregate share volume in March of 

2020 would have occurred with a 

$0.005 tick and a TWAQS over $0.015. 

With a three-month evaluation period, 

this fraction halves to 10.6%, further 

reinforcing the conclusion of panel A 

that a one-month evaluation period may 

do particularly poorly when market 

conditions suddenly worsen. The 

Commission further reiterates that 

stocks receiving a $0.005 tick are 

unlikely to be harmed when trading at 

a quoted spread of $0.015, so it is 

unlikely that 10.6% of share volume 

would have been harmed in March of 

2020 were the amendments in place. To 

further explore this issue, the 

Commission performs similar 

calculations with wider quoted spread 

thresholds of $0.02 and $0.05. With a 

three-month evaluation period, the 

fraction of aggregate share trading that 

receives a $0.005 tick and trades at a 

quoted spread over $0.02 is 6.4%; this 

reduction (from 10.6% trading at a 

quoted spread over $0.015) indicates 

that a substantial proportion of the false 

positive trading during March of 2020 is 

occurring with 3–4 intra-spread ticks, 

which is generally in line with 

commenters’ views on the optimal 

number of intra-spread ticks.1380


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1381See supra section VII.D.1.b.ii, particularly 

figure 2 and surrounding discussion. 

1382 In panels A–D of table 10 and panels A–B of 

table 11, moving left-to-right along any row results 

in a monotonic increase in both false positives and 

false negatives. The only exception to this pattern 

is in Panel A of table 11: with an evaluation period 

of one-month, the false negative rate falls by 0.8% 

when the operative period increases from one to 

three months. 

1383See Mitre Corp. Letter at 5. 

Finally, with a three-month evaluation 

period, the fraction of aggregate trading 

that receives a $0.005 tick and trades at 

a quoted spread over $0.05 is 1.2%. 

Analysis in the Proposing Release and 

herein suggests that this 1.2% of volume 

is at an increased risk of a reduction in 

market quality due to having over ten 

intra-spread ticks.1381

TABLE 11—EFFECT OF THE EVALUATION PERIOD ON INAPPROPRIATE TICK ASSIGNMENT AROUND MARCH 2020 

Length of operative period in months 

1 

(%) 

3 

(%) 

6 

(%) 

12 

(%) 

Panel A: False negative rates using March of 2020 in the evaluation period 

Length of evaluation period in months: 

1 ........................................................................................................ 36.2 35.4 37.4 40.1 

3 ........................................................................................................ 21.7 22.5 23.7 23.9 

5 ........................................................................................................ 34.7 34.9 36.1 37.4 

12 ...................................................................................................... 30.0 31.7 32.0 33.9 

Panel B: False positive rates using March of 2020 in the evaluation period 

Length of operative period in months: 

1 ........................................................................................................ 1.7 2.6 3.2 8.0 

3 ........................................................................................................ 3.0 4.6 6.0 12.0 

5 ........................................................................................................ 2.6 4.1 5.4 10.2 

12 ...................................................................................................... 3.6 5.0 6.5 11.0 

Panel C: Fraction of March 2020 share volume with a $0.005 tick and wide quoted spreads 

Quoted spread threshold 

AQS > $0.015 

(%) 

AQS > $0.02 

(%) 

AQS > $0.05 

(%) 

Length of evaluation period in months: 

1 ...................................................................................................................................... 21.4 14.4 3.5 

3 ...................................................................................................................................... 10.6 6.4 1.2 

5 ...................................................................................................................................... 12.4 7.6 1.5 

12 .................................................................................................................................... 14.4 9.2 2.0 

aThe Commission simulates the tick assignment procedure under 16 combinations of evaluation and operative period lengths. The methodology and data used for this simulation is described in the note to table 10. 

In contrast to table 10, which performed the simulation on a rolling basis for every month from January 2018 to June 2022, this table only simulates tick assignment and outcomes around March of 2020. 

Panel A repeats the false positive calculations of table 10 as if the tick is assigned in April 2020 (to ensure that March 2020 is in the evaluation period). For example, to compute the statistic for an evaluation length of 3 months and an operative length of 6 months, the tick size for May 

2020 through August 2020 is set by the stock’s TWAQS from January 2020 through March 2020. April 2020 is the hypothetical month in which 

the tick assignment is calculated and acts as the gap between the evaluation period and the operative period. Panel B similarly repeats the false 

negative calculations of table 10 as if April 2020 is the month in which the tick assignment is calculated. 

Panel C instead uses March 2020 as the operative period. For example, to compute the statistic for an evaluation length of 3 months, the tick 

size for March 2020 is assigned by the stock’s TWAQS from November 2019 to January 2020, with February of 2020 being the hypothetical 

month in which the tick assignment is calculated. Panel C computes the fraction of total aggregate share volume that occurs in stocks assigned 

to a $0.005 tick, yet trades at a high TWAQS during March of 2020. The fraction is calculated using a range of TWAQS thresholds for trading 

during March of 2020—the columns correspond to trading with a TWAQS over $0.015, $0.02, and $0.05. 

The analysis indicates that a shorter 

operative period almost always results 

in fewer errors. By updating the tick 

more frequently, the tick better reflects 

changing market conditions—this is 

shown by increasing rates of both false 

negatives and positives as the operative 

period widens.1382 However, 

commenters stated that more frequent 

updates may impose costs in terms of 

adjustments to algorithms, operations, 

systems, and an increase in customer 

complaints. One commenter requested 

that the Commission ‘‘investigate 

historical rates of change in the TWAS 

for a variety of trading symbols. This 

would avoid imposing undue costs on 

market participants that may be caused 

by tick size updates that are too frequent 

but should mitigate the possibility that 

tick sizes do not update frequently 

enough and lead to worse trading 

outcomes.’’ 1383


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1384These estimates of tick changes are likely to 

be over-estimates because the estimates are 

constructed from historical data in which stocks 

were constrained by the $0.01 tick. Once the 

adopted tick amendment is implemented, the stocks 

assigned a $0.005 tick will be able to trade at quoted 

spreads below $0.01; this is expected to lower the 

stocks’ TWAQS, thereby reducing the probability 

that a low-tick stock will experience a tick change 

by crossing over the $0.015 TWAQS threshold. It 

is possible, however, that the amended rule’s 

reduction in the access fee cap may cause quoted 

spreads to widen, though transaction costs are not 

expected to go up, and thus shift the distribution 

of quoted spreads toward the $0.015 threshold; if 

more stocks trade near the $0.015 threshold, then 

there may be more switching as stocks move across 

the threshold more frequently. 

1385See infra section VII.D.5 for additional 

discussion of the expected costs associated with the 

amendments to Rule 612. 

1386With a three-month evaluation period, a sixmonth operative period results in 1,253 annual tick 

changes, while a three-month operative period 

results in 1,969. The increase is therefore calculated 

as: (1969 ¥ 1253)/1253 = 57%. 

1387See 17 CFR 242.612(a)(1), (b)(1) for rule text 

relating to these periods. 

1388The adopted rule additionally syncs the dates 

of tick assignment with the dates of new round lot 

assignments. This further reduces operational 

burdens on market participants. See discussion in 

section VII.D.5.a. 

1389Fidelity Letter at 3; Tastytrade Letter at 18– 

19. 

The Commission examines the 

frequency of tick size updates in table 

12. This table shows the typical number 

of tick-changes that occur in a 12-month 

period under each combination of 

evaluation and operative period 

length.1384 Shorter operative periods 

present a tradeoff, they better tailor the 

tick size to current conditions for the 

stock which can improve market quality 

for the stock, but they impose two costs: 

first, a shorter operative period implies 

ticks are updated more frequently 

during a year, which increases the 

number of discrete system changes that 

market participants need to make. 

Second, a shorter operative period 

increases the number of tick-changes 

that stocks experience during a typical 

twelve-month period—this is seen in 

table 12 by the increase in tick changes 

as one moves right-to-left in any row. 

More tick changes may result in result 

in more extensive changes to trading 

algorithms and may increase customer 

confusion and complaints. The risk of 

customer confusion is mitigated by the 

adoption of a tick size indicator in the 

regulatory data. This indicator can be 

directly incorporated into trading 

algorithms helping to automate the 

process adjusting trading strategies to 

different tick sizes for algorithmic 

traders.1385

TABLE 12—EFFECT OF THE EVALUATION PERIOD ON THE MEDIAN NUMBER OF TICK CHANGES OVER A 12-MONTH

PERIOD A

Length of operative period in months 

1 3 6 12 

Length of evaluation period in months: 

1 .............................................................................................................. 4,722 2,317 1,356 665 

3 .............................................................................................................. 2,632 1,969 1,253 653 

5 .............................................................................................................. 1,724 1,435 1,153 622 

12 ............................................................................................................ 772 680 591 488 

aThe Commission simulates the tick assignment procedure under 16 combinations of evaluation and operative period lengths. The simulation 

is performed on a rolling basis for every month from January 2018 to June 2022. The methodology and data used for this simulation is described 

in the note to table 10. This table computes the number of tick changes that occur over a median 12-month horizon for each combination of evaluation and operative period length. 

To summarize the results of this 

subsection, tables 10, 11, and 12 

illustrate the tradeoffs inherent in the 

choice of evaluation and operative 

periods. With respect to the evaluation 

period, table 10 implies that shorter 

period lengths reduce false negatives 

but increase false positives; the higher 

prevalence of false negatives tilts the 

scale toward a short evaluation period. 

Table 11, though, shows that a onemonth evaluation period may unduly 

increase the influence of aberrant 

events, while a three-month evaluation 

period continues to perform well in 

unusual market conditions. 

With respect to the operative period, 

tables 10 and 11 imply that shorter 

period lengths reduce both false 

negatives and positives. Table 11 shows 

a particularly large reduction in false 

positives when using a six-month 

operative period instead of a twelvemonth period. Focusing on an 

evaluation period of three-months, 

tables 10 and 11 show similar error rates 

with operative period of three and six 

months. However, a three-month 

operative period requires market 

participants to update their systems 

twice as often as a six-month period, 

and table 12 shows that the number of 

annual tick changes increases 57% 

when moving from the six-month to the 

three-month period.1386 The 

amendments, which adopt a threemonth Evaluation Period and a sixmonth operative period, reflect these 

considerations.1387

Finally, the Commission examined 

the effect of a one-month lag between 

the end of the evaluation period and the 

subsequent tick assignment. All the 

results in tables 10, 11, and 12 include 

this one-month lag; the Commission 

separately calculated table 10 statistics 

without the lag. If the lag is removed, 

then the error rates in panels A and B 

of table 10 fall by a small amount across 

all combinations of evaluation and 

operative periods. The lag effectively 

makes the evaluation period less 

informative about the operative period, 

and this effect is stronger when updates 

are made every month. With respect to 

magnitudes, removing the lag causes the 

fraction of trading that is a false negative 

to decrease by an average of 0.9% with 

a maximum decrease of 1.2% for the top 

left cell of panel A; the false positives 

in panel B likewise drop by an average 

of 0.2% when the lag is removed. On 

the other side of the scale, the lag may 

reduce operational burdens on market 

participants by allowing them time to 

update their systems before a new tick 

assignment occurs, and may likewise 

provide brokers time to give advance 

notice to customers about which stocks 

will experience tick changes.1388 The 

amendments, which provide a onemonth lag, reflect a conclusion that the 

cost of increased error rates due to the 

one-month lag is small relative to the 

benefits that the lag provides for 

industry testing and adjustment. 

e. Additional Effects of a Half-Penny 

Tick 

Some commenters suggested, in the 

context of the proposal, that a tiered tick 

size could create confusion in the 

markets particularly for retail 

traders.1389 These commenters stated 


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1390See Fidelity Letter at 3. 

1391See also O’Brien Letter at 4 and Tastytrade 

Letter at 20 making similar comments. 

1392See Tastytrade Letter at 18–19. 

1393See supra note 307 and surrounding text. 

1394See CCMR Letter at 28–29. 

1395See James J. Angel, Tick Size, Share Prices 

and Stock Splits, 52 J. Fin. 655 (1997), and Sida Li 

& Mao Ye, supra note 1286. 

1396See supra section VII.C.1.c for additional 

discussion of tick sizes, quoted spreads, and stock 

splits. See supra note 1367 and supra section III.C.8 

for discussions of how tick sizes are assigned 

following a stock split or reverse split. 

1397See SIFMA Letter II at 34. See also 17 CFR 

242.600(b)(47) (defining an intermarket sweep 

order). 

1398See, e.g., Vanguard Letter at 5, Citigroup 

Letter at 4, and Virtu Letter II at 17. 

1399See Barardehi et al., supra note 231. 

1400See RBC Letter at 3. 

1401See Tradeweb Letter at 3. 

1402 Id. 

1403See Citadel Letter III at 1–2. 

that retail traders may be at a relative 

disadvantage because they may get 

confused by the sub-penny increments. 

One commenter presented data 

suggesting that retail traders tend not to 

use sub-penny non-marketable limit 

orders even when they can, for instance 

for orders priced below $1.00, and that 

fill rates for such trades tend to go down 

for retail traders.1390 The commenter 

ascribes these findings to retail investors 

getting confused and being unfamiliar 

with sub-penny trading increments 

leading to a competitive disadvantage 

for these traders with respect to more 

sophisticated traders that are more 

familiar with sub-penny increments and 

thus retail traders using non-marketable 

limit orders would be more likely to be 

undercut with a smaller tick.1391

Another commenter suggested that retail 

investor confusion would lead retail 

brokers to need to hire additional staff 

to manage customer confusion and 

education concerning multiple tick 

sizes, or to handle phone trades by retail 

customers confused by the markets.1392

The Commission acknowledges some 

potential for confusion but does not 

expect the amendments to disadvantage 

retail traders. First, the comments are in 

response to the proposal; the adopted 

amendments have fewer minimum 

quoting increments than the proposed 

amendments; indeed, there are only two 

as opposed to four. Second, any 

confusion or disadvantage must be 

evaluated relative to the baseline. 

Currently the penny tick creates a price 

floor, which, especially for tickconstrained stocks, advantages faster 

and generally more sophisticated 

traders. It also creates incentives for 

more complex strategies such as those 

involving alternative venues, again, 

contributing to complexity and putting 

less sophisticated investors at a 

disadvantage. Third, the one-month 

period of time between measuring the 

TWAQS and the assigned tick size 

becoming operational will allow time 

for broker-dealers to educate customers 

about tick sizes.1393 For these reasons, 

the half-penny tick is not expected to 

disadvantage retail traders. 

One commenter requested that the 

Commission consider how a smaller tick 

size could affect stock splits.1394 The 

commenter cited academic research 

suggesting that stock splits can be used 

to affect the bid-ask spread.1395 To the 

extent that issuers engage in stock splits 

to manage their quoted spread, this 

behavior is likely to continue under the 

amended rules when issuers believe that 

a stock split could improve their 

liquidity. However, the amendments are 

expected to improve liquidity on 

average for stocks subject to the smaller 

tick size, so it may be less likely that an 

issuer may feel the need to manage 

liquidity via stock splits going forward 

and so there could be fewer associated 

stock splits for this reason. Furthermore, 

although stock splits and reverse splits 

can mechanically affect the bid-ask 

quoted spread and change the optimal 

tick, the next evaluation period would 

rectify any misalignment in the stock’s 

tick size assignment.1396

Some commenters requested that the 

Commission provide an analysis of the 

effect of the amendments on the use of 

ISOs (intermarket sweep orders).1397

Some stated that spreading liquidity 

over more price levels would increase 

the risk of information leakage with 

regards to a large order being split over 

many smaller orders which would lead 

to an increased complexity of 

implementing large orders and would 

thus lead to an increased use of ISO 

orders.1398 Barardehi et al. (2022)1399

specifically examine the effect of tick 

sizes on ISO activity. Their study finds 

that a narrower tick is associated with 

more ISO activity which the authors 

attribute to the increased market 

complexity associated with 

implementing trades in a narrower tick 

environment. This is consistent with the 

effect considered by the commenters. 

Consequently, ISO usage is likely to 

increase for stocks that receive the 

narrower tick size. One commenter 

stated that increased use of ISO orders 

may result in more locked and crossed 

markets.1400 Research on the link 

between ISO usage and locked markets 

is scant. Increased ISO usage could 

eventually lead to an increase in locked 

and crossed markets, which could make 

transacting on exchanges more 

complicated, however the magnitude of 

any effect is uncertain. 

Another commenter specifically asked 

the Commission to consider the effect of 

a lower tick size on ETFs as opposed to 

stocks.1401 The commenter stated that 

ETFs tend to have larger trade sizes and 

also that the creation and redemption 

process for ETFs is unique. However, 

the commenter does not provide any 

analysis regarding how these differences 

would lead an ETF to react differently 

than a common stock to a reduction in 

the tick size.1402 The fundamental 

economics regarding the tick size 

tradeoff discussed at the beginning of 

this section applies to ETFs because the 

economics discussed in this section rely 

on the mechanics of quoting and 

trading, not on the assets underlying the 

stock or ETF. It is also unclear how the 

creation redemption process would 

differ from the analysis provided above. 

Additionally, the creation/redemption 

process also does not produce unique 

economics in the context of these 

amendments. This is because authorized 

participants purchasing the underlying 

shares to deliver in exchange for shares 

of the ETF or delivering shares of the 

ETF in exchange for the underlying 

assets would still need to purchase and 

sell the underlying shares in the stock 

market, subjecting them to the 

economics of supply and demand for 

liquidity provision for the stocks in 

question. Consequently, ETFs with 

narrower quoted spreads likely will 

experience an improvement in market 

quality with a $0.005 tick size. To the 

extent that ETFs have larger average 

trade sizes the benefits of the Rule may 

be smaller, consistent with the analysis 

presented in Barardehi et al. (2022). But 

as the adopted amendment is more 

conservative than the proposed rule in 

that it applies a tick size of $0.005 to 

stocks with quoted spreads equal to or 

less than $0.015, the Commission does 

not believe, based on the analysis above 

and commenters evidence presented 

above, that the amendments are likely to 

harm ETFs that receive a tick size 

reduction. 

One commenter stated that updated 

Rule 605 data would ‘‘question the 

validity of assumptions’’ made in the 

tick size proposal.1403 The commenter 

stated that Rule 605 execution quality 

data for stocks that have quoted spreads 

wider than the tick would demonstrate 

that the minimum quoting increment is 

not the driver of off-exchange retail 


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1404 Id. 

1405See SIFMA Letter II at 20–21. 

1406While there is no requirement for the listing 

exchange to disseminate historical information 

about the tick size, it is likely that this information 

will be collected and disseminated by other market 

participants, such as firms providing services 

related to financial data and analysis because there 

would likely be demand for such data because, for 

example, it would be needed to perform after the 

fact transaction cost analysis. 

1407See SIFMA Letter II. 

1408See Citadel Letter I at 8. 

1409See supra note 193 and surrounding text for 

further discussion. 

1410See Mitre Corp. Letter at 5. 

1411 Id. 

1412See infra section VII.D.2.a 

1413Exceptions include e.g. Citigroup Letter at 6, 

and World Federation of Exchanges Letter at 4, 

Pragma Letter at 7, Hudson River Letter at 4, and 

Budish Letter at 6–7. However, these commenters 

did not present arguments suggesting that an access 

fee greater than 50% of the tick size would not 

cause price coherence problems. The Commission 

believes that retaining a 30 mil access fee for stocks 

trading with a $0.005 tick would further separate 

the price from the economics of the trade and 

disrupt the coherence between nominal and net 

pricing as the access fee cap would be greater than 

50% of the tick size. 

1414See, e.g., Nasdaq Letter I at 19 (stating 

‘‘Nasdaq recognizes that if Commission action 

successfully updates tick sizes and narrows spreads 

for certain stocks, then existing exchange access 

fees and rebates may no longer be appropriate.’’), 

See Cboe, State Street, et al. Letter at 3 (stating ‘‘We 

acknowledge that a reduction in quoting increments 

for tick constrained symbols could make it 

advisable for market centers to reduce access fees 

for the affected symbols to ensure a consistent 

equity market structure framework.’’), see Better 

Markets Letter II at 3–4 (stating ‘‘A reduction in the 

minimum tick size without reducing access fees 

could permit fees to become a higher percentage of 

the minimum pricing increment, which would 

almost certainly undermine price transparency.’’), 

and see RBC Letter at 4 (stating ‘‘If the MPIs are 

meaningfully reduced as noted in the Proposal, 

then access fees would need to be lower as well.’’). 

1415Nasdaq Letter I at 19. 

trading.1404 The Commission agrees that 

there are other factors driving offexchange retail trading, and adopts 

changes to Rule 612 for reasons other 

than a significant change in retail order 

flow. For this reason, additional 

information regarding retail execution 

quality that will arise from amended 

Rule 605 is not needed prior to adopting 

amendments to Rule 612. 

One commenter stated that variable 

tick sizes ‘‘raise[ ] concerns about the 

ability to compare the execution quality 

for the stock across multiple months,’’ 

resulting in ‘‘a significant possibility of 

investor confusion when comparing 

Rule 605 reports across several 

months.’’ 1405 The Commission 

acknowledges that changes in the tick 

size may result in changes to the levels 

of some measures of execution quality 

that are sensitive to the tick size, such 

as price improvement, over time. To the 

extent that this reduces the 

interpretability of Rule 605 reports, 

particularly for stocks that experience 

frequent changes in the tick size, this 

could represent a cost of the 

amendments. However, there are several 

factors that will mitigate this potential 

cost. First, the adopted amendments 

include an operative period that limits 

the frequency at which a tick 

assignment is updated to a minimum of 

six months. The fact that a stock’s tick 

assignment cannot vary more frequently 

than every six months greatly reduces 

the number of potential changes in 

execution quality levels in monthly 

Rule 605 reports that result from 

changes to a stock’s tick size. Second, to 

the extent that market participants will 

be able to combine Rule 605 information 

with information about a stock’s 

historical tick size,1406 this will allow 

them to control for this characteristic 

when assessing a stock’s execution 

quality data over time. In addition, as 

acknowledged by the commenter, a 

change in the tick size ‘‘may impact 

market centers and broker-dealers 

reporting under 605 in the same 

manner,’’ 1407 such that variations in the 

tick size (and the resulting mechanical 

effects on execution quality levels) will 

not impact the use of Rule 605 to 

compare execution quality across 

reporting entities within a given month. 

If FINRA chooses not to update Rule 

5320 (the ‘Manning Rule’), the lower 

tick size could make claiming the price 

improvement exception to FINRA Rule 

5320 harder for market participants 

since it would require a two-tick price 

improvement for some stocks instead of 

a one tick price improvement. One 

commenter stated that because the price 

improvement exception in the Manning 

Rule is currently tied to $0.01 price 

improvement, a tick size smaller than 

$0.01 would ‘‘greatly increase the cost 

and complexity of compliance and 

would likely disincentivize (or 

eliminate) the handling of customer 

limit orders by wholesale broker 

dealers.’’ 1408 The commenter made this 

statement specifically referencing the 

proposed $0.001 tick increment. The 

adopted amendments do not include the 

$0.001 tick size and so these concerns 

are significantly mitigated. Nonetheless, 

requiring two tick price improvement 

for some orders could increase the 

complexity associated with complying 

with the Manning Rule, particularly in 

situations where the quoted spread is 

only one tick wide because it would 

require more than crossing the quoted 

spread in order to claim the exception. 

For broker-dealers, such as wholesalers, 

whose business models center on 

internalizing customer orders within the 

NBBO, the requirement to, in some 

instances, more than cross the quoted 

spread in order to execute a customer 

order could be a disincentive to 

handling some orders as it could render 

such trades unprofitable.1409

One commenter stated that a lower 

tick size could lead to oscillation in 

some stocks between tick sizes.1410 The 

commenter stated that a stock that falls 

just under the threshold and thus 

receives a smaller tick may be subject to 

more undercutting with the smaller tick 

size, which could cause quoted spreads 

to widen. Wider spreads would make 

the stock revert to the wider tick size, 

which would reduce undercutting so 

that quoted spreads would decline. A 

narrower spread could lead to a smaller 

tick in the next round and so on.1411

The Commission believes that this 

outcome is unlikely given the analysis 

provided in this section. Stocks 

receiving the smaller tick size are 

expected to experience smaller quoted 

spreads due to the smaller tick size 

allowing pricing that better reflects 

supply and demand. This effect would 

reduce oscillation. Stocks receiving the 

smaller tick size would likely 

experience tighter quoted spreads 

making it less likely that they would 

revert to the $0.01 tick in the next 

evaluation period. 

2. Lower Access Fee Cap 

The amendments will lower the 

access fee cap from $0.003 per share (30 

mils) to $0.001 per share (10 mils) for 

NMS stocks priced at $1.00 or more, and 

from 0.3% to 0.1% of the share price for 

stocks with prices less than $1.00. 

Lowering the access fee cap preserves 

price coherence,1412 given changes to 

the tick size. Moreover, the Commission 

expects that lowering the access fee cap 

will result in lower transaction costs for 

investors. The Commission also expects 

that a lower access fee cap will result in 

wider quoted spreads; however, market 

quality will nonetheless improve. 

Lowering the access fee cap will reduce 

exchange transaction revenue due to 

lower capture on sub-$1.00 stocks. We 

describe these effects in more detail 

below. 

Commenters, with few exceptions,1413

agreed on the need for Commission 

action on access fees given the change 

in the tick size.1414 One commenter 

stated that in light of the reduction in 

ticks for some stocks to $0.005, leaving 

the access fee cap at 30 mils would 

‘‘distort trading economics in a manner 

that undermines the Commission’s goals 

for competition and Best 

Execution.’’ 1415 Many commenters 


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1416See, e.g., BlackRock Letter at 10–11, BMO 

Letter at 3–4, Budish Letter, IEX Letters I–V, 

JPMorgan Letter at 6, NASAA Letter at 9, Vanguard 

Letter at 2 and 6, XTX Letter at 5. 1417See We The Investors Letter I at 3–4 

(recommending banning rebates); Harris Letter at 4 

(recommending reverting to traditional fees, thereby 

effectively eliminating rebates). BlackRock Letter at 

11 states ‘‘Although we believe that the current 

proposal may miss an opportunity to enact more 

holistic and lasting access fee reform, we concede 

that, for highly liquid securities, a 10 mil access fee 

cap reasonably threads the needle between 

countervailing adverse consequences. Accordingly, 

under a uniform fee model, we would be supportive 

of setting the access fee cap at 10 mils.’’ 

1418See infra note 1805 for a list of commenters 

suggesting this alternative, and a discussion of the 

costs and benefit of this alternative. 

1419See Proposing Release, supra note 11, at 

80348 n.712. Net and quoted price rankings are 

coherent if sorting trading venues on the 

competitiveness of their quoted prices yields the 

same ordering as sorting on prices net of fees and 

rebates. 

1420Exceptions are Citigroup Letter at 6, and 

World Federation of Exchanges Letter at 4. These 

commenters do not present arguments that counter 

those others in the comment file. The Commission 

believes that retaining a 30 mil access fee for stocks 

trading with a $0.005 tick would further separate 

the price from the economics of the trade and 

disrupt the coherence between nominal and net 

pricing as the access fee cap would be greater than 

50% of the tick size. 

1421See, e.g., MEMX Letter at 22–24 and Pragma 

Letter at 7. 

1422See 17 CFR 242.611(a)(1); see also 17 CFR 

242.611(b) (exceptions). 1423For the liquidity demander in this example, 

the net proceeds of selling to the liquidity provider 

on the traditional exchange would be the quoted 

price of $10.01 less the $0.003 access fee, or 

$10.007. On the inverted venue the liquidity 

demander would receive the quoted price of 

$10.005 plus a taker rebate of $0.003 from selling, 

or $10.008. Although the liquidity demander would 

receive a better net price by selling at the inverted 

venue, because the traditional exchange has the 

better quoted price the order protection rule will 

prevent the trader from accessing the liquidity on 

the inverted venue before first accessing the 

liquidity on the traditional exchange. 

1424See Budish Letter at 6. 

1425See supra note 1077 and surrounding text 

discussing that access fees fund transaction rebates 

and while trading centers could subsidize rebates 

with non-fee revenues they do not do so in practice. 

1426See Staff Report on Equity and Options 

Market Structure Conditions in Early 2021 (Oct. 14, 

2021) available at https://www.sec.gov/files/staffreport-equity-options-market-struction-conditionsearly-2021.pdf. 

1427See section VII.C.2 for additional discussion 

about the roughly 2 mil estimated net capture rate 

for exchanges. At certain pricing tiers rebates may 

exceed the access fee cap. However, because total 

overall fees exceed the total rebates paid out, the 

average rebate would remain lower than the average 

access fee. 

supported a 10 mils access fee.1416

Some commenters went further, stating 

that the Commission should explore 

‘‘comprehensive access fee reform’’ or 

ban rebates entirely.1417 Some 

commenters suggested what they 

viewed as a less extensive change, 

namely an alternative in which some 

stocks had a fee of 15 mils whereas 

others had a fee of 30 mils.1418 In short, 

while commenters agreed on the need 

for Commission action to lower the 

access fee cap, they disagreed regarding 

the specifics. 

a. Coherence Between Net and Quoted 

Prices 

In the Proposing Release, the 

Commission discussed the need to 

maintain an access fee cap that is less 

than half of the tick size due to the need 

to maintain coherence between net and 

quoted prices.1419 Commenters, with 

few exceptions,1420 agreed.1421

Reducing the access fee cap to 10 mils 

will satisfy this condition of coherence. 

As explained in the Proposing Release, 

only the best posted price is protected. 

Under the current regulatory framework, 

leaving the access fee cap at 30 mils 

could preclude market participants from 

trading on exchanges that have the best 

displayed price when fees and rebates 

are included. Suppose a traditional 

exchange has a displayed protected bid 

at $10.010, whereas an inverted 

exchange has a displayed protected bid 

at $10.005. Order protection would 

require the exchange to have policies 

and procedures in place reasonably 

designed to prevent trades from 

occurring at a price worse than the 

protected quote,1422 effectively 

requiring the investor to go to the 

traditional exchange if the investor 

wished to trade against a displayed, on 

exchange bid. However, on the 

traditional exchange, the investor 

demanding liquidity would take home 

$10.007, whereas on the inverted 

exchange, the investor would take home 

$10.008.1423

Closely related to the lack of price 

coherence on exchanges is the effect on 

price transparency. To illustrate, 

consider a situation with an access fee 

and rebate of $0.003 and a tick size of 

$0.005. Consider the effect on prices of 

a stock. Suppose one sees a trade 

executed at a price of $10.005 followed 

by another executed at a price of 

$10.010. Many investors would 

interpret this as a sign that a stock was 

increasing in value. However, with an 

access fee of $0.003, the net price of the 

first order if it represents a market order 

to buy is $10.008 (the buyer pays 

$10.005 + $0.003), whereas the net price 

of the second order if it is a market 

order to sell, is $10.007 (the seller 

receives $10.010 and pays $0.003 in 

fees). The price has fallen, not risen, an 

effect that only the most sophisticated 

market participants would be able to 

discern. 1424 Lowering the access fee cap 

to 10 mils would solve both of these 

problems. 

b. Quantitative Net Capture Analysis 

While the amendments do not 

directly dictate what rebates trading 

venues can offer, trading venues 

generally finance rebates through access 

fees, so in practice reducing the access 

fee cap will lower the rebates 

offered.1425 If trading venues were to 

subsidize rebates by taking a net loss per 

share transacted, they would be 

vulnerable to experiencing extreme and 

unpredictable losses if volumes spike. 

Such a trading venue could experience 

such losses if its non-transaction fee 

sources of revenue do not increase 

enough with a spike in trading volume 

to offset their negative net capture. 

Trading volumes can vary significantly 

through time, with little ability for a 

trading venue to predict the timing and 

magnitude of changes in trading 

volume. For example, in January 2021 

volume spiked dramatically for certain 

stocks relative to pre-January 2021 

levels.1426 Exchanges could face 

financial hardship should rebates 

deviate substantially from fees; so it is 

unlikely that exchanges would take this 

risk. For this reason, rebates and the cap 

on access fees are tied together. 

As explained in section VII.C.2.b, the 

Commission understands that the net 

capture for non-auction trading in 

stocks that have a price equal to or 

greater than $1.00 is likely close to 2 

mils for most exchanges. An exchange 

net capture rate of approximately 2 mils 

is in line with current pricing practices 

at most exchanges; it is reasonable to 

estimate that exchanges would realize a 

similar net capture rate because the 

current net capture rate will remain 

possible under the adopted 

amendments. The Commission 

acknowledges uncertainty over whether 

this 2 mils capture rate will persist or 

be different should trading venues 

choose to alter their business model in 

response to the change in access fees. 

The analysis that follows assumes that 

exchanges will maintain the practice of 

financing rebates through access fees, 

and thus for transactions in stocks 

priced $1.00 or more the Commission 

expects the average access fee to be near 

the 10 mil access fee cap and the 

average rebate to be approximately 2 

mils lower.1427 The analysis also 

assumes that the behavior of inverted 

exchanges and off-exchange venues 

changes proportionally. Although the 

amendments would not require 

proportional change on the part of 

inverted venues, there is currently no 

restriction on the level of rebates for 

taking liquidity or fees for posting; yet, 

as shown in table 4 in section VII.C.2, 

inverted venues generally have fee and 

rebate levels similar to maker-taker 


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1428This assumes that exchanges continue the 

practice of funding rebates through access fees, that 

trading volumes are unchanged relative to 2023, 

that the distribution of trading volume across 

exchanges is unchanged, and that the distribution 

of trading volume priced below $1.00 and at or 

above $1.00 remains unchanged. 1429See table 6 for additional analysis on current 

estimates of exchange net capture. 

1430Balancing out expected rebates paid on maketake, inverted, and flat fee venues, the Commission 

estimates that liquidity demanders will pay $1.93 

billion per year less in access fees netted across all 

venues under the Rule and liquidity providers will 

receive $1.88 billion per year less in rebates netted 

across all venues. 

1431The ultimate effect of this change will not 

result in liquidity demanders saving the full $1.93 

billion in transaction costs, because the effect of 

reduced rebates will cause the quoted spread to 

widen, offsetting this reduction in the access fee. 

See supra section VII.B.3, infra section VII.D.2.c for 

a discussion of these points. 

1432This $54 million estimate is lower than the 

estimated $89 million per loss year provided in the 

Proposing Release. The difference comes because 

the adopted access fee cap for transactions priced 

below $1.00 is higher than the proposal: 0.10% 

compared to 0.05% proposed. This reduces the loss 

on transactions priced below $1.00. Additionally, as 

can be seen by comparing Panel B of table 5 in the 

Proposing Release and table 4 herein, multiple 

exchanges have lowered access fees for transactions 

below $1.00 since the proposal making the Rule’s 

difference from the baseline smaller. 

1433As discussed in section VII.C.2, the 

Commission estimates that most exchanges have a 

net capture of approximately 2 mils on transactions 

priced greater than $1.00. For reasons discussed in 

this section the Commission believes that it is 

reasonable to assume that exchanges with a current 

2 mil net capture would be able to continue to earn 

a 2 mil net capture. 

1434See supra table 4. Most exchanges do not 

offer rebates for stocks priced less than $1.00, or if 

they do the rebates are quite small. 

1435See supra table 5. 

1436The benchmark model in section VII.B.3 

implies that a reduction in the access fee will cause 

the liquidity demand curve to shift, resulting in a 

higher volume of trades at sub-dollar prices. See 

also infra note 1462 and surrounding text for a case 

study on the effect of a rebate instituted by MEMX 

for sub-dollar trades, which resulted in a higher 

level of sub-dollar trades; if a reduction in the 

access fee has a similar effect on equilibrium 

trading as the institution of the rebate, then the 

volume of sub-dollar trades will increase and the 

reduction in exchange revenue will be mitigated. 

venues and approximately a 2 mils 

capture rate. 

Table 13 uses volume estimates from 

table 5 to provide estimates of the fees 

and rebates that would have been 

collected and disbursed in 2023 if the 

amended access fee cap was 

implemented.1428 Panel A shows that 

under the current system with a 30 mil 

access fee cap for quotations priced 

$1.00 or more and a 0.3% access fee cap 

for transactions less than $1.00, the 

exchanges collected an estimated $3.4 

billion in access fees and distributed 

$3.1 billion in rebates in 2023, 

providing an estimated net capture of 

$337 million for the exchanges in that 

time period.1429 In table 13 the 

Commission estimates that the 

exchanges would have collected $1,188 

million in access fees and distributed 

$906 million in rebates in 2023 under 

the amendment to Rule 610, providing 

the exchanges a net capture of $282 

million in that time period. Thus, the 

Commission estimates that total access 

fees collected would have declined by 

$2.23 billion and rebates distributed by 

$2.17 billion in 2023.1430 This amounts 

to an estimated decline in net capture of 

$54.9 million across all exchanges. This 

decline is conditional upon exchanges 

maintaining a 2 mil capture rate for 

stocks trading at a price of $1.00 or 

higher. Any estimated changes in total 

net capture across exchanges is due 

exclusively to the change in the access 

fee cap for stocks trading below $1.00. 

Panel B provides estimates of the 

effect of the amendments on access fees 

paid and rebates received by liquidity 

demanders and providers separately. 

The Commission estimates that, under 

the amendments, liquidity demanders 

would have paid $1.93 billion less 1431

in access fees and liquidity providers 

would have received $1.88 billion less 

in rebates in 2023. Thus, the current 

estimated $2.6 billion in fee funded 

rebates in 2023 would have decreased 

by approximately 70% under the 

amendments. 

TABLE 13—ESTIMATED ACCESS FEES AND REBATES COLLECTED—CURRENT AND ADOPTED 2023 a

Current Rule Difference 

Panel A: Estimated Access Fees Collected and Rebates (in Millions of Dollars) 

Fees Collected ............................................................................................................................. 3,414.00 1,188.91 ¥2,225.21 

Rebates Distributed ..................................................................................................................... ¥3,076.50 ¥906.16 2,170.30 

Exchange Capture ....................................................................................................................... 337.66 282.75 ¥54.90 

Panel B: Estimated Fees by Liquidity Type (in Millions of Dollars) 

Liquidity Demander ...................................................................................................................... 2,969.12 1,034.61 ¥1,934.51 

Liquidity Provider ......................................................................................................................... ¥2,631.47 ¥751.86 1,879.61 

Exchange Capture ....................................................................................................................... 337.66 282.75 ¥54.90 

a This table takes trading volumes presented in table 5 to calculate aggregate fee and rebate estimates under the Rule. Current estimates of 

fees collected and rebates distributed are taken from table 6. The analysis presumes that exchanges with fees and rebates currently above 10 

mils will decrease fees and rebates to a 10 mil fee and 8 mil rebate (the exceptions being IEX which charges 10 mils to takers and rebates 4 

mils to makers, NYSE Chicago which charges both sides 10 mils, and LTSE which does not charge fees). For trading in securities priced less 

than $1.00, estimates of fees and rebates presume that all sub $1.00 fees from panel B of table 4 which are over 0.10% are reduced to 0.10%, 

fees at or below 0.10% remain the same. Computations are made per exchange and then aggregated as shown above. 

Table 14 presents analysis showing an 

estimated total reduction of 

approximately $55 million per year in 

net capture due to the reduction in the 

access fee cap and how it might in turn 

affect the transaction revenues of each 

of the various exchange families. This 

estimated decline in transaction revenue 

comes exclusively from the reduction in 

the access fee cap for transactions in 

securities below $1.00.1432 This is 

because, as previously explained, the 

Commission expects that for 

transactions priced equal to or greater 

than $1.00 the exchanges should be able 

to maintain their current net 

capture.1433 For transactions priced 

below $1.00 most exchanges currently 

charge the maximum 0.3% but typically 

offer no rebates.1434 Because very few 

exchanges offer rebates on stocks priced 

below $1.00, the access fee represents 

the exchange’s net capture. Lowering 

the access fee from 0.3% to 0.1% on 

these transactions will represent a 

decrease in net capture of 66% for many 

exchanges. This decrease may vary 

across exchanges. Some exchanges do 

not charge any fees for trading in sub 

$1.00 securities, while others charge a 

fee to both sides of a sub $1.00 

transactions. Additionally, the 

exchanges differ in the fraction of sub 


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1437See supra section VII.B.3 for additional 

discussion of how fee-funded rebates are largely offset by changes in the quoted spread to keep netcosts the same. 

1438See, e.g., Vanguard Letter at 6, Verret Letter 

I at 7, and Retirement Coalition Letter at 1. 

1439See Better Markets Letter I at 15. 

1440See Healthy Markets Letter I at 22. 

1441Citing its own previous comment letters one 

commenter has stated since at least 2014 that a 

reduction in the access fee cap is warranted given 

the reduction in trade commissions and narrowing 

of spreads relative to when the 30 mil access fee 

cap was first established. See Citigroup Letter at 5. 

1442See Verret Letter I at 5–7. One commenter 

provided their own review of form ATS–N and 

specifically looked at minimum and maximum ATS 

fees; the commenter reported that the maximum 

ATS fee often exceeds 10 mils by a considerable 

margin, see Nasdaq Letter III at 3. The Commission 

does not dispute that maximum ATS fees can 

exceed 10 mils, but the maximum ATS fee is not 

an appropriate benchmark for exchange access fees 

because the maximum ATS fee can be a function 

of particular services (e.g., block trades or special 

order types) or of subscriber characteristics (e.g., 

subscriber order flow might be segmented into 

specific categories), while an exchange’s access fee 

schedule applies to all members. Another 

commenter presented analysis on the subset of 

ATSs that primarily operate a ‘‘continuous book’’ 

market and are therefore most closely comparable 

to exchanges. The commenter’s analysis indicates 

that seven such ATSs—representing 42% of all ATS 

volume—charge a maximum of 10 mils. The 

commenter concluded that the standard rate in the 

competitive ATS market is 10 mils, while rates 

substantially above 10 mils are due to specialized 

services not available on exchanges, see IEX Letter 

VI at 5; the Commission agrees. 

1443See BlackRock Letter at 11. 

1444Nasdaq Letter I at 22. 

1445See Nasdaq Letter I at 21; Nasdaq Letter II at 

4. 

$1.00 trading volume that they 

handle.1435 Table 14 provides an annual 

estimate of the effect on exchange 

transaction revenue of lowering the 

access fee on exchanges’ net capture 

given realized volumes in 2023 for each 

exchange group. To the extent that the 

reduction in the access fee causes more 

trading at sub-dollar prices, table 14 

overestimates the reduction in exchange 

transaction revenue.1436

TABLE 14—ESTIMATED EFFECT OF RULE ON 2023 EXCHANGE TRANSACTION REVENUE FOR STOCKS PRICES BELOW

$1.00 a

Transaction 

revenues 

($) 

Transaction 

revenues 

(%) 

Nasdaq ..................................................................................................................................................................... ¥$18,593,052 ¥20 

NYSE ....................................................................................................................................................................... ¥18,750,074 ¥19 

Cboe ........................................................................................................................................................................ ¥12,375,769 ¥16 

MEMX ...................................................................................................................................................................... ¥4,517,207 ¥21 

IEX ........................................................................................................................................................................... 0 0 

MIAX ........................................................................................................................................................................ ¥667,838 ¥7 

LTSE ........................................................................................................................................................................ 0 0 

Total .................................................................................................................................................................. ¥54,903,941 

a The variable Transaction Revenue ($) provides an annualized estimate of the effect of the amendment to Rule 612 on exchange net capture. For all exchanges, other than LTSE which doesn’t charge an access fee and IEX which has an assumed net capture of 6 mils per share 

traded above $1.00 (Panel A of table 4 shows that IEX charges a fee of 10 mils coupled with a rebate of 4 mils), the net capture on transaction 

priced equal to, or greater than, $1.00 per share is expected to remain unaffected by the amendments at the assumed 2 mils per share. The 2 

mils per share assumption is further discussed in section VII.C.2.c.Thus, the Commission does not expect any decrease in overall exchange 

transaction revenue per share for shares priced above $1.00. For transaction volume below $1.00 per share estimates for the decline in transaction revenue is computed by assuming that under the amendments all exchanges currently charging more than 0.10% for transactions will 

lower the transaction fee to 0.10%. Exchanges currently charging access fees less than or equal to 0.10% will continue to charge their current 

rates. The list of current estimated exchange sub $1.00 pricing comes from panel B of table 4. Sub $1.00 dollar volume estimates for each exchange are from table 5. The estimated transaction revenue under the amendments is compared to the estimated transaction revenue in the current environment that is estimated using the sub $1.00 transaction fees/rebates for each exchange presented in table 4 panel B and multiplying 

these fees by volume estimates for each exchange from table 5. See section VIII.C.2 for tables 4 and 5. The difference is presented in the table 

14 along with the precent change in transaction revenue from the baseline. 

Lastly, transaction fees in stocks 

priced less than $1.00 serve to increase 

the net cost of accessing liquidity as 

they do not tend to fund rebates to 

liquidity providers so there is no 

incentive that could induce spreads to 

narrow and on average offset the fee.1437

Lower transaction costs for these 

securities may improve liquidity for 

stocks with prices less than $1.00. 

However, given the relatively low 

natural trading interest, the Commission 

does not expect a significant 

improvement in the trading 

environment for these securities. 

Given the low net capture rates, the 

Commission concludes that in most 

cases, access fees are typically used to 

fund rebates and not used exclusively to 

fund execution services. Multiple 

commenters stated that current access 

fees and fee caps are not reflective of the 

current actual costs of providing 

execution services.1438 One commenter 

stated that the cost of processing and 

matching trades has dropped with 

technological advances.1439 Another 

commenter stated that ‘‘the fees charged 

by exchanges are often far in excess of 

those necessary to maintain operations 

of the exchange.’’ 1440 A commenter 

pointed to significant reductions in 

spread and commissions since 2005, 

which have resulted in the 30 mil access 

fee cap representing a more significant 

economic factor in trading.1441

One commenter stated that a 10 mil 

access fee cap would represent a ‘‘fair 

pricing model based on the ‘cost plus 

reasonable return’ methodology’’ by 

citing that ATSs charge 10 mil fees 

while employing similar technologies as 

exchanges.1442 On this latter point, a 

commenter stated that a uniform access 

fee cap of 10 mils would, ‘‘have the 

added benefit of aligning exchange fees 

with prevailing ATS fees, and creating 

a more equitable competitive landscape 

across trading venues.’’ 1443

In contrast, one commenter stated that 

the Commission had not established 

that the ‘‘proposed reduced fee caps do, 

in fact, bear a reasonable relationship to 

the actual costs to an exchange of a 

trade.’’ 1444 The same commenter stated 

that technological costs are not 

significant determinants of access fee 

levels, but rather that the fees reflect the 

magnitude of risk associated with 

providing liquidity as well as the value 

to the market that having access to those 

quotes provides.1445 The commenter 

further stated that the current access fee 

cap is not ‘‘unreasonably high,’’ 

because, among other things, ‘‘exchange 

platform costs to market participants 

have remained competitive over 


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1446Nasdaq Letter II at 2 and 5. 

1447See supra table 4. 

1448For example, the Cboe EDGX and MEMX 

exchanges offer rebates for sub-$1.00 stocks. See 

supra table 4 and surrounding discussion noting 

that only a few exchanges offer rebates in 

transactions for stocks priced $1.00 or less. 

1449Reducing the access fee cap for trades priced 

at $1.00 per share or greater to 10 mils without a 

similar reduction in the fee cap for those priced 

below $1.00 could distort markets by introducing 

an incentive for market participants to exploit 

differences in fees and rebates for stocks near the 

$1.00 threshold. If the maker rebates available 

under the 0.3% fee cap for sub $1.00 stocks are 

greater than those for quotes priced at or greater 

than $1.00 then market participants, then market 

makers may be incentivized to push prices below 

$1.00 as they could capture higher rebates by 

posting at bid and ask at $0.98 and $0.99 

respectively as opposed to quoting at $1.00 and 

$1.01. 

1450An exception is Cboe Letter IV and Letter II, 

discussed further at the end of this subsection. 

1451See, e.g., NYSE, Schwab, and Citadel Letter 

at 2, Nasdaq Letter I at 2, MMI Letter at 7, 

Robinhood Letter at 5, and MEMX Letter at 23–24. 

See also Nasdaq Letter IV and NYSE Letter I. 

1452See, e.g., Nasdaq Letter I at 2. 

1453See We The Investors Letter I at 3–4 

(recommending banning rebates); see also Harris 

Letter at 4 (recommending reverting to traditional 

fees, thereby effectively eliminating rebates). 

1454See Harris Letter at 4. 

1455See, e.g., Nasdaq Letter I at 21, Nasdaq Letter 

II at 5–7, Interactive Brokers Group Letter at 5, Virtu 

Letter II at 10, Citadel Letter I at 24, WFE Letter at 

4, CCMR Letter at 27, and State Street Letter at 4. 

1456See id. Some commenters specifically 

identified the NBBO as a matter of concern (Nasdaq 

Letter IV at 7; Goldman Letter at 8; Nasdaq Letter 

I at 22, Virtu Letter II at 10.). The NBBO reflects 

lit quotes at a specific size and thus the arguments 

regarding the NBBO (with an exception described 

in more detail below) are the same as those for lit 

liquidity more generally. 

1457See supra section VII.C.2 discussing why 

trading venues fund rebates with access fees and 

why rebates are not funded by other revenue 

sources. 

1458See section VII.B.3 discussing how spreads 

are expected to widen in response to a reduction 

in fee-funded maker rebates so to keep the net cost 

of liquidity constant. 

time.’’ 1446 As the quantitative net 

capture analysis shows, the access fee 

cap in the adopted amendments will 

still permit typical exchange net 

captures. Thus, for stocks priced greater 

than $1.00, lowering the access fee cap 

is not expected to affect the contribution 

to revenue and thus to the platform. The 

following section discusses the effects of 

a reduction of fees and therefore rebates 

on the provision of liquidity. 

c. Effects on Liquidity and Transaction 

Costs 

The main implications for liquidity 

from reducing the access fee caps follow 

the basic principles laid out in sections 

VII.B.3, as well as the empirical results 

in section VII.C.2. Most exchanges 

charge close to the preexisting access fee 

cap due, in part, to the disincentive to 

unilaterally reduce fees and rebates. For 

the same reasons that exchanges charge 

close to the preexisting access fee cap, 

the Commission believes that lowering 

the access fee cap will lead exchanges 

to charge similarly close to the new cap. 

Some exchanges that are currently 

charging less than the amended access 

fee cap may continue to do so. 

Exchanges will most likely not alter 

their net capture rates, implying that 

much of the access fee will continue to 

fund rebates in stocks priced above 

$1.00. For reasons discussed further 

below, the reduction in the access fee 

cap is likely to leave the cost of 

accessing liquidity unaffected for some 

stocks, and to reduce the cost of 

accessing liquidity for others. 

For stocks priced less than $1.00, the 

reduction in the access fee cap is also 

likely to reduce the cost of accessing 

liquidity. Unlike for stocks priced $1.00 

or more, for stocks priced less than 

$1.00 most exchanges charge an access 

fee without providing a rebate.1447 Since 

there is no rebate, which would serve to 

narrow spreads and offset the cost of the 

access fee, the access fee only serves to 

increase the cost of taking liquidity in 

these stocks. Therefore, a reduction in 

the access fee from 0.3% to 0.1% for 

stocks priced less than $1.00 will lower 

the cost to take liquidity. Some 

exchanges offer rebates in transactions 

in stocks priced less than $1.00.1448 In 

these instances, under the assumption 

that these exchanges will uniformly 

reduce their fees and rebates to maintain 

the same net capture rate, the reduction 

in the access fee cap is not expected to 

affect the cost of taking liquidity. 

Additionally, reducing the access fee 

cap for stocks priced less than $1.00 

from 0.3% to 0.1% of the quote price 

will also ensure that the cost of 

accessing liquidity is similar for stocks 

with one quote below $1.00 and another 

quote equal to or greater than $1.00. 

Consider a stock with a best bid quote 

at $0.99 and a best ask quote at $1.00. 

Under the amendments, the maximum 

fee to access the bid quote is 9.9 mils 

and is roughly equal to the 10 mils 

maximum fee to access the ask quote. 

Had the Commission lowered the access 

fee cap for stocks priced $1.00 or more 

but left it unchanged at 0.3% for quotes 

priced less than $1.00, the cost of 

accessing the sub-$1.00 quote would be 

relatively more expensive than the cost 

of accessing the $1.00 or more quote. 

Here, had the fee cap for quotes priced 

at or higher than $1.00 been reduced to 

10 mils but the fee cap for sub-$1.00 

trades remained at 0.3%, the maximum 

allowable fee to access the $0.99 quote 

would be 29.7 mils, roughly 3 times 

greater than that of accessing the ask 

price. Having a large differential 

between access fees on opposite sides of 

an order book would inhibit the ability 

of markets to reach prices most 

reflective of the underlying value.1449

Commenters on the proposed access 

fee cap reduction focused on access fees 

for stocks priced above $1.00.1450

Several commenters argued for an 

alternative in which stocks with a halfpenny tick would have an access fee of 

15 mils, whereas stocks with a penny 

tick would have an access fee of 30 mils 

(hereafter ‘‘15 mils/30 mils 

alternative’’).1451 As discussed in 

sections VII.B.3 and VII.C.2, there is a 

strong economic tie between the level of 

the access fee cap and the ability to pay 

rebates. The discussion among 

commenters focused on the effect on 

rebates, with some commenters who 

favored of the 15 mils/30 mils 

alternative naming the ability to pay 

rebates as the primary reason for the 

higher access fee cap; 1452 other 

commenters specifically were in favor of 

a ban on rebates.1453 One of these 

commenters stated that banning rebates 

(by requiring exchanges to revert to a 

pricing model where both sides of a 

transaction were charged a fee) would 

fix the problems associated with access 

fees and rebates, but stated that a second 

best solution would be to impose a 

uniform access fee on all exchanges.1454

Commenters in favor of the 15 mils/ 

30 mils alternative expressed the 

concern that a 10 mils access fee cap 

would reduce the flexibility to offer 

rebates. The commenters assert that 

rebates are necessary to compensate 

liquidity providers to post displayed (or 

‘‘lit’’) quotes on exchanges.1455

According to the commenters’ logic, a 

lower access fee cap translates into a 

lower rebate, which translates into 

fewer lit quotes. These commenters also 

state that those quotes that are posted 

are likely to be wider.1456 Wider and 

fewer posted quotes, according to these 

commenters, signify lower market 

quality. 

The Commission agrees that lowering 

the access fee cap is also likely to lower 

rebates because trading venues use 

access fees to fund rebates.1457 The 

Commission also agrees that quoted 

spreads (spreads that do not reflect 

rebates or access fees) on lit exchanges 

are likely to be wider because liquidity 

providers would be expected to widen 

spreads to compensate for the lower 

rebates 1458—though the fact that the 

tick size amendments will lower 

spreads means that the two amendments 

combined may in fact lead to lower 

quoted spreads on some stocks. 


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1459The discussion in that section regarding 

neutrality of fees and rebates does not depend on 

the access fee charged per share being equal to the 

rebate, but rather on fees and rebates being reduced 

or increased by the same amount. As the 

Commission does not expect the net capture rate to 

change, the neutrality result applies. 

1460As explained in section VII.B.3, any change 

in access fees or rebates may be passed from brokers 

to customers either directly or indirectly, such as 

through changes in commissions or changes in the 

broker’s services. 

1461See section VII.B.1 for the definition of the 

economic spread. 

1462See Nasdaq Letter II at 5–6 (stating ‘‘spreads 

would widen if access fees were to become 

inadequate to fund rebates to market makers and 

other participants that provide displayed liquidity 

to the markets. This widening would likely be 

significant, as the data below suggests. It shows that 

in early December 2020, when MIAX and MEMX 

first introduced rebates for sub-dollar stocks, 

spreads for such stocks fell dramatically, but when 

MIAX and MEMX then slashed rebates soon 

thereafter, spreads reverted to their prior levels.’’). 

1463That is, the rebate for sub-dollar trades was 

initially set equal to the access fee cap for subdollar trades. 

1464See Nasdaq Letter II at 6. The effective spread 

is calculated as the signed difference between the 

execution price of a trade and the prevailing 

midpoint (i.e., the execution price minus the 

midpoint for buy orders and the midpoint minus 

the execution price for sell orders); the commenter 

then divides this by the midpoint price to arrive at 

the effective spread as a percentage of the price 

(mirroring the fact that the rebate is paid as a 

percentage of the execution price). The effective 

spread differs from the quoted half-spread because 

a trade may receive price improvement—that is, the 

trade may execute at a better price than the best 

quote, so that the effective spread is lower than the 

quoted half-spread—or a large trade may execute 

against multiple levels of the order book. Both the 

effective spread and the quoted spread are measures 

of liquidity, but the quoted half-spread measures 

the prospective cost of trading immediately at the 

best available prices while the effective spread 

measures the ex-post cost of trading immediately 

(accounting for hidden orders and other sources of 

price improvement not known ex-ante, as well as 

order size). Additionally, because the effective 

spread measures the ex-post cost of trading 

immediately, it can only be calculated in the 

presence of a trade. Therefore, the effective spread 

is typically calculated by taking a weighted average 

of the effective spread across transactions—the 

commenter, for example, weighted the effective 

spread by the notional amount of each transaction. 

The quoted spread can be averaged over time—as 

with the TWAQS—because it is an ex-ante measure. 

1465The commenter’s results can be exhibited 

with a numerical example. Suppose in the absence 

of rebates a stock trades with a best offer of $0.52 

and a best bid of $0.48, yielding a midpoint of 

$0.50. A liquidity supplier at the offer would 

therefore receive proceeds of $0.52 when their offer 

is executed against. The effective spread in the 

commenter’s example would be calculated as the 

distance between the execution price and the 

midpoint, divided by the midpoint: ($0.52 ¥ 

$0.50)/$0.50 = 4%. Now suppose that a rebate of 

0.3% is offered by the exchange. In the commenter’s 

analysis, this reduces the effective spread by 0.15% 

to 3.85% (from 4%). This implies that the offer 

price would shrink from $0.52 to approximately 

$0.51925 (keeping the midpoint constant at $0.50 

and using the fact that the effective spread must 

equal the difference in the ask and the midpoint, 

divided by the midpoint so that 3.85% = ($0.51925 

¥ $0.50)/$0.50). The liquidity provider would 

therefore earn $0.51925 plus the rebate of 0.30% for 

a total proceed of $0.5208 ($0.51925 + 0.003 * 

$0.51925). 

1466The fact that spreads fell by less than the 

amount of the rebate indicates that rebates do not 

generally lower trading costs beyond the cost of 

funding the rebate; this is contrary to one 

commenter’s statement that, ‘‘any cost savings nonretail investor participants realize from a reduction 

in the access fee cap are likely to be more than 

consumed by the rising frictional costs . . . 

associated with wider spreads.’’ See Cboe Letter IV 

at 5, and further discussion surrounding infra note 

1492. 

1467 In the week of Nov. 23, 2020, there was daily 

trade volume at sub-dollar execution prices of 

approximately $330 million; the figure was $383 

million in the week of Dec. 7. The intervening 

week—the week of MEMX’s 0.3% rebate for subdollar executions—saw $1,025 million in daily 

trade volume at sub-dollar prices. The calculations 

are constructed using all normal trades that execute 

during normal trading hours from TAQ. Following 

the methodology in Nasdaq Letter II at 6, the 

calculations for the week of Nov. 30 exclude Nov. 

30 and Dec. 4. 

The Commission, however, disagrees 

with the commenters’ statements that 

lower rebates from lower access fees 

will lower market quality and increase 

transaction costs. The Commission 

draws on the economic principles 

articulated in section VII.B.3.1459 Figure 

1 shows how the quoted spreads 

respond to an equal increase of an 

access fee and rebate of 30 mils 

assuming a stock is not tick-constrained. 

The change contemplated here is a shift 

of 20 mils because that is the difference 

between the baseline fee cap of 30 mils 

and the amended fee cap of 10 mils. 

When the fees and rebates change 

together, supply and demand intersect 

at the same quantity point (thus 

liquidity offered would be unchanged) 

but at a different price point, leading to 

a wider quoted spread. The net spread 

(the net cost of trading), which takes 

into account the fees and rebates, would 

be unchanged.1460 Thus, the 

Commission disagrees with commenters 

who argue on the basis of quoted spread 

that the 10 mils access fee will lead to 

increased trading costs and lower 

liquidity. 

Crucially, the reasoning above applies 

only to a stock with an economic spread 

of greater than the tick.1461 When the 

economic spread is less than a tick, 

rebates funded by fees result in a pricing 

distortion, as section VII.B.3.b explains. 

The price at which liquidity providers 

would be willing to offer liquidity is 

less than one tick in the presence of the 

rebate. However, the tick forms a 

binding price floor, leading to an 

oversupply of liquidity. Specifically, the 

set price of liquidity results in economic 

rents that accrue to some at the expense 

of others, in this case to those able to get 

to the front of the queue the fastest. For 

these stocks, lowering the access fee 

will better equate supply and demand 

and lower transaction costs for investors 

broadly. 

One commenter discussed the 

introduction of a rebate for sub-dollar 

trades on MEMX and MIAX.1462 The 

rebate, when introduced, was initially 

set to 0.3% of the dollar value of the 

trade,1463 and was reduced to 0.05% 

several days later. The commenter 

presents empirical results indicating 

that the effective spread fell from 

approximately 0.4% to 0.25% of dollar 

value after the introduction of the 

rebate,1464 and almost completely 

reversed back to 0.4% days later when 

the rebate was reduced to 0.05%.1465 In 

short, a rebate of 0.3% of dollar value 

led to a reduction in effective spreads of 

0.15% of dollar value. The commenter’s 

empirical result is consistent with the 

model presented in figure 1. The model 

presented in figure 1 predicts that a 

rebate will cause the liquidity supply 

curve to shift by the amount of the 

rebate—liquidity suppliers are willing 

to offer liquidity at a lower price on 

account of the rebate. In contrast to 

panel B of figure 1, however, the 

commenter’s example does not include 

an increase in the access fee to fund the 

rebate; therefore, the commenter’s 

example can be modelled by recreating 

panel B without the shift in the demand 

curve—i.e., the introduction of the 

rebate will cause the equilibrium 

outcome to shift from the point where 

the dotted lines intersect to the point 

where the solid supply curve intersects 

with the dotted demand curve. The 

model therefore has multiple empirical 

predictions for the commenter’s 

example: when the rebate is introduced, 

without a similar increase in access fees, 

the model predicts that spreads will fall 

and the equilibrium amount of liquidity 

transacted will rise; when the rebate is 

rolled back, the model predicts that 

spreads will rise and the equilibrium 

amount of liquidity transacted will fall. 

The model’s predictions on spreads are 

borne out by the commenter’s data— 

spreads fell 0.15% when the rebate of 

0.3% was in place, and spreads reverted 

when the rebate was rolled back.1466

The model’s prediction on the quantity 

of liquidity transacted are also borne out 

by Commission analysis—when the 

0.3% rebate was in place, the dollarvolume of sub-dollar trades increased by 

a factor of three.1467 In sum, the 

introduction of a rebate for sub-dollar 

trades on MEMX and MIAX resulted in 

a market reaction that is directionally 

consistent with the Commission’s 

economic model presented in section 

VII.B.3.a and figure 1. The large and 

abrupt tripling of trading volume is also 


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1468See supra note 1005, and see also the 

Proposing Release, supra note 11, at 80292. 

1469See, e.g., Cboe Letter II at 8–9, Cboe Letter IV 

at 3–5, Nasdaq Letter I at 22–23, Nasdaq Letter II 

at 4, Nasdaq Letter IV at 9, and Nasdaq Letter V at 

2, predicting that a reduction in rebates will 

increase segmentation and may make ATSs and 

single-dealer platforms more attractive. See also 

infra note 1761 and surrounding text. 

1470See Better Markets Letter I at 15 stating that 

‘‘A reduction in access fees will impose lower costs 

on investors, removing a disincentive for trading on 

exchanges.’’ Healthy Markets Letter I at 22, stating 

‘‘Brokers’ avoidance of these [access] fees is a 

significant contributor for brokers often choosing to 

internalize or first route to ATSs or OTC market 

makers, rather than to exchanges’’, IEX Letter I at 

26 (stating ‘‘A substantial reduction in the access 

fees will be impactful for those investors and is 

likely to increase their willingness to trade on 

exchanges. . . . The result can be an increase in 

the use of displayed exchange trading and an 

improvement in the price discovery function of the 

market, with broad benefits extending beyond 

trading on exchanges themselves’’), See also IEX 

Letter IV at 18–19, BMO Letter at 3, and Themis 

Letter at 7–8. 

1471See supra note 1479 and surrounding 

discussion. 

1472See Cboe Letter III at 5: ‘‘Wider spreads are 

likely to most benefit wholesale broker-dealers, that 

may be able to offer more levels of price 

improvement, but at the expense of increased 

frictional costs for investors.’’ 

1473See IEX Letter IV at 23: ‘‘The fact that 

exchanges use rebates to draw orders from other 

exchanges says nothing about the ability of 

exchanges to attract more orders that now go to offexchange venues by using lower access fees and 

offering better execution quality.’’ 

1474See Goldman Sachs Letter at 8. 

1475See Cboe Letter IV at 5: ‘‘. . . the NBBO is 

utilized by many market participants as a reference 

price for benchmark pricing and other risk 

functions. In addition, if on-exchange liquidity 

moves to off-exchange venues such as alternative 

trading systems, these trading centers commonly 

use the NBBO as a reference price for executing 

transactions, which will make transactions in offexchange venues more expensive as well. Wider 

spreads are likely to most benefit wholesale brokerdealers, that may be able to offer more levels of 

price improvement, but at the expense of increased 

frictional costs for investors.’’ 

1476See Cboe Letter IV at 5. 

consistent with concerns that rebates 

cause excessive intermediation.1468

Some comments address the question 

of incentives for trading on exchanges. 

These commenters state that, as a result 

of the Commission’s adoption of 10 mils 

versus 15 mils/30 mils alternative, the 

volume on lit exchanges will 

decline.1469 Other commenters 

disagreed, stating that lower access fees 

could lead volume on exchanges to 

increase.1470 However, the above 

analysis indicates that liquidity 

providers would not be deterred from 

quoting on exchange because they could 

widen the quote, thereby receiving the 

same economic profit as they received 

with the rebate. Liquidity demanders 

would not be worse off because the 

reduction in access fee would offset, or, 

in the case of stocks with an economic 

spread of less than a tick, more than 

offset, the increase in spread. 

Commenters specifically stated that 

posted quotes on exchange face the risk 

of adverse selection. They state that a 

premium is necessary to compete with 

the off-exchange market, and that the 

rebate provides that premium. As other 

commenters state, this does not take 

into account the access fee, which (all 

else equal) discourages liquidity takers 

from accessing exchanges. Moreover, a 

premium can come in the form of the 

spread as opposed to a rebate. While the 

order protection rule requires that 

trading centers enforce policies and 

procedures that are reasonably designed 

to prevent trades from being executed at 

a price worse than the protected quote, 

nothing prevents off-exchange nondisplayed liquidity being at a better 

price for the liquidity taker and worse 

price for the maker, and indeed that 

happens under the current fee/rebate 

structure. Rather than moving liquidity 

off-exchange, liquidity providers could 

widen the difference between on- and 

off-exchange quotes, leaving the 

underlying economic tradeoff the same. 

The above analysis shows that the 

same opportunities that are available 

on-exchange in today’s environment are 

still expected to be available with the 

adoption of these amendments, even 

under the lower access fee cap (indeed, 

these opportunities are expected to 

improve due to the amendments to Rule 

612). However, commenters state that 

the off-exchange environment may 

change due to the amendments.1471

These commenters raise concern 

regarding the amount of liquidity that is 

displayed versus non-displayed. One 

commenter stated that wider quoted 

spreads on exchange increase the range 

of prices at which trades execute offexchange.1472 Because Rule 611 

generally requires that off-exchange 

trades execute within the NBBO, as onexchange spreads widen, a liquidity 

provider, now facing a wider NBBO, 

would be able to offer a wider spread 

off-exchange than that liquidity 

provider could do now. The commenter 

appears concerned that this ability to 

offer a wider spread off-exchange than 

previously will attract liquidity to offexchange, and more specifically, nondisplayed venues. 

However, while liquidity providers 

would have the ability to offer wider 

spreads off-exchange than prior to the 

amendments, they would not 

necessarily have the incentive to do so. 

For while wider spreads would mean 

greater profits for the liquidity provider, 

that is only the case if their orders are 

filled. As stated by a commenter, offexchange liquidity would still need to 

compete with on-exchange liquidity, 

and that on-exchange liquidity is now 

less expensive to access due to a lower 

access fee cap.1473 If the spread offexchange were to widen, non-displayed 

off-exchange quotes would be unlikely 

to attract liquidity takers. Therefore, 

there is not an incentive for liquidity 

providers to migrate off-exchange due to 

wider spreads on exchange. To 

summarize, spreads may widen onexchange increasing pricing flexibility 

off-exchange, even so exchanges are not 

expected to lose volume due to the 

reduction in the access fee cap through 

this mechanism. 

One commenter stated that volatility 

may increase due to the wider quoted 

spread when the access fee reduction 

causes a reduction in rebates.1474 The 

Commission acknowledges that wider 

spreads definitionally imply a greater 

difference between the bid and the ask. 

However, spreads that better reflect the 

true underlying cost of liquidity are 

more efficient than spreads that mask 

this cost. 

One commenter stated that a 

reduction in rebates will lead to more 

off-exchange trading, which in turn will 

cause the NBBO to widen, and result in 

worse execution for off-exchange 

trading, because of the way some offexchange trading uses the NBBO as ‘‘a 

reference price for benchmark pricing 

and other risk functions.’’ 1475 First, the 

Commission describes above why the 

adopted amendments will not result in 

a large amount of trading moving offexchange. Furthermore, while the 

Commission does expect the quoted 

spread, and therefore the NBBO, to 

widen, we disagree that this will result 

in worsening off-exchange executions. 

This commenter provided two examples 

of situations in which off-exchange 

executions might worsen. The first is an 

ATS that provides execution 

mechanisms based on the NBBO.1476 As 

explained in section VII.B.3.a, the 

reduction in access fees and 

corresponding reduction in rebates will 

not change the net spread on exchange. 

This means the cost of liquidity will not 

materially change. There is no reason 

why ATSs that base execution prices off 

the NBBO cannot alter their pricing 

formulas to preserve the same execution 

prices (e.g., by executing inside the 

NBBO by a pre-determined amount). 

Indeed, a typical example of such 

matching mechanisms are mechanisms 

that match buy and sell orders at the 

midpoint, and this will not be impacted 

at all by a wider NBBO. The second 

example provided by the commenter 

was the case of retail wholesalers. The 

commenter states that these wholesalers 


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1477See Cboe Letter IV at 5. 1478Retail wholesalers frequently offer ‘‘price 

improvement’’ on orders they receive, where they 

execute the order on a principal basis at a price 

better than the NBBO. 1479See Nasdaq Letter II at 6. 1480 ‘‘BJZZ’’ refers to the algorithm designed by 

Boehmer Ekkehart, Charles M. Jones, Xiaoyan 

Zhang, and Xinran Zhang. See Boehmer Ekkehart, 

et al., Tracking Retail Investor Activity, 76 J. Fin, 

2249 (2021). 1481The EQ ratio measures how close to the 

NBBO or NBBO midpoint a trade executes at. A 

trade executing at the midpoint would have an EQ 

ratio of 0, while a trade that executes at the NBBO 

would have an EQ ratio of 1. 

1482The commenter’s methodology is also flawed 

because the BJZZ algorithm they employ to identify 

retail trades has been shown in recent research as 

not being a very accurate measure of retail trading 

volume, See Brad M. Barber, Xing Huang, Philippe 

Jorion, Terrance Odean, & Christopher Schwarz, 

A(sub)penny For Your Thoughts: Tracking Retail 

Investor Activity in TAQ (working paper, Aug. 14, 

2023), available at https://ssrn.com/ 

abstract=4202874 (retrieved from SSRN Elsevier 

database. If the algorithm does not reliably identify 

retail trades then it is unclear what can actually be 

learned about retail trading volume from the 

exercise. 

1483The effective spread is defined as the signed 

difference between an order’s execution price and 

the midpoint of the quoted spread; the larger the 

difference the less competitive the executed price 

is relative to the midpoint. Because the EQ ratio is 

equal to the effective spread divided by the quoted 

spread, the effective spread would have to increase 

at the same scale by which the quoted spread 

widens in order to keep the ratio constant. 

1484So long as there is some degree of 

competition, this argument would hold. A market 

that is more competitive may have retail effective 

spreads that would be lower, but in either case a 

change in the NBBO, with no other changes to 

wholesaler costs or competition would not be 

expected to change wholesaler profits. 

1485See Citadel Letter I at 33 showing EQ ratios 

ranging from .27 for small retail orders to .88 for 

very large orders, CCMR Letter at 35 showing 

average EQ ratios around .5 for the top three 

wholesalers and Charles Schwab, U.S. Equity 

Market Structure: Order Routing Practices, 

Considerations, and Opportunities. (2022) 

(‘‘Schwab 2022 Whitepaper’’) at 9, 16, available at 

https://content.schwab.com/web/retail/public/ 

about-schwab/Schwab-2022-order-routingwhitepaper.pdf (showing its EQ ratio of .33). 

1486See Healthy Market Letter at 23, BlackRock 

Letter at 11, BMO Letter at 3, and Themis Letter at 

7–8. 

1487For stocks which do not trade with a one tick 

wide spread the cost of accessing liquidity for any 

one instance may be higher or lower with a reduced 

fee cap, however on average the cost of accessing 

liquidity is not expected to change for those stocks. 

See supra section VII.B.3.b for additional 

discussion. 

1488See Nasdaq Letter II at 5–7: ‘‘This peril is 

particularly acute for thinly-traded securities.’’ and 

Virtu at 10: ‘‘The reduced incentives for liquidity 

Continued 

‘‘may be able to offer more levels of 

price improvement,’’ but this will come 

at the expense of increased costs of 

trading from wider spreads.1477 The 

Commission again disagrees with this 

assertion. Because the cost of liquidity 

will be largely unchanged, the price 

improvement 1478 acknowledged by the 

commenter will be capable of offsetting 

the change in quoted spread. 

One commenter stated that 

eliminating the access fee would cost 

retail investors as much as $678 million 

per year.1479 The commenter arrives at 

this estimate by using the BJZZ 

algorithm to identify retail trades from 

TAQ data,1480 and computes the 

effective/quoted ratio (EQ ratio) for each 

trade.1481 The effective to quoted spread 

ratio computed as follows 

They assume that spreads will widen for 

all trades by 60 mils in the absence of 

rebates. They then apply the observed 

EQ ratio to the hypothetical 60 mil 

wider spreads in the absence of rebates 

to compute hypothetical transaction 

costs for retail investors under a world 

without rebates. 

The Commission disagrees with the 

commenter’s assertion that retail traders 

will receive worse execution due to the 

reduced access fee cap. As this section 

describes, quoted spreads for stocks 

trading with more than one tick intraspread are expected to widen on average 

by about 40 mils. However, the 

commenter’s analysis relies on the 

assumption that the EQ ratio for retail 

order executions will remain 

constant.1482 The commenter provided 

no evidence to support this assumption. 

This assumption is important because 

economically what matters is not the 

distance of the trade price from the 

NBBO, but rather the distance of the 

trade price from the midpoint—the 

effective spread. The effective spread 

covers the costs associated with 

providing liquidity as well as provides 

the liquidity provider’s profits. 

Assuming a constant EQ ratio in the 

commenter’s analysis implies that 

wholesalers internalize retail orders at 

prices that are farther from the 

midpoint, and thus the wholesaler will 

earn more money without providing any 

additional benefit to retail traders or 

their broker-dealers.1483 Wholesalers are 

subject to competitive forces that apply 

at the level of average execution quality, 

and it is unlikely that market forces 

would allow such excess profits to 

wholesalers for no additional benefit to 

persist.1484 It also seems unlikely that 

the EQ ratio would change mechanically 

with the NBBO because if the NBBO 

itself were the primary determinate of 

the price level at which retail trades 

were internalized, and wholesalers were 

free to choose any price level within the 

NBBO, then wholesalers would 

routinely internalize orders at or near 

the NBBO implying an EQ ratio for 

retail trades of near 1. This is not the 

case. Wholesalers currently internalize 

retail orders at prices that are 

significantly inside of the NBBO (i.e., 

EQ ratios significantly less than 1) 

suggesting that other factors besides the 

NBBO itself, such as distance from the 

midpoint, determine the transaction 

price of retail orders that are 

internalized by wholesalers.1485 These 

price levels will still be feasible for 

wholesalers under the amendments, and 

so even with a wider NBBO, 

wholesalers are likely to transact retail 

orders at similar price levels under the 

amendments as they are today. 

Put another way, economically there 

is no reason to assume that relaxing a 

non-binding constraint, in this case 

widening the quoted NBBO, would have 

an effect on existing equilibrium 

behavior. The NBBO does not constitute 

a binding constraint for wholesale 

execution of many retail trades. 

In cases where the NBBO does 

constitute a binding constraint, there are 

two important missing pieces from the 

commenter’s analysis. The first is that, 

for on-exchange execution, the 

wholesaler will pay a lower access fee. 

Assuming (as the commenter’s analysis 

implicitly does) that the wholesaler 

does not pass on these lower fees at 

least in part to some investors assumes 

a lack of competitive dynamics in the 

retail execution market. Second, the 

commenter’s methodology fails to take 

into account the expected reduction in 

quoted spreads for some stocks due to 

the reduction in the tick size. In cases 

where the NBBO constitutes a binding 

constraint on wholesaler price 

improvement, then wholesalers will 

offer better execution on these stocks. 

Moreover, there are cases in which 

current wholesale execution may fall 

between the spread under the new tick 

size, and the previous spread. In these 

cases, the new tick size creates a new 

binding constraint, leading to better 

execution for retail investors. So, if 

anything, the combined effect of the 

amendments could improve retail 

execution quality on average. 

Additionally, as a general matter, 

some commenters stated that the lower 

access fee on exchanges will make 

exchanges a more attractive place to 

access liquidity.1486 The Commission 

believes that the cost of accessing 

liquidity will decline for those stocks 

which continue to trade with a one tick 

wide spread; the Commission, however, 

disagrees that the cost of accessing 

liquidity will change on average for 

other stocks.1487

Some commenters stated concerns 

that less liquid stocks may be more 

susceptible to any negative effects on 

liquidity from a reduction in rebates.1488


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81740 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

in thinly traded securities is especially concerning 

given how much liquidity improvements actually 

reduce an issuer’s cost of capital and impact their 

ability to attract investors.’’ See also Virtu Letter II 

at 10, Tastytrade Letter at 2. 

1489See Citigroup Letter at 6, TRP Letter at 4–5. 

1490See Virtu Letter II at 19, Cboe Letter III at 3– 

4. 

1491Some Commenters agree. See, e.g., Verret 

Letter I at 9, Retirement Coalition Letter at 2, 

Themis Letter at 7, ASA Letter at 4. 

1492See Cboe Letter IV at 3, 5; see also Cboe Letter 

III, at 6. 

1493See section VII.B.3. 

1494 Id. 

1495See Cboe Letter II at 9; see also Cboe Letter 

IV at 1. 

1496See supra table 4 and surrounding 

discussion. 

1497See State Street Letter at 5, stating: ‘‘We 

recommend . . . [i]mplementing any changes to 

access fee caps before changing quoting increments, 

to isolate and evaluate the effects. This includes 

examining whether reducing the access fee cap may 

affect a security’s designation as ‘tickconstrained.’ ’’ 

1498See supra table 7, note a. 

1499See Vanguard Letter at 6. 

1500See BMO Letter at 3. 

1501See id. 

Other commenters suggested that a 

higher fee cap should be adopted for 

illiquid stocks.1489 However, adopting a 

separate fee cap for illiquid stocks 

would introduce more complexity into 

the market. The Commission’s response 

is the same as the broader concern 

regarding posted liquidity: spreads may 

widen but the cost of accessing and 

providing liquidity will on average not 

change. 

One commenter stated a reduction in 

rebates would lead to the exit of 

liquidity providers, harming 

competition,1490 a lower access fee cap 

is expected to reduce the fees which are 

used to fund rebates and consequently 

rebates are expected to also see a 

reduction. The Commission 

acknowledges that profits of liquidity 

providers may fall because for stocks 

that remain tick-constrained, the access 

fee represents a transfer from liquidity 

demanders to liquidity providers. 

However, a net decrease in competition 

could serve to widen the spread beyond 

a single tick and increase the proceeds 

of liquidity provision thus incentivizing 

liquidity provision. While the 

Commission anticipates and is sensitive 

to costs to some affected parties, the 

Commission expects investors, more 

broadly to benefit.1491

Another commenter stated that 

lowering the access fee cap would result 

in a ‘‘liquidity gap’’; that ‘‘it is unlikely 

that the liquidity gap would be met by 

other market participants;’’ and that ‘‘as 

spreads further widen, any cost savings 

non-retail investor participants realize 

from a reduction in the access fee cap 

are likely to be more than consumed by 

the rising frictional costs.’’ 1492 The 

Commission disagrees that lowering the 

access fee cap would result in a 

liquidity gap that market participants 

would not be able to fill, because if 

quoted spreads widen beyond any 

reduction in maker rebates, liquidity 

providers would stand to earn higher 

proceeds by supplying at the wider 

spread. The Commission believes that 

competition among liquidity providers 

will keep the cost of accessing liquidity 

from rising on average in securities 

where the minimum quoting increment 

is not a meaningful constraint.1493 In 

those stocks that trade with a quoted 

spread equal to the tick size, the 

Commission expects that the reduction 

in access fees will reduce the net cost 

of accessing liquidity.1494 Therefore, 

non-retail investors would likely see a 

reduction in overall frictional costs. 

Finally, one commenter stated that 

reducing the access fee cap for stocks 

priced less than $1.00 would impact an 

exchange’s ability to differentiate itself, 

and the estimated decrease in 

transactions revenue from these stocks 

would limit its investments in 

innovation and technologies.1495 The 

impact on an exchange’s ability to offer 

different fees and rebates for stocks 

priced less than $1.00 is not likely to be 

large as there is not a substantial degree 

of differentiation across exchanges 

currently.1496 Most exchanges charge 

fees near or at the fee cap to liquidity 

takers, and only two exchanges offer 

rebates to liquidity takers. This is 

unlikely to change following a decrease 

in the fee cap. The Commission 

acknowledges a loss in revenue due to 

the reduction in rebates for stocks 

priced below $1.00. It is possible that 

this could impact exchange investment 

in new technologies. However, as 

discussed above in this section, the 

amendments to Rule 612 are anticipated 

to lead to more volume on exchange, 

and hence more trading revenue to 

exchanges, offsetting this effect. 

Moreover, as discussed earlier in this 

subsection, it is necessary to conform 

rebates for stocks priced below $1.00 

with those for stocks priced above 

$1.00. 

One commenter suggested 

implementing the amendments to 

reduce the access fee caps before the 

minimum pricing increments to isolate 

the impact of the access fee cap on its 

own.1497 The Commission has 

separately considered the impact of the 

amendments to Rule 612 with the new 

access fee in place; specifically, the 

change in the access fee will cause 

quoted spreads to widen, which may 

cause some stocks that currently would 

qualify for a reduction in their tick size 

under the adopted amendments to Rule 

612 to no longer qualify for such a 

reduction.1498 However, many stocks 

will continue to qualify. While the 

Commission acknowledges that 

postponing amendments to Rule 612 

would allow for time to study the access 

fee cap in isolation, there is no 

mechanism by which a reduction in the 

access fee cap, on its own, would yield 

the full benefits of the proposed 

amendments to Rule 612. 

The Commission acknowledges that 

changing the access fee cap at the same 

time that the changes to Rule 612 are 

implemented will cause some stocks 

assigned to a narrower tick size to 

immediately trade with a quoted spread 

too wide to qualify for continued 

assignment to the $0.005 tick size 

bucket. However, a delay in 

implementing changes to Rule 612 

would delay the accrual of the other 

benefits the Commission has identified 

for these changes. 

d. Other Effects of the Access Fee Cap 

Reduction 

The Commission anticipates 

additional benefits inherent to adopting 

a lower access fee cap for all securities. 

Access fees that fund rebates 

contribute to complexity in markets 

because they separate both the true cost 

of demanding liquidity and the 

proceeds from supplying liquidity, as 

represented by the quoted half-spread. 

Commenters stated that lowering the 

access fee cap to 10 mils would reduce 

complexity; one commenter stated in 

the context of supporting a significant 

reduction in exchange access fees, that 

current pricing models ‘‘contribute to 

market complexity by encouraging 

rebate arbitrage strategies and the 

proliferation of new order types and 

trading venues designed to exploit 

different transaction pricing 

models.’’ 1499 Similarly, a second 

commenter supported a 10 mil fee cap 

and stated that maker-taker models, 

‘‘introduce unnecessary market 

complexity through proliferation of new 

exchange order types (and new 

exchanges) designed solely to take 

advantage of pricing models.’’ 1500 The 

same commenter stated that maker-taker 

pricing may drive orders off exchanges 

to avoid access fees, and ‘‘benefit 

sophisticated market participants, like 

market makers and proprietary traders, 

at the expense of other market 

participants.’’ 1501

One manifestation of this complexity 

is the potential conflict of interest 

between broker-dealers and their 


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1502See supra note 1518 and surrounding text 

discussing the potential conflicts of interests that 

exchange fees and rebates may introduce. 

1503See infra note 1514. 

1504See, e.g., Nasdaq Letter I at 2. 

1505See Harris Letter at 4–5, and We The 

Investors Letter I at 7, arguing that the Commission 

should go further and ban the use of rebates. 

1506See section VII.D.1.d for discussion and 

analysis of the tradeoffs inherent in tick assignment. 

1507This number corresponds to an evaluation 

period of three months and an operative period of 

six months, which are the parameters of the rule 

text. See section VII.D.1.d. 

1508As discussed above (e.g., supra section 

VII.B.2), a binding price floor on liquidity results 

in more liquidity supply than demand. Maker-taker 

pricing exacerbates this problem by taxing demand 

and subsidizing supply at the price floor. By 

reducing the access fee, the excess supply is 

lessened. The lower cost of accessing liquidity can 

also extend to stocks which trade with a TWAQS 

greater than $0.015 to the extent to which these 

stocks may occasionally trade with a spread equal 

to the tick size. 

1509See also Proposing Release, supra note 11, at 

80292 for a discussion of the complexity of fee 

schedules and the difficulty in forecasting fees for 

a contemporaneous period. 

1510See section IV.E for a discussion of the 

comment file. 

1511See Council of Institutional Investors Letter at 

4. 

1512See BMO Letter at 4. 

1513See Retirement Coalition Letter at 2. 

1514See Vanguard Letter at 6 (‘‘These pricing 

models can create conflicts of interest with a 

broker’s obligation to obtain best execution for a 

customer . . .’’); STA Letter at 7 (‘‘Today, the 

primary concerns on access fees are how they 

contribute to the maker/taker or taker/maker pricing 

models offered by exchanges and the offshoots of 

conflicts of interests in the routing of customer 

order flow by broker dealers.’’); Retirement 

Coalition Letter at 2 ‘‘the use of rebates creates 

conflicts of interest, because when an institutional 

order is sent as a displayed order, the potential for 

a rebate may influence where a broker sends the 

order, even when the investor could receive a better 

execution on another market.’’); CII Letter at 3 

(‘‘The existing system disadvantages institutional 

investors because we believe rebates create the 

kinds of conflicts of interest identified in our 

policy.’’). 

1515BMO Letter at 4. 

1516See BMO Letter at 4. 

1517See Nasdaq Letter I at 32. 

1518See Proposing Release, supra note 11, at 

80330. 

customers.1502 Multiple commenters 

stated that a benefit of a lower access fee 

cap is that it would mitigate such 

potential conflicts of interests.1503 Other 

commenters disagreed.1504 Some 

commenters state that due to the 

complexity, opacity, and potential 

conflicts inherent in the rebate 

structure, the Commission should go 

further than in the current adopted 

amendments and ban rebates 

altogether.1505 The Commission agrees 

that lowering the access fee cap reduces 

complexity and may help alleviate 

potential conflicts of interest. 

Finally, the reduction in the access 

fee cap will improve market quality for 

stocks that remain tick-constrained. 

While the amendments to Rule 612 

create a smaller tick size for stocks with 

narrow spreads, spreads naturally vary 

over time and this variation introduces 

the possibility that some stocks could be 

misassigned to a tick size because 

trading in the operative period differs 

from the evaluation period due to 

factors exogenous to the tick change.1506

Panel A of table 10 shows that 

approximately 13.7% of aggregate share 

volume will be a false negative under 

the amendments 1507—that is, this 

volume will be assigned a penny tick, 

but will trade at a TWAQS below $0.015 

and therefore trade with a tickconstrained spread a majority of the 

time. Moreover, some stocks may 

remain tick-constrained, even at the 

new half-penny tick. Reducing the 

access fee cap would lower the cost of 

accessing liquidity because fee-funded 

rebates serve as a pure tax on liquidity 

demanders whenever the spread is tickconstrained (creating a wealth transfer 

from liquidity demanders to liquidity 

providers); the reduction in the access 

fee cap will also reduce the excess 

supply of liquidity at this price 

floor.1508

3. Exchange Fees and Rebates 

Determinable at the Time of Execution 

In the current environment, as 

discussed in section VII.C.2, market 

participants often have to make trading 

decisions without the ability to 

determine the exchange fees and rebates 

they incur at the time of execution, and 

a market participant’s total cost of 

trading can vary by a significant amount 

for orders with the same quoted 

execution price once exchange fees and 

rebates are accounted for. Current 

exchange fees and rebates are often 

based on the participant’s relative 

contribution to the exchange’s monthly 

trading volume during the 

contemporaneous month, and market 

participants need to grapple with the 

uncertainty of forecasting future market 

outcomes should they wish to know 

what their trading costs are at the time 

that they execute a trade.1509 Requiring 

fees and rebates to be determinable at 

the time of execution will result in the 

benefits of increased transparency as to 

what fees and rebates broker-dealer 

members are committed to pay when 

they trade, reducing potential conflicts 

of interest, and potentially improving 

broker-dealer routing decisions. These 

amendments will also result in costs to 

exchanges associated with revising 

existing fee schedules to bring them into 

compliance with the adopted 

amendments. 

The Commission received comments 

from a broad range of commenters who 

expressed support for Proposed Rule 

610(d) because it would provide 

enhanced transparency surrounding 

transaction fees and rebates and 

alleviate concerns related to potential 

conflicts of interest.1510 For example, 

one commenter stated that it agreed 

with the Commission’s analysis of the 

benefits of making fees and rebates 

determinable at time of execution.1511

Another commenter stated that it agreed 

with the Commission’s assessment 

‘‘. . . of how existing exchange pricing 

tier models can negatively impact 

market participants behavior.’’ 1512 A 

third commenter stated that the Rule 

will ‘‘help to make overall trading costs 

more transparent.’’ 1513

Multiple commenters pointed out the 

potential for exchanges’ pricing models 

to create a conflict of interest for brokerdealers who route multiple customers’ 

orders to the exchanges.1514 One 

commenter stated that the benefits of 

pricing determinable at time of 

execution include ‘‘help[ing] brokerdealers make better order routing 

decisions,’’ and reducing order routing 

incentives based ‘‘on achieving a 

threshold to gain a specific fee or 

rebate.’’ 1515 Another commenter also 

stated that exchanges have little 

incentive to make fees and rebates 

determinable at the time of trade 

because the fee and rebate structure 

creates ‘‘captive customers’’ that direct 

order flow to a given exchange in hopes 

of receiving a given fee or rebate tier in 

a given month.1516 One commenter 

agreed that fees determinable at time of 

execution has ‘‘the potential’’ to 

facilitate pass-through of fees and 

rebates to broker-dealers’ customers, 

and thereby alleviate concerns about 

‘‘perceived’’ conflicts-of-interest, but 

characterized such concerns about 

conflicts-of-interest as ‘‘misplaced.’’ 1517

As discussed in the Proposing 

Release, access fees create potential 

conflicts of interest between brokers and 

end customers to the extent that brokers 

can route orders to exchanges with 

worse execution quality for end 

customers but more advantageous fees 

(i.e., a low fee or a high rebate) for the 

brokers, which the brokers do not pass 

on to end customers.1518 For example, a 

broker may route a customer’s limit 

order to an exchange with a high rebate 

for liquidity provision, but a relatively 

low fill rate. The end result would be a 

high rebate payment for the broker but 

potentially poor execution quality for 

the customer. 

One commenter stated that the 

supposition that rebates present 


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1519See Nasdaq Letter I at 2. 

1520See Proposing Release, supra note 11, at 

80330. 

1521See supra note 1092 and surrounding 

discussion on information that customers can 

request from broker-dealers on net transaction fees 

and rebates through Rule 606(b)(3). 

1522One commenter agreed with the 

Commission’s statement in the Proposing Release 

that fees being determinable only at the end of the 

month, as they are currently, impedes investors’ 

ability to evaluate best execution and order routing. 

Council of Institutional Investors Letter at 4. The 

Commission believes that making fees determinable 

at time of execution will help investors make these 

evaluations, which can contribute to these 

discussions of fees with their broker-dealers. 

1523The Proposing Release discussed how the 

inability to know the fee or rebate at the time of a 

trade could render it difficult for a broker-dealer to 

pass on fees and rebates to customers to help avoid 

a potential conflict of interest. See Proposing 

Release, supra note 11, at 80329. See also Council 

of Institutional Investors Letter at 4–5. 

1524See supra note 1084 and surrounding 

discussion on the current practice of volume-based 

fee tiers. While the Commission has described the 

tiered structure of many exchange fee schedules, 

the benefits of fees and rebates being determinable 

at time of execution do not depend on, or result 

from, the fee schedules using volume tiers. The 

amendments do not ban volume tiers; exchanges 

can continue to offer volume tiers as long as the tier 

is based on past—rather than future—volume. 

Likewise, the benefits of determinability apply even 

if volume tiers did not exist. For example, some 

exchanges offer incentives to market makers for 

frequent quoting at the NBBO—the amendments 

require that such incentives be based on past 

quoting at the NBBO so that market participants 

could determine with certainty their fee at the time 

of execution. 

1525See supra note 1087 and surrounding 

discussion on the current practice of broker-dealers 

passing fees and rebates through to customers. 1526See Council of Institutional Investors Letter at 

4–5. 

1527See Proposing Release, supra note 11, at 

80336. Currently, customers’ lack of timely 

information and certainty about the fees and rebates 

they incur on the execution of a trade can impact 

their choice of a broker-dealer for that trade. 

1528For example, under the adopted 

amendments, it might be possible to include such 

information in a report to the investor following the 

execution of their order. 

1529See Pragma Letter at 8. 

1530See id. at 8 (‘‘Even if fees are determinable, 

it will provide little practical transparency for most 

Market Participants.’’). 

1531See infra section VII.E.2 for additional 

discussion of the competitive effects of these 

amendments. 

1532See Cboe Letter II at 9–10. 

1533See Cboe Letter I at 9. 

conflicts of interest is not supported 

with evidence.1519 There are, however, 

significant reasons to believe that 

rebates present a conflict of interest to 

agency brokers, even if there is 

uncertainty regarding to what degree 

those potential conflicts of interest are 

being acted upon. Namely, as described 

above, the quality of the execution 

accrues to the customer while the rebate 

accrues to the broker, which leads to a 

clear divergence of interests whenever 

the best rebate and the highest quality 

execution opportunities differ. 

Having fees and rebates determinable 

at the time of execution will mitigate 

these potential conflicts of interest by 

increasing broker-dealer accountability 

to their customers.1520 This is because 

the broker-dealer will be able to identify 

which fees and rebates are associated 

with which customer order, which at 

present is not possible at the time of 

execution.1521 Having information about 

the fees and rebates paid as the order is 

filled will also improve a customer’s 

ability to negotiate routing behavior and 

monitor the effects that fees and rebates 

have on its broker’s order routing 

decisions and execution quality.1522

In addition, fees and rebates being 

determinable at the time of execution 

can make it easier for broker-dealers to 

pass the actual fees and rebates on to the 

end customer.1523 Currently, it can be 

difficult for a broker-dealer to pass on 

fees and rebates to individual customers 

because the exchange fee and rebate 

pricing tier into which a broker-dealer 

falls, which ultimately determines fees 

and rebates on an individual trade, is 

typically based on the broker-dealer’s 

relative activity across the concurrent 

month and not an individual trade.1524

With fees and rebates known at the time 

of execution, it could be possible for a 

broker-dealer to more quickly and easily 

determine the amount to be passed back 

to the customer. To the extent the 

amendments increase the proportion of 

exchange fees and rebates that brokerdealers pass through to end 

customers,1525 this will benefit investors 

and also will reduce the potential 

benefits broker-dealers may receive from 

routing customer orders to exchanges 

with lower fees or higher rebates and 

thereby reduce distortions in customer 

order execution quality that this may 

cause. 

A commenter agreed with the 

Commission’s assessment in the 

Proposing Release that the ability of 

institutional investors and other market 

participants to evaluate order execution 

and routing is significantly impeded by 

a lack of determinability.1526 A lack of 

determinability reduces the amount of 

information that a market participant 

can use when evaluating order 

execution and routing decisions. 

Without the fees and rebates being 

determinable, broker-dealers may have 

difficulty transmitting information 

about fees and rebates to customers—the 

broker-dealer could not commit to a fee 

or rebate at execution, but would rather 

need to explain that uncertainty 

regarding fees and rebates could not be 

resolved until the end of the month— 

which may impede competition among 

broker-dealers.1527 In contrast, under 

the adopted amendments, it will be 

possible for broker-dealers to relay such 

information about fees and rebates 

incurred by the broker-dealer to the 

customer at the time of execution.1528

This will make the information more 

usable for customers such as 

institutional investors, increasing their 

incentives to ask for such information, 

as well as increasing the ability of the 

broker-dealer to transmit the 

information in a timely manner. 

One commenter stated that, ‘‘[f]ew 

brokers route directly to the exchanges 

. . . Rather, most brokers pay to route 

their orders through larger ‘[direct 

market access] DMA’ brokers to gain the 

benefit of the large brokers’ exchange fee 

tiers. While the Proposal would simplify 

life for those few large DMA brokers and 

proprietary trading firms who closely 

track where they fall on exchange fee 

schedules, it wouldn’t directly help the 

referenced Market Participants.’’ 1529

The same commenter stated that most 

Market Participants, ‘‘judging by 

common practice today,’’ would be 

unable to account for fees, and the 

requirements would not improve 

transparency for off-exchange trading 

where venues ‘‘are not required to 

charge standard fees, and where fees are 

often held as competitively sensitive 

secrets.’’ 1530 The Commission agrees 

that under common practice today it can 

be difficult for most Market Participants 

to account for fees that are not 

determinable or known at the time of 

execution. That said, having exchange 

fees and rebates determinable at the 

time of execution will make it more 

likely that larger DMA brokers pass 

exchange fees and rebates on to their 

customers, including when these 

customers are small brokers routing 

their orders through them. That is 

because customers can better discuss 

fees and rebates with large DMA 

brokers, and the information will be 

more useful to customers because it is 

more timely. Also, while the 

requirements only apply to exchange 

fees and rebates, exchange and offexchange trading venues compete, and 

transparency in exchange fees and 

rebates could prompt demand for 

greater transparency in off-exchange 

trading fees.1531

One commenter stated that rebate 

tiers increase aggregate liquidity, and 

that fee and rebate determinability will, 

‘‘disrupt existing economic incentives,’’ 

and, ‘‘negatively impact exchange 

liquidity provision and drive even more 

liquidity to off-exchange venues.’’ 1532

Another commenter stated that this rule 

‘‘disrupts existing economic incentives 

without justification,’’ 1533 and added 


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1534BMO Letter at 4. 

1535Such pricing can have not just benefits, but 

also costs. Tier-based volume pricing, for example, 

is used to incentivize the concentration of order 

flow—i.e., a member is incentivized to route orders 

to a particular exchange in order to qualify for a 

better pricing tier. This in turn creates a potential 

conflict of interest because the exchange member is 

incentivized to route customer order flow to the 

exchange for the purposes of tier qualification 

rather than maximizing other aspects of execution 

quality. 

1536 Volume discounts like this, which are based 

on previous volume and then provide discounts on 

future purchases, have parallels in other industries 

(e.g., loyalty reward programs). Relative to the 

baseline, such a schedule would incentivize a 

customer to stay with an exchange for an additional 

month. However, there are ways exchanges might 

alleviate these concerns, such as a fee schedule that 

would induce a switch from one exchange to 

another. 

1537Exchanges could also create alternative 

incentive programs for new members provided 

these programs are comply with the requirements 

of the Exchange Act. 

1538A ‘‘certainty equivalent’’ is a term of art in 

economics, referring to the amount of a certain (that 

is, nonrandom) payment that must be given to an 

economic agent so that the agent would be 

indifferent between this payment and some random 

payoff. 1539See Nasdaq Letter I at 33. 1540See Virtu Letter II at 11–12. 

1541See section VII.E.2.c for a discussion of the 

effect that fee determinability may have on 

competition. 

1542See Nasdaq Letter I at 33. 

1543For example, one exchange offers additional 

rebates to qualified market makers if, among other 

things, they quote at the NBBO at least 50% of the 

time during the month in an average of at least 

2,700 symbols per day. See Nasdaq Stock Mkt. LLC, 

Equity 7, Sec. 114, available at https://listingcenter.

nasdaq.com/rulebook/nasdaq/rules/nasdaq-equity7-section_114_market_quality_incentive_programs. 

Similar terms can be offered based on historic 

(rather than future) quoting. 

1544See Citadel Letter I at 25. 

that they ‘‘believe there is more 

aggregate liquidity in the marketplace 

because of the incentives provided by 

exchange rebate tiers.’’ On the other 

hand, another commenter stated that 

when pricing is not determined until 

the end of the month, a ‘‘captive 

customer’’ is created, who ‘‘. . . must 

maintain levels of qualified trading 

activity or suffer an adverse economic 

consequence for up to an entire month’s 

trading activity.’’ 1534

The Commission disagrees that fee 

and rebate determinability are likely to 

alter the economic effects related to fee 

and rebate tiers. Many of the incentives 

created by current exchange pricing 

schedules can be implemented by 

creating tier-based pricing schedules 

that are conditioned on historic (as 

opposed to future) activity, and such 

pricing would continue to be 

permissible under the amended 

rules.1535 For example, a fee schedule 

might base the current fee or rebate tier 

on the share that the exchange member 

had of the exchange’s total volume (or 

total consolidated volume) in the 

previous month.1536 The incentives for 

meeting a volume tier would remain but 

the benefits of achieving the tier would 

be realized in the following month. 

Alternatively, a fee schedule might be 

based on the current month’s absolute 

volume on the exchange (as opposed to 

share of volume), up until the moment 

of execution, which the exchange 

member would presumably know.1537

Again, the incentive would be 

approximately the same. In general, an 

incentive that is based on some future 

quantity that cannot be known with 

certainty today could likely be 

replicated by offering the certainty 

equivalent,1538 which can be calculated 

using a current or past quantity that can 

be known with certainty. This means 

that the uncertain portion of current fees 

is not strictly necessary to provide 

incentives. In this respect, any costs and 

benefits associated with volume-based 

fee tiering are not expected to change as 

a consequence of requiring fees and 

rebates to be determinable at the time of 

execution. Therefore, the benefits of the 

requirements that exchange fees and 

rebates be determinable at the time of 

execution will likely not include 

alleviating such ‘‘captive’’ customers. 

One commenter stated that requiring 

fees to be knowable at the time of 

execution would make ‘‘participation in 

exchanges’ growth programs more 

expensive in the initial month of 

participation.’’ 1539 The Commission 

acknowledges that a new broker-dealer 

will not have a history of trading and 

therefore a tier schedule based on 

historical trading could not be 

implemented until the new brokerdealer has established a history; 

however, this history need not be long, 

and exchanges can cater to new and 

small broker-dealers by constructing tier 

schedules based on a short history. 

One commenter stated that: 

‘‘[R]equiring market participants to 

calculate their activity from the prior 

period in order to determine the volume 

fee and adjust their financial plans 

accordingly adds an unnecessary layer 

of complexity. The amount of effort 

required to understand the volume fee 

system, forecast volume fees for an 

upcoming period, and confirm that fees 

are indeed being calculated 

appropriately will especially 

disadvantage smaller brokers, who 

typically have less resources at their 

disposal for needless work such as 

this.’’ 1540

The Commission disagrees that the 

rule will add complexity. The rule 

removes the need for exchange members 

to perform forecasts in order to 

determine what fee they might be 

required to pay in a given moment. This 

is because, in order for a fee to be 

known at the time of execution as the 

amendments require, the fee cannot be 

based on activity that will happen after 

the execution. The Commission 

acknowledges, however, that fee 

schedules may remain complex. The 

rule however does not require more 

from small brokers than is required 

currently, namely it does not require 

them to understand the fee volume 

system, forecast volume fees (indeed it 

eliminates the need for forecasting), or 

to confirm that fees are being calculated 

appropriately. Thus the Commission 

does not expect this rule to 

disadvantage smaller brokers, and, to 

the extent that forecasting future market 

outcomes is more difficult for small 

brokers, this rule may make it easier for 

small brokers to compete.1541

Another commenter stated that 

determinable fees ‘‘would also limit 

exchanges’ ability to incent market 

makers and other participants to quote 

at the NBBO and to do so in a large 

number of securities, including thinlytraded securities.’’ 1542 The Commission 

disagrees because exchanges can 

continue to offer incentives based on 

past quoting at the NBBO in a large 

number of securities, including thinlytraded securities. Meaningful thresholds 

for pricing based on NBBO quoting 

activity can still be set based on historic 

activity, so that incentives to quote at 

the NBBO are expected to persist.1543

Another commenter stated that, ‘‘in 

order to achieve th[e] stated regulatory 

objective’’ of certainty as to an order’s 

net fee and rebate price, and helping 

broker-dealers make better order routing 

decisions, ‘‘fees and rebates would have 

to be known prior to the time of 

execution (instead of at the point of 

execution, where the fee could vary 

based on the type of order being 

accessed).’’ 1544 The Commission 

acknowledges that fees can vary based 

on order type—for example, removing 

hidden liquidity may incur a different 

fee than removing displayed liquidity, 

and the broker-dealer may not know 

whether the order will execute against 

hidden liquidity prior to the time of 

execution. In this case, there are two 

sources of potential uncertainty if fees 

are not determinable at execution: the 

broker-dealer’s ultimate position on the 

exchange’s fee schedule, and the type of 

liquidity that is accessed. Fee 

determinability allows broker-dealers to 

know, prior to execution, what their fee 

will be for each type of liquidity that 

might be accessed; the type of liquidity 

that is accessed may not be known until 


ddrumheller on DSK120RN23PROD with RULES2
81744 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

1545MDI Adopting Release, supra note 10, at 

18601–02, 18617; see also 17 CFR 242.600(b)(82). 

1546See MDI Adopting Release, supra note 10. 

1547See Proposing Release, supra note 11, at 

80295 (describing the phased transition plan for the 

MDI Rules). 

1548See supra notes 74–78 and accompanying 

text. 

1549See MDI Adopting Release, supra note 10, at 

18599. SIP data includes odd-lot transaction 

information but does not include odd-lot quotation 

information, except to the extent that odd-lot orders 

are aggregated into round lots pursuant to exchange 

rules; see also MDI Proposing Release, supra note 

744, at 16739; MDI Adopting Release, supra note 

10, at 18727. SIP data includes odd-lot transaction 

information but does not include odd-lot quotation 

information, except to the extent that odd-lot orders 

are aggregated into round lots pursuant to exchange 

rules; see also MDI Proposing Release, supra note 

744, at 16739; MDI Adopting Release, supra note 

10, at 18727. 

1550See Proposing Release, supra note 11, at 

80295. 

1551See supra section V.E for further discussion 

on the MDI Rules Implementation. 

1552See infra section VII.E.2.c for additional 

discussion of this effect. While the Rule requires the 

exclusive SIPs to distribute odd-lot data, the MDI 

Rules do not require the competing consolidators to 

disseminate odd-lot data. However, the MDI 

Adopting Release anticipated that at least one 

competing consolidator will do so because there 

would be demand for the data. See supra section 

VII.C.3. 

1553See infra section VII.E.2.c for additional 

discussion of MDI acceleration and the potential 

effect on competition between competing 

consolidators. Requiring the SIPs to disseminate 

odd-lot information may make the SIPs more likely 

to become competing consolidators and give them 

a first-mover advantage over other competing 

consolidators. However, this advantage is likely to 

be limited because competing consolidators can 

offer a lower latency than the SIPs currently 

provide, and can offer depth-of-book data in 

addition to odd-lot information. 

1554See infra section VII.D.6.a.ii for additional 

discussion on how the BOLO will make it easier for 

market centers and broker-dealers to compute 

statistics on price improvement relative to the best 

available displayed price, now required by 

amended Rule 605. 

1555See NYSE Letter I at 7. 

1556See FISD Letter at 3, Cboe Letter II at 11, and 

BlackRock Letter at 12. 

1557See FISD Letter at 2–3. 

1558See Cboe Letter II at 11. The commenter did 

not provide an estimate of these costs, only stating 

that, ‘‘round lot conversion to actual share size will 

likely require considerable work by industry 

participants to their processing and display 

systems.’’ 

1559See CTA–UTP Letter at 1. 

the time of execution. Resolving one 

source of uncertainty prior to execution 

(the broker-dealer’s position on the 

exchange’s fee schedule) can help 

broker-dealers make better routing 

decisions even if there remains 

uncertainty along other dimensions 

(e.g., the presence of hidden orders). 

4. Acceleration and Implementation of 

the MDI Rules and Addition of 

Information About Best Odd-Lot Orders 

The MDI Rules were designed to 

increase transparency into, among other 

things, the best priced quotations 

available in the market.1545 The MDI 

Rules expanded NMS data and 

established a decentralized 

consolidation model, pursuant to which 

competing consolidators will eventually 

replace the exclusive SIPs for the 

collection, consolidation, and 

dissemination of NMS data.1546 As 

discussed in section V.A, the 

Commission adopted a phased 

transition plan for the MDI Rules,1547

which has been delayed.1548 Because 

the MDI Rules are not yet implemented, 

information about odd-lot orders in 

NMS stocks is only available on 

individual exchange proprietary data 

feeds, and market participants 

interested in quotation information for 

individual odd-lot orders must purchase 

these proprietary feeds.1549 Due to the 

delays in the MDI Rules’ 

implementation, as discussed in the 

Proposing Release,1550 the Commission 

is adopting an accelerated 

implementation schedule, with some 

modifications from the proposal, so that 

market participants, including investors, 

will be provided with the enhanced 

transparency benefits earlier than 

anticipated in the MDI Rules. 

The amendments will result in four 

changes to NMS data. Two of the 

changes will accelerate the 

implementation of specific aspects of 

MDI, namely the round lot definition 

and the inclusion of odd-lot quotations 

priced better than the NBBO in NMS 

data. This acceleration will result in 

realizing the economic effects of these 

MDI Rules sooner. The Commission 

acknowledges that the economic effects 

of the acceleration will be temporary, 

only lasting until the accelerated aspects 

of the MDI Rules would otherwise have 

been implemented.1551 The 

amendments will also impose a new 

requirement on the exclusive SIPs to 

disseminate the accelerated odd-lot 

information until the exclusive SIPs are 

retired, the effect of which is to result 

in the odd-lot information being 

disseminated sooner.1552 The 

amendments, however, present the 

possibility that the new requirements on 

the SIPs can reduce competing 

consolidator competition if the 

additional requirements dissuade some 

market participants from choosing to 

become competing consolidators, which 

could reduce the expected benefits of 

the MDI Rules.1553 The amendments 

will also require the dissemination of a 

standardized best odd-lot order or 

BOLO. The primary economic effect of 

this requirement will be to provide an 

additional standard benchmark that 

market participants could use to gauge 

execution quality—particularly for 

smaller or odd-lot orders.1554

Commenters questioned the 

sufficiency of the proposed 90-day 

implementation timeline for the 

acceleration of MDI Rules and the 

addition of the BOLO to NMS data. One 

commenter discussed the need for 

downstream programming changes for a 

variety of market participants: SIPs, 

recipients of market data, and brokerdealers.1555 This commenter stated that 

implementation is likely to take over a 

year. Several other commenters stated 

that implementation will take longer 

than 90 days.1556 One commenter 

discussed changes required for the SIPs: 

‘‘The changes required for SIPs are 

relatively straightforward from a 

conceptual perspective but will require 

significant undertakings before they can 

be implemented.’’ This commenter then 

discussed the necessary steps, 

including: notice and lead time that data 

providers must give their clients; 

product decisions vendors need to 

make; development and testing for 

exchanges, vendors, and subscribers; 

traffic and capacity decisions given the 

change in message traffic; and 

communication and education for end 

users.1557 Another commenter 

mentioned costs from converting round 

lots to actual share size in processing 

and display systems.1558 The Operating 

Committee of the CTA–UTP Plans 

commented on the need for system 

design, equipment procurement, and 

industry testing.1559 This commenter 

referenced a 2022 Odd Lots Proposal by 

the SIPs, which estimated a 10–12 

month time frame for providing only 

top-of-book odd-lot quotations by the 

SIPs; given the additional requirements 

in the Proposal, the commenter 

estimated that implementation would 

take more than 12 months. 

In light of these comments, the 

Commission is modifying the proposed 

compliance date for the round lot and 

odd-lot information definitions to 

extend the time for compliance. The 

Commission acknowledges that, all else 

equal, a shorter implementation 

timeline may result in greater total costs 

for the acceleration of the MDI Rules. 

Consistent with what commenters 

suggested was necessary for systems 

changes and testing among a variety of 

market participants, the adopted 

amendments extend the proposed 

compliance date for round lot 

definitions to approximately 12 months 

after the effective date of the 

amendments; for odd-lot information, 

the compliance date is extended to 


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1560See section VI.C. 

1561See Proposing Release, supra note 11, at 

80330. 

1562See MDI Adopting Release, supra note 10, 

section V.C.1(b)(i), for the full discussion of the 

effect of changing the round lot size on the NBBO. 

1563See MDI Adopting Release, supra note 10, at 

18744–47 for the full discussion of the effect of 

changing the round lot size on transparency and 

execution quality. See FIA PTG Letter II at 4 for 

agreement from a commenter. 

1564See MDI Adopting Release, supra note 10, at 

18747 for the full discussion of the effect of 

changing the round lot size on exchange 

competition and order routing. 

1565See MDI Adopting Release, supra note 10, at 

18748 for the full discussion of the expected costs 

of changing the round lot size. See also infra section 

VII.D.5 for an estimation and discussion of these 

compliance costs as they pertain to the proposed 

acceleration. 

1566See MDI Adopting Release, supra note 10, at 

18749 for the full discussion of the effect of 

changing the round lot size on other rules and 

regulations. The round lot definition will 

mechanically tighten the NBBO, which is used as 

a reference price for numerous rules. The reference 

prices used for the Short Sale Circuit Breaker and 

LULD Plan will be affected, though these Rules will 

continue to function consistent with their stated 

purposes. The NBBO is also used as a benchmark 

for SRO rules such as RLPs, exchange market maker 

obligations, and for some order types; exchanges 

could propose rule changes to maintain the current 

operation of these rules. Finally, the round lot 

definition could increase the benefits of 606(b)(3) 

reports because it could result in an increase in the 

number of indications of interest in higher priced 

stocks that will be required to be included in 

606(b)(3) reports. 

1567See supra notes 74–78 and accompanying 

text section for a discussion of the delays. 

1568See supra section V.B.1 for a discussion of 

the factors that affect when MDI will be 

implemented and a discussion of an estimate of the 

proposed acceleration of at least two years after the 

Commission’s approval of the plan amendment(s) 

required by rule 614(e). 

1569 In the MDI Rules the Commission estimated 

an average reduction in quoted spreads, conditional 

on the round lot definition resulting in a reduction 

of roughly 15% for stocks priced $250–$1,000 and 

28% for stocks priced $1,000–$10,000. Given the 

average quoted spread of $0.35 for stocks priced 

$250–1,000 and $2.90 for stocks priced $1,000– 

$10,000 the expected mechanical reductions are 

likely not sufficient to reduce the spreads of many 

of these stocks to the point where they would 

qualify for a lower tick size in this proposal. See 

MDI Adopting Release, supra note 10, at 18743. 

1570See generally, Proposing Release, supra note 

11. 

1571See section V.B.3.b for analysis identifying 

such stocks. In particular, see supra note 801 

identifying only two stocks—both highly liquid— 

that would have qualified for both the tick 

reduction and a reduction in the round lot as of 

Nov. 30, 2023. 

approximately 18 months after the 

effective date.1560

The 12-month implementation 

timeline for the round lot definition 

aligns with the compliance date for the 

amendments to Rule 612, allowing for 

the amended minimum pricing 

increments and new round lots to begin 

concurrently. This concurrence is 

expected to reduce the potential for 

operational risks and investor confusion 

from changing systems separately for 

both the amendments to Rule 612 and 

the acceleration of the MDI Rules, and 

reduces operational risks from a 

compressed timeline. Further, to the 

extent that commenters specifically 

discussed the timeline needed for the 

round lot definition implementation (as 

opposed to the timeline needed for both 

the round lot and odd-lot information 

definitions), no commenter stated that 

the round lot definition would require 

more than 12 months. 

The longer 18-month implementation 

timeline for the odd-lot information 

definition is commensurate with the 

added complexity of disseminating new 

data fields for odd-lot quotations at 

multiple levels inside the NBBO. 

Additionally, the 18 month timeline is 

broadly consistent with the 10–12 

month timeline that the SIPs estimated 

to be necessary for the 2022 Odd Lots 

Proposal; the longer timeline for the 

odd-lot information in these 

amendments allows for the fact that 

odd-lot information in these 

amendments includes quotations at 

each price level inside the NBBO, 

whereas the 2022 Odd Lots Proposal 

only included top-of-book odd-lot 

quotations. Further, the SIPs have been 

discussing the addition of odd-lot 

quotation information to the SIP data for 

several years and should be able to 

make the necessary adjustments to their 

processors in the adopted timeline. 

Finally, no commenter stated that the 

odd-lot information definition would 

require more than 18 months to 

implement. The adopted timeline 

allows market participants more time 

for each of the steps required for 

implementation than was initially 

proposed, which will address the 

concerns raised by commenters and 

help market participants to complete the 

tasks in a cost-effective manner. The 

compliance costs discussed in section 

VII.D.5.c reflect costs associated with 

the adopted timeline. 

a. Round Lot Definition 

As discussed in the Proposing 

Release,1561 the round lot definition in 

the MDI Rules will result in numerous 

economic effects, and the amendments 

will result in realizing these effects 

sooner. The primary effects stem from 

the MDI Rules round lot definition 

shrinking the NBBO for stocks priced 

greater than $250.1562 Other effects of 

changing the round lot definition 

include increased transparency and 

better order execution,1563 as well as 

any effects from potentially having more 

orders routed to exchanges instead of 

ATSs.1564 The costs of changing the 

round lot definition derive from 

upgrading systems to account for 

additional message traffic and 

modifying and reprogramming 

systems.1565 The Commission also 

expects that changing the round lot 

definition will impact the mechanics of 

other rules and regulations.1566 These 

economic effects will be realized earlier 

than is currently estimated under the 

existing MDI timeline because this 

portion of the MDI Rules is currently 

not set to be implemented until the end 

of the implementation timeline for the 

MDI Rules. Further, because the first 

steps of the timeline for the MDI Rules 

have not been accomplished,1567 and 

the Commission is uncertain when 

exactly the round lot definition 

otherwise will be implemented, the 

degree of the effect of the acceleration 

is unknown.1568

The Commission recognizes that the 

earlier implementation of the round lot 

definition could affect the tiered tick 

structure by sooner increasing the 

number of stocks subject to a minimum 

pricing increment of less than $0.01, but 

the Commission does not expect this 

effect to be substantial. Specifically, a 

mechanically tighter NBBO will reduce 

the time weighted average quoted 

spread used to determine the 

appropriate tick increment for stocks 

priced greater than $250. However, 

higher-priced stocks also tend to have 

higher spreads that are unlikely to 

narrow enough for the amendments to 

result in a smaller minimum pricing 

increment.1569

As discussed in the Proposing 

Release,1570 the Commission also 

recognizes that both the reduction in 

tick size and accelerating the definition 

of round lot will reduce the depth of 

liquidity at the NBBO. These effects 

might amplify each other in a small set 

of stocks. A reduction in tick size will 

spread liquidity across more price 

levels, while the implementation of the 

round lot definition will result in 

displaying smaller quotes at the NBBO. 

The amendments could result in this 

effect being amplified for stocks that 

trade above $250 with spreads narrower 

than $0.015 as these stocks will receive 

both smaller tick and smaller round lot 

sizes. The number of such affected 

stocks is likely very small.1571 The 

reduction in depth at the NBBO will 

temporarily reduce the information 

about liquidity available in the market 

for market participants who rely on 

public data feeds. However, the 


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1572See RBC Letter at 5. Queue jumping in this 

context is synonymous with pennying. See supra 

note 994. 

1573See Virtu Letter II at 8. 

1574The percentage spread measures the cost of 

liquidity, measured here as the spread, as a fraction 

of the execution price. A lower percentage spread 

indicates that transaction costs for liquidity 

demanders are a smaller fraction of the execution 

price. Here, $0.015/$250 = 0.00006 = 0.006%. 

1575A symbol-day is the unique pair of a stock 

symbol and a date. For example, one observation is 

AMZN on December 7, 2023; a second observation 

is AMZN on December 8, 2023; a third is AAPL on 

December 7, 2023, etc. 

1576This statistic is computed using all symboldays in WRDS intra-day indicators for the year 

2023. The sample has 2.3 million observations. 

1577A marketable order ‘‘walks the book’’ if the 

size of the order is larger than the amount of 

liquidity available at the best price at a market 

center; the order must therefore execute against 

liquidity at multiple price points within the limit 

order book. 

1578For example, the notional amount reflected 

by a round lot of 40 shares will generally be greater 

than $10,000 (this is because a stock’s price must 

generally be greater than $250 to be assigned a 

round lot of 40 shares, and 40*$250 = $10,000). If 

a stock has a round lot of 100 shares, a round lot 

will only reflect $10,000 of notional if the stock 

price is at least $100 (so that 100*$100 = $10,000); 

many stocks with a round lot of 100 shares do not 

have a price greater than $100. Therefore, the lower 

round lot for high-priced stocks will continue to 

reflect a notional amount that is at least as high as 

the notional reflected in round lots for stocks with 

more common prices. 

1579The new round lot definitions are structured 

so that they protect $10,000 of notional value. See 

table 1 of MDI Adopting Release, supra note 10. 

1580For example, suppose a trader wants to 

incrementally improve the NBBO by jumping ahead 

of a resting protected order. If the stock has a tick 

of $0.005 and a round lot of 40 shares, then the 

trader must improve the price by $0.005 and post 

an order with a notional value of at least $10,000, 

see id. The cost of queue-jumping is therefore at 

least $50 (0.005*$10,000). Now consider a stock 

with a tick of $0.01, a round lot of 100 shares, and 

a price of $30 per share. The cost of queue-jumping 

for this stock is only $30 (0.01*100*$30). Therefore, 

stocks that receive both a tick reduction and a 

reduced round lot under these amendments are not 

expected to experience more queue jumping—and 

consequent deterioration of the NBBO—compared 

to stocks that retain the penny tick and the 100- 

share round lot. 

1581See UBS Letter at 10. 

1582See supra note 801 identifying only two 

stocks—both highly liquid—that would have 

eventual inclusion of the depth of book 

information in consolidated market data 

under the MDI Rules, once 

implemented, will render this effect 

temporary. At that point in time, 

consolidated market data is expected to 

contain depth information at more price 

points, which will largely counteract the 

effects of a reduction in displayed depth 

from the implementation of the round 

lot definition and even from a reduction 

in tick size. 

Multiple commenters further 

discussed the potential interaction of 

the reduction in tick size and the MDI 

round lot definition. One commenter 

stated that the resulting reduction in 

depth at the NBBO would make the 

NBBO less relevant and subject to more 

instability: ‘‘With a lower notional value 

earning protected status at the NBBO, 

even accessing 100 shares of liquidity 

would likely move a stock in one of the 

new tiers’ multiple price levels. 

Furthermore, these smaller notional 

amounts reduce the risk taken to queue 

jump displayed orders by placing 

slightly more aggressively priced orders 

ahead of them.’’ 1572 A separate 

commenter stated that the reduced 

liquidity at the NBBO will require 

investors executing large orders to, 

‘‘sweep across multiple market centers, 

exposing them to greater execution risk. 

Together, these changes would reduce 

the depth at the NBBO, leaving it 

subject to greater volatility and, in turn, 

reducing reliability and execution 

quality for retail investors.’’ 1573

The Commission acknowledges that 

these are possibilities, but the 

interaction of the reduction in tick size 

and the MDI round lot definition is not 

expected to have a material impact on 

the NBBO of affected stocks. In order for 

a stock to be impacted by both the new 

round lot categories and the smaller tick 

size, it would need to have a price over 

$250 with a spread below $0.015; this 

implies that the percentage spread must 

be below 0.006%.1574 To put this in 

perspective, consider the sample of all 

stock-days in 2023.1575 For each stockday, divide its TWAQS by its price to 

measure its percentage spread. Only 1% 

of this sample has a percentage spread 

below 0.015%—i.e., the first percentile 

of the sample’s percentage spread is 2.5 

times higher than the percentage spread 

of the stocks affected by both the new 

round lot categories and the smaller tick 

size.1576 This implies that the affected 

stocks are exceptionally liquid—they 

are well within the first (i.e., most 

liquid) percentile when liquidity is 

measured using percentage spread. The 

exceptional liquidity of the affected 

stocks will likely protect their NBBO 

from material deterioration. 

The Commission does acknowledge 

that the amendments will increase the 

likelihood that a 100-share order will 

walk the book for stocks affected by 

both a reduction in the tick and the 

round lot definition; 1577 however, the 

high price (over $250 per share) of the 

affected stocks implies that the notional 

amount of such an order will be 

substantially larger than the notional 

amount of a 100-share order for a typical 

stock unaffected by the MDI Rules 

round lots. Therefore, a round lot under 

the new definition will continue to 

reflect a meaningful notional amount 

even with a reduced number of 

shares,1578 thereby ensuring that 

regulatory protections for round lots— 

such as those governing the display, 

dissemination, and protection of orders 

under Rules 602, 604, and 611— 

continue to focus on orders of 

significant size. Likewise, the 

amendments will increase the 

likelihood that particularly large orders 

may need to sweep across multiple 

market centers; however, fixing the 

notional amount of an order, a highpriced stock will require fewer shares, 

which reduces the need to sweep across 

multiple market centers. Therefore, the 

amendments will continue to protect a 

meaningful notional amount at the 

NBBO after the round lot size is reduced 

for these high-priced stocks. Similarly, 

the amendments will make it 

incrementally easier for traders to queue 

jump—i.e., penny—protected orders in 

affected stocks, but pennying will 

remain difficult due to the relatively 

high price of the affected stocks. That is, 

a trader would still need to commit a 

relatively high notional amount to jump 

the queue with a protected order. 

Finally, the concern with pennying is 

that a market participant can jump the 

queue by posting economically trivial 

price improvement; for the stocks 

affected by both the tick reduction and 

the round lot definition, however, 

posting a protected order that improves 

on the NBBO is likely to provide 

meaningful price improvement. To 

jump the queue with a protected order, 

a trader would need to post an order 

that is: (1) priced better than existing 

orders by $0.005 (which is large relative 

the stock’s typical spread of under 

$0.015), and (2) with a $10,000 notional 

value 1579 (which is larger than the 

notional value required to queue jump 

for stocks priced under $100). Such an 

order would thereby require the trader 

to offer price improvement that is 

economically large relative to the costs 

of trading the stock, and relative to the 

notional amount required to jump the 

queue in most other stocks. Therefore, 

the Commission continues to expect 

that the acceleration of the round lot 

definition will protect a meaningful 

amount of liquidity at the NBBO for 

stocks receiving the tick reduction.1580

One commenter encouraged the 

Commission to ‘‘comprehensively 

review its proposed changes to tick 

sizes, access fees and round lots to 

better evaluate how these changes 

together would impact liquidity.’’ 1581

As discussed in the preceding 

paragraphs, the Commission expects 

that a very small number of stocks (two 

as of Nov. 30, 2023 1582) would be 


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qualified for both the tick reduction and a reduction 

in the round lot as of Nov. 30, 2023. 

1583See MDI Adopting Release, supra note 10, at 

18742. 

1584See section VII.B.3 for a discussion of the 

effect that fees and rebates have on quoted spreads. 

1585See supra note 1348 and surrounding 

discussion on the effect that the tick reduction is 

expected to have on the value of MDI NMS market 

data. 

1586See supra note 1578 for an example 

indicating that the amount of notional liquidity 

reflected in a round lot will generally be higher for 

stocks receiving a reduction in the round lot size 

than stocks that retain a round lot size of 100 shares 

(due to the higher price of stocks receiving a round 

lot reduction). 

1587See Tastytrade Letter at 22. 

1588See MDI Adopting Release, supra note 10, at 

18743 Table 4. 

1589See supra note 1563. 

1590See Tastytrade Letter at 22. 

1591See supra note 791 and surrounding text for 

a discussion on the interaction of the new round lot 

definition and options trading. It is unlikely that the 

new round lot definition will confuse retail 

investors trading in options, partially because 

options markets already have standard contracts on 

stocks with a round lot size less than 100 shares. 

1592See MDI Adopting Release, supra note 10, at 

18745. 

1593See BlackRock Letter at 9–10. 

1594See SIFMA Letter II at 34. 

subject to both a change in round lot 

size and tick size because very few 

stocks have both a price above $250 (to 

qualify for a reduced round lot) and a 

TWAQS below $0.015 (to qualify for the 

tick reduction). The exceptional 

liquidity of the stocks with both these 

characteristics is unlikely to be 

materially affected by the interaction of 

the tick reduction and the reduction in 

the round lot. With respect to the 

reduction in the access fee cap, the 

Commission expects effects of that 

change to be independent of the effects 

of the round lot definition for two 

reasons. First, the reduction in the 

access fee cap is unlikely to affect a 

stock’s round lot size. This is because 

the reduction in the access fee cap—to 

the extent that it affects quoted prices as 

discussed in sections VII.B.3 and VII2— 

is not expected to move quoted prices 

by more than one tick. Round lots, on 

the other hand, are determined by 

whether a stock is priced above $250, 

$1,000, or $10,000; the probability that 

the reduction in the access fee cap 

affects a stock’s round lot assignment is 

therefore miniscule. Second, the 

reduction in the access fee cap and the 

reduction in the round lot are expected 

to have separate but unrelated effects on 

the NBBO. Stocks that receive a round 

lot less than 100 shares are expected to 

have a narrower NBBO because the new 

round lot definition will include quotes 

at better prices in core data that were 

previously excluded from being 

reported because they consisted of too 

few shares.1583 Access fees do not affect 

the existence of these better priced 

quotes with fewer shares. The reduction 

in the access fee cap is expected to put 

upward pressure on quoted spreads and 

therefore widen the NBBO; 1584 this 

effect operates at a per-share level 

because fees and rebates are assessed 

per-share, making the number of shares 

in a round lot irrelevant. Therefore, the 

Commission does not expect the round 

lot definition to interact with the 

reduction in the access fee cap. 

For institutions that do not purchase 

proprietary feeds, the MDI Rules once 

implemented will result in the display 

of five levels of depth-of-book in NMS 

market data. To the extent that the 

amendments result in liquidity spread 

out across more price levels due to the 

round lot reduction,1585 then these 

changes would reduce the value of these 

NMS market data. However, the high 

price of stocks affected by the round lot 

reduction implies that the amount of 

visible notional liquidity will remain 

high relative the notional liquidity 

visible for a typical stock unaffected by 

the MDI round lots.1586

One commenter stated that, ‘‘the 

Commission failed to note how much 

actual volume takes place in any of the 

three proposed [round lot] tiers and 

what challenge, if any, changes to round 

lot definitions would address.’’ 1587 In 

the MDI Rules, the Commission 

estimated that approximately 1% of 

stocks, 3% of share volume, and 30% of 

dollar volume will be affected by the 

new round lot tiers.1588 The 

Commission also discussed in the MDI 

Rules the effect of changing the round 

lot size on transparency and execution 

quality.1589

The commenter further suggested that 

the implementation of the round lot 

definition could cause confusion among 

retail investors: ‘‘Currently, retail 

customers, especially those trading 

options, understand one option contract 

represents one hundred shares. 

Frequently, it is simply referred to as a 

‘round lot.’ Changes in round lot sizes 

will most certainly create confusion in 

this area for retail investors.’’ 1590

The Commission acknowledges that 

there may be a learning curve associated 

with the new round lot definition. 

However, as discussed in the MDI 

Adopting Release, investor confusion 

will be temporary for four reasons. First, 

market participants already regularly 

trade in increments other than 100 

shares.1591 Second, most NMS stocks 

will continue to have a round lot of 100 

shares. Third, core data will be 

distributed with the size of the NBBO 

and best quotes in shares rather than in 

the number of round lots. Fourth, 

broker-dealers and other market 

participants will modify or develop 

their systems to automatically keep 

track of the round-lot changes.1592

Further, any confusion from the 

accelerated round lot definition would 

have occurred eventually under the 

original MDI timeline, so the 

incremental effect of MDI acceleration 

on investor confusion is minimal. 

Other commenters expressed 

concerns about monthly updates to 

stocks’ round lots. Each update requires 

market participants to ‘‘reconfigure their 

investment platforms and trading 

systems to make any modifications 

effective.’’ 1593 The same commenter 

pointed out that, under the proposal, 

round lots would be assigned at 

discrepant intervals from tick 

assignments. Commenters also stated 

that these system updates may increase 

complexity and operational risk, and 

further contribute to investor 

confusion.1594

While any periodic system update can 

pose a risk of glitches, the amendments 

assign round lots and tick sizes on the 

same schedule—every six months in 

May and November. Syncing the 

updates like this will reduce costs 

relative to the monthly round lot 

updates in the baseline by reducing the 

number of times that firms are required 

to ‘‘open the hood’’ of trading systems. 

To further reduce these costs and 

provide opportunity for industry testing, 

the adopted amendments incorporate a 

one-month gap between evaluation 

periods and the implementation of 

updated round lots and tick sizes. It is 

possible that the amendments to the 

round lot definition—i.e., the less 

frequent evaluation periods and the lag 

between evaluation and 

implementation—may cause a stock’s 

round lot to be less reflective of its price 

than would have otherwise been the 

case under the original MDI Rules round 

lot definition (e.g., if a stock’s price falls 

after the evaluation period, it may be 

assigned to a round lot that is too low 

for the next six months). This 

imprecision in round lot assignment, 

however, is unlikely to significantly 

reduce the benefits of the MDI Rules for 

two reasons. First, to the extent that a 

stock is assigned a round lot based on 

stale information, this assignment will 

be corrected within six months at the 

next evaluation date. Second, given the 

significant distance between the round 

lot thresholds (i.e., $250, $1,000, and 

$10,000), any deviation in a stock’s 

round lot as a result of these 

amendments is likely to be due to stocks 


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1595See Pragma Letter at 9. 

1596See MDI Adopting Release, supra note 10, at 

18618. The price-based round lot structure ensures 

that there is $10,000 of notional value protected 

under the new round lot definitions. See supra note 

1579. 

1597See Proposing Release, supra note 11, section 

V.D.5. 

1598See MDI Adopting Release, supra note 10, 

section V.C.1(c)(i), for the full discussion of the 

effects of including odd-lot information inside the 

NBBO in its definition of core data. Also, the MDI 

Rules do not require that the competing 

consolidators to disseminate odd-lot information, 

but the Commission anticipated in the MDI 

Adopting Release that at least one would do so. The 

requirement that the exclusive SIPs disseminate 

odd-lot information helps ensure that the economic 

effects of the acceleration of the MDI Rules occur. 

See infra section VII.D.5.c for a discussion of the 

costs to the exclusive SIPs. 

1599See MDI Adopting Release, supra note 10, 

section V.C.1(c)(i). 

1600See Cboe Letter II at 10. 1601See BlackRock Letter at 11. 1602See MDI Adopting Release, supra note 10, at 

18759 for the full discussion of the costs associated 

with expanding core data to include odd-lot 

information inside the NBBO. See also infra section 

VII.D.5.c for further discussion of compliance costs. 1603See FISD Letter at 3. The Commission agrees 

that the addition of information on odd-lot quotes 

that are priced at or more aggressively than the 

NBBO may substantially increase message traffic. 

See MDI Adopting Release, supra note 10, at 

n.2019. 

1604Multiple commenters agreed with the 

amendments’ effect on message traffic. See, e.g., 

Citadel Letter I at 26 and FIA PTG Letter II at 4. 

1605See supra note 1602. 

1606 Id. 

1607See MDI Adopting Release, supra note 10, at 

18752 n.1939. 

1608One commenter pointed out that this 

duplication of effort becomes more likely if SIPs do 

not choose to register as competing consolidators. 

See BlackRock Letter at 12. The Commission agrees 

with this assessment. 

that are near a threshold; for these 

stocks, the cost of being including in the 

next smallest or largest tier is likely to 

be small. 

Finally, one commenter suggested 

alternative price thresholds for the 

round lot definition; these thresholds 

would result in five round lot tiers.1595

The Commission continues to believe, 

as stated in the MDI Adopting Release, 

that a five-tiered approach is 

unnecessarily complex, and that the 

adopted tiers promote a smoother 

transition to a price-based round lot 

structure.1596

b. Including Odd-Lots in NMS Data 

As discussed in the Proposing 

Release,1597 the acceleration of the 

implementation of the MDI Rules that 

expand the NMS data to include odd-lot 

information inside the NBBO will result 

in sooner realizing some, but not all, 

economic effects of this aspect of the 

MDI Rules.1598 The odd-lot information 

could be useful to consumers of SIP data 

that could use it to make better 

inferences about market conditions, 

thereby leading to investment decisions 

that more fully reflect market conditions 

and increased market efficiency. This 

odd-lot information could also lessen 

the effect of a reduction in displayed 

depth at the NBBO resulting from either 

a smaller tick size or a smaller round 

lot. Specifically, expediting inclusion of 

odd-lot data will allow individual 

investors whose broker-dealers 

subscribe to the data to visually monitor 

the market sooner than they would 

otherwise.1599

Multiple commenters remarked on the 

growing importance of odd-lot activity 

for the overall equities market. One 

commenter stated that odd-lots ‘‘provide 

a meaningful source of liquidity across 

all trading sessions and stocks, 

representing 54.8% of all trades in the 

U.S. financial markets, up from 43% at 

the beginning of 2020.’’ 1600 Similarly, 

another commenter stated that 

including odd-lot information in 

consolidated market data will ‘‘improve 

transparency and increase the 

usefulness of the consolidated tape 

given the growing prevalence of market 

activity in sub 100 share quantities 

. . . . Allowing for access to this 

information, as proposed, would 

therefore likely result in increased pretrade transparency for both retail and 

institutional investors and bolster 

execution quality.’’ 1601

In addition, the amendments will 

change the timing and magnitude of 

compliance costs and other costs.1602

One commenter estimated that 

quotation traffic will increase at least 

35% as a result of adding odd-lot data 

to the SIP feeds; this estimate was based 

on a previous proposal by the CTA and 

UTP Operating Committees, which 

proposed a more limited inclusion of 

odd-lot data to the SIP feeds.1603 The 

associated costs will include: the cost 

for exclusive SIPs to upgrade existing 

infrastructure and software to handle 

the dissemination of additional message 

traffic,1604 the cost to SROs to 

implement system changes required in 

order to make the data needed to 

generate odd-lot information available 

to exclusive SIPs, and the cost of 

technological investments market 

participants might have to make in 

order to receive the SIP data.1605

While these aforementioned economic 

effects of including odd-lots in NMS 

data will be realized sooner, the 

Commission does not expect that the 

amendments will accelerate all the 

effects described in the MDI Rules 

related to adding to NMS data odd-lot 

information inside the NBBO. The 

amendments will not accelerate the 

decentralized consolidation model and 

will therefore not accelerate the benefits 

from allowing some market participants 

to reduce data expenses required for 

trading by providing a reasonable 

alternative to some market participants 

to proprietary data.1606 As such, the 

amendments will also not accelerate the 

cost to users of proprietary data whose 

information advantage will dissipate 

somewhat. In particular, the 

Commission does not believe that 

adding the specified odd-lot information 

to the exclusive SIPs will result in lowlatency traders substituting the 

exclusive SIPs for their current 

proprietary data usage. This is because 

a key component of the MDI Rules for 

this functionality is an expected 

reduction in latency of NMS data 

anticipated from the competing 

consolidator model of NMS data 

distribution.1607 The exclusive SIPs are 

not expected to be fast enough to 

replace proprietary data because 

existing SIP latency will not be reduced 

or affected by this Rule. Thus, the 

amendments will not accelerate the 

benefits anticipated in the MDI Rules 

that pertain to using low-latency odd-lot 

information. Instead, the Commission 

expects these effects to be realized after 

the implementation of all MDI Rules. 

Market participants who decide to 

receive and use odd-lot quotation 

information from the exclusive SIPs 

under these amendments will also incur 

costs if the acceleration results in 

additional systems changes when 

competing consolidators begin offering 

odd-lot information. Specifically, 

market participants that decide to 

receive odd-lot quotation information 

from exclusive SIPs will need to make 

systems changes upon implementation 

of the acceleration of the MDI Rules in 

order to receive the odd-lot quotation 

information. Because the data 

specifications of the competing 

consolidators are unknown and could 

differ from the data specification of the 

exclusive SIPs, market participants 

receiving odd-lot information from the 

exclusive SIPs could also need to make 

systems changes again to receive the 

odd-lot information from a competing 

consolidator upon full implementation 

of the MDI Rules.1608 If there are 

significant fixed costs associated with 

system changes that are incurred on 

each change, then multiple system 

changes will be inefficient and could 

increase costs. Because market 

participants who receive odd-lot 

quotation information from the 

exclusive SIPs may need to make an 

extra systems change stemming from 

this Rule—one change to receive the 

data from the exclusive SIPs, and 


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1609See Schwab Letter II at 36. 

1610See MDI Adopting Release, supra note 10, at 

18753. 

1611See MDI Adopting Release, supra note 10, at 

18754. 

1612See 17 CFR 242.603(b)(3) for rule text relating 

to this requirement under Rule 603. 

1613See Proposing Release, supra note 11, at 

80332. 

1614See infra section VII.D.5.c for additional 

discussion of the costs the exclusive SIPs are 

expected to incur. 

1615See supra note 1155. 

1616The Commission recognizes that the 

exclusive SIPs have some incentive to offer odd-lots 

as indicated by the exclusive SIPs seeking comment 

on doing so. See, e.g., Proposal of the CTA and UTP 

Operating Committees Regarding Odd Lots on the 

SIPs (Mar. 2022), available at https://

www.ctaplan.com/publicdocs/ctaplan/CTA_Odd_

Lots_Proposal_2022.pdf. 

1617These costs include systems changes and data 

storage. See section VII.D.4.b for a discussion of 

these costs. 

1618Any changes in fees for SIP data would need 

to be filed by the Equity Data Plans and approved 

by the Commission. See supra note 887 and 

accompanying text for further discussion. 

1619See Rule 605 Amendments, supra note 10, 

section IX.D.b.2.c.vii for further discussion of the 

benefits of disclosing execution quality 

benchmarked to the best available displayed price. 

1620Because the amount of information 

disseminated as a result of the amended rule BOLO 

dissemination requirement would likely result in 

significantly less message traffic compared to the 

amount of information that would be disseminated 

as a result of the amended rule MDI odd-lot 

information dissemination requirement, we expect 

market participants will be able to receive the 

BOLO information required here without having to 

make significant system upgrades, unlike the MDI 

odd-lot information. Therefore, a broader set of 

market participants may choose to receive the 

BOLO from the exclusive SIPs (and later on, 

competing consolidators) than all of the MDI oddlot information. Additionally, because of the lower 

message traffic, more broker-dealers may make 

Continued 

potentially another change to receive 

the data from a competing 

consolidator—some market participants 

may decide not to implement systems 

changes to make use of the accelerated 

implementation of the odd-lot 

information and, instead, wait until the 

MDI Rules are fully implemented. This 

would dampen some of the benefits of 

accelerating the inclusion of odd-lot 

quotation information. 

To the extent that some market 

participants store SIP data for various 

purposes (such as transaction cost 

analysis), the acceleration of the MDI 

Rules could hasten an increase in 

storage costs because the amount of SIP 

data increases with the inclusion of 

odd-lot data. Many factors affect these 

costs in total, such as the number of 

market participants storing SIP data, the 

data structures they use to store SIP 

data, whether these market participants 

will choose to store all or just some of 

the SIP data provided by the 

amendments, and the period over which 

the amendments will affect these storage 

costs. Because the Commission does not 

have information on how many market 

participants will store MDI odd-lot 

information and the methods they will 

use to do so, the Commission is unable 

to estimate these costs. 

One commenter stated that displaying 

odd-lot quotes ‘‘could lead investors to 

expect prices that are not available.’’ 1609

The Commission acknowledges that 

there may be a learning curve associated 

with the dissemination of odd-lots on 

the SIP. However, any confusion from 

the accelerated dissemination of odd-lot 

quotes would have occurred eventually 

under the original MDI timeline, so the 

incremental effect of MDI acceleration 

on investor confusion is minimal. 

Further, as discussed in the MDI 

Adoption Release, the Commission 

acknowledges that many retail investors 

may not directly view the entire content 

of expanded core data—retail brokers 

may decide not to offer their customers 

direct access to all of the odd-lot 

information but may rather customize 

products derived from odd-lot 

information.1610 The provider of these 

customized products is expected to 

supply the information in a way that 

does not confuse the provider’s 

customers. To the extent that retail 

brokers allow some customers to 

directly utilize all of the odd-lot 

information, the customers who choose 

to do so will likely be sophisticated—as 

evidenced by their seeking out the 

information—and will likely not be 

confused.1611

c. Dissemination of Odd-Lots in SIP 

Data 

The Amendments require the 

exclusive SIPs to disseminate odd-lot 

data.1612 As discussed in the Proposing 

Release,1613 this requirement will help 

realize the benefits of accelerating the 

implementation of including odd-lot 

information in NMS data while 

imposing costs on exclusive SIPs and 

potentially on market participants.1614

The MDI Rules do not require the 

competing consolidators to disseminate 

odd-lot data. However, the Commission 

estimated in the MDI Rules that at least 

one competing consolidator will do so 

because there will be demand for the 

data.1615 These amendments, though, do 

not accelerate the competing 

consolidator model. Unlike competing 

consolidators, each exclusive SIP is the 

only distributor of the entirety of its 

data and may lack the incentive to 

disseminate the data. As a result, the 

Commission cannot rely on the 

exclusive SIPs to disseminate the oddlot information prescribed by the MDI 

Rules absent a requirement to do so; the 

benefits of the acceleration could 

therefore be at risk without the 

Amendment to Rule 603’s requirement 

for the SIPs to disseminate.1616

While the inclusion of the odd-lot 

data could impose costs on those who 

receive and use exclusive SIP odd-lot 

data,1617 the requirement that exclusive 

SIPs disseminate the data could also 

impose costs on those who receive but 

do not have an interest in using odd-lot 

information provided in SIP data. These 

costs would vary based on how the 

exclusive SIPs decide to implement the 

dissemination of the MDI odd-lot 

information. For example, if the 

exclusive SIPs offer a separate data feed 

for odd-lot quotation information, then 

market participants that do not have an 

interest in this information may not 

incur any additional costs because they 

would not need to subscribe to this data 

feed. If the exclusive SIPs instead 

incorporate MDI odd-lot quotation 

information into an existing data feed, 

then market participants may incur 

costs to update their systems to filter out 

the unwanted odd-lot information; the 

Commission is unable to estimate these 

costs because they would vary across 

market participants and depend upon 

each market participant’s existing 

infrastructure, which is unknown to the 

Commission. Further, such SIP data 

users could incur the cost of any SIP 

data fee increases intended to offset the 

costs to exchanges and exclusive 

SIPs.1618 However, SIP data fees did not 

increase when the exclusive SIPs started 

to include odd-lot trades. 

d. Best Odd-Lot Order Definition 

The amendments go beyond the MDI 

Rules by requiring that NMS data also 

include information on the best priced 

odd-lot orders across all markets. 

Including the best odd-lot order in a 

standardized form will offer market 

participants a standard benchmark, like 

the NBBO, to use to measure execution 

quality. As discussed in the Rule 605 

Amendments1619 a market center may 

be able to internalize an order and claim 

price improvement relative to the NBBO 

even if better priced odd-lots are 

available at another market center. A 

standardized best odd-lot benchmark 

may give market participants that 

receive it valuable information for 

evaluating broker-dealers and market 

centers. Including this benchmark in 

NMS data allows the information to be 

readily available to a broad set of market 

participants, including those investors 

to whom broker-dealers choose to make 

this information available.1620


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information on the BOLO available to their 

customers than MDI odd-lot information. 

1621While the Commission does not expect most 

retail traders would engage in this sort of 

benchmarking due to a lack of technical capacity to 

do so among most retail traders, institutional 

traders likely have such capacity and so would 

engage in this type of monitoring. Institutional 

traders have strong incentives to monitor all aspects 

of transaction costs as these costs can significantly 

affect portfolio performance. See Amber Anand, et 

al., Performance of Institutional Trading Desks: An 

Analysis of Persistence in Trading Costs, 25 Rev. 

Fin. Stud. 557 (2012). 

1622See IEX Letter I at 31. Another commenter 

agreed more generally that the best odd-lot order 

will enhance the usefulness of odd-lot information 

and enhance liquidity—see Cboe Letter II at 10. 

1623See SIFMA Letter II at 34 requesting an 

analysis of the effect of the BOLO on the display 

of locked and crossed markets. 

1624See supra note 1051 for the definition of 

locked and crossed markets. A locked or crossed 

market occurs when there is a passive buy order on 

one venue at a price greater or equal to the price 

of an existing passive sell order at another venue; 

the fact that these orders have not executed against 

each other indicates that there is a friction between 

the trading venues. 

1625See Craig W. Holden & Stacey Jacobsen, 

Liquidity Measurement Problems in Fast, 

Competitive Markets: Expensive and Cheap 

Solutions, 69 J. Fin. 1747 (2014). This paper 

estimates that 1.7% of trades occur when the NBBO 

is locked, and 0.5% of trades occur when the NBBO 

is crossed—see table 1, Panel A, column 4 therein. 

The authors conjecture that some of these instances 

arise due to a data issue where quotes have been 

canceled, but the cancellation was not recorded by 

the time of the trade. 

1626 Id. 

1627See Id. for an example of one methodology 

used when employing market data in the presence 

of locked or crossed markets. 

1628 17 CFR 242.610(d)(1). 

1629See Citadel Letter I at 26–27, and SIFMA 

Letter II at 43–44. 1630 Id. 1631See JPMorgan Letter at 7, FIA PTG Letter II 

at 5, and ASA Letter at 6. 1632See infra section VII.D.6.a.ii discussing how 

the BOLO will make it easier for market centers and 

broker-dealers to compute statistics on price 

improvement relative to the best available 

displayed price, now required by amended Rule 

605. 1633See Citadel Letter I at 27. 

Currently, this information is only 

available to market participants who 

have proprietary data feeds, and even 

then there could be differences across 

market participants with these data in 

terms of how exactly market 

participants calculate the best odd-lot 

order (or how many proprietary feeds 

they include). The best odd-lot 

information in the NMS data will 

provide a standardized benchmark that 

reflects the best odd-lot price 

consolidated across all national 

securities exchanges and national 

securities associations. This benchmark 

may allow more market participants to 

better monitor the execution quality of 

their broker-dealers and send more 

trading volume to broker-dealers with 

better performance.1621 One commenter 

highlighted the value of this new 

benchmark: ‘‘. . .transparency requires 

that the units used to represent the 

range of prices available in the market 

match the units in which participants 

typically quote and trade.’’ 1622 For 

market participants who receive the 

BOLO and typically execute small 

trades, the best odd-lot order will 

provide them more relevant information 

on available orders. Thus, including the 

best odd-lot information could enhance 

competition among broker-dealers 

leading to better trade execution and 

perhaps a lower cost to customers for 

execution services. 

One commenter expressed concern 

that the best odd-lot order would result 

in ‘‘displaying locked/crossed 

markets.’’ 1623 It is possible for the best 

odd-lot bid to be at a price equal to or 

higher than the best odd-lot ask; in these 

cases, the best odd-lot order would 

show a locked or crossed market.1624

Academic research shows that the 

NBBO does get locked and crossed from 

time to time.1625 These tend to be 

fleeting events.1626 Because the BOLO 

will provide prices inside the NBBO, 

the BOLO will likely be crossed or 

locked more frequently than the NBBO. 

However, it is unclear what practical 

effect a locked or crossed BOLO would 

have on financial markets or those that 

use the BOLO. Market participants are 

already well versed in using the NBBO, 

which can be locked and crossed from 

time to time, so it is likely that they 

would use similar techniques for 

dealing with locked and crossed 

markets when, for example, 

benchmarking relative to the BOLO.1627

Further, market participants who 

subscribe to proprietary data feeds 

already have access to information on 

when the best odd-lot orders may lock 

or cross each other; the rule amendment 

merely extends this information to 

market participants who do not 

subscribe to proprietary data feeds. As 

more market participants see the 

information contained in the BOLO, 

there may be fewer instances of locked 

and crossed odd-lot quotes—e.g., more 

market participants will have the 

information needed to arbitrage crossed 

odd-lot markets. Finally, a locked or 

crossed BOLO will be less disruptive 

than a locked or crossed NBBO because 

Rule 610 of Regulation NMS requires 

SROs to adopt rules requiring their 

members reasonably to avoid displaying 

quotations that lock or cross protected 

quotations.1628 However, the BOLO 

does not establish a protected quote, 

and so a locked or crossed BOLO would 

not trigger the same reaction by SROs 

and their members as a locked or 

crossed NBBO. 

Other commenters discussed the 

effect BOLO may have on investor 

confusion. Two commenters stated that: 

‘‘Calculating and publishing an odd-lot 

NBBO risks creating significant investor 

confusion due to the appearance that a 

new benchmark is being established 

even though odd-lots are treated 

differently than round-lots under 

Commission regulations. Rather than 

taking steps to prevent unnecessary 

investor confusion, the Commission 

encourages it by suggesting that the oddlot NBBO is a ‘standard benchmark’ that 

could be used by investors ‘to measure 

the amount of price improvement they 

receive for the execution of their 

orders.’ ’’ 1629 The commenters 

continued: ‘‘The odd-lot NBBO is not a 

standard benchmark, since the size 

associated with these quotes will vary 

greatly as opposed to the actual NBBO, 

which always represents a roundlot.’’ 1630 Similarly, some commenters 

stated that the BOLO will not provide a 

useful benchmark and may instead 

distort price improvement statistics.1631

The Commission acknowledges that 

the BOLO is not, at present, a widely 

used and standard benchmark. This is 

likely because the requisite data is not 

broadly distributed and is only available 

to market participants who have 

proprietary data feeds. In contrast, the 

NBBO is broadly distributed in NMS 

data and is also more widely used as a 

benchmark. The Commission believes 

that including the BOLO in NMS data 

will similarly allow market participants 

to more easily use the BOLO as a 

benchmark if they choose to.1632

The Commission also recognizes that 

an odd-lot price that is better than the 

NBBO may not reflect sufficient 

quantity to execute certain orders, 

particularly larger-sized orders, and, as 

a result, price improvement relative to 

the BOLO will be more relevant in some 

cases than for others. However, market 

participants are already well versed in 

interpreting nuanced benchmarks—for 

example, holding the round lot size 

constant, the NBBO may reflect a 

different amount of dollar liquidity 

based on the price of the stock. 

Furthermore, the size available at the 

NBBO of any particular stock might be 

a great deal more than a single round 

lot. This means that market participants 

already deal with the distinction 

between the price of a benchmark and 

the amount of shares available at that 

benchmark price. Indeed, while one 

commenter points out the challenge of 

comparing a 500-share order to a 10- 

share odd-lot,1633 a similar challenge 

already exists in comparing a 1000- 


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1634See Proposing Release, supra note 11, at 

80333. 

share order to a 100-share round lot. 

This challenge is understood and 

handled already; market participants 

already know that quantity must be 

taken into account when making 

comparisons. The Commission expects 

that market participants who will 

benchmark their trades with the BOLO 

will generally have comparable levels of 

sophistication as investors who 

currently use the NBBO benchmark; 

given that users of the NBBO benchmark 

are already adept at accounting for order 

size, these users should not be confused 

by the BOLO. It is important that market 

participants have access to a variety of 

benchmarks to meet their various 

purposes, and the BOLO will provide a 

useful data point for market participants 

to consider in addition to the NBBO. 

5. Compliance Costs 

Various market participants will incur 

one-time implementation costs as well 

as ongoing compliance costs to comply 

with the Rule. These costs and their 

computations are discussed in greater 

detail below, but are summarized in 

table 15. Some of the costs are 

associated with the acceleration of 

aspects of the MDI Rules and will only 

represent new costs (which are not 

already anticipated under the MDI 

rules) if the exclusive SIPs do not 

become competing consolidators once 

the MDI rules are fully implemented. 

TABLE 15—COMPLIANCE COST ESTIMATES

Rule Affected entities One-time 

costs 

Ongoing 

costs 

Number of 

entities 

Total onetime costs 

Total 

ongoing 

costs 

612 ............................... All trading venues a ........................................... $156,000 ................ 277 $43,212,000 ................

612 ............................... Listing exchanges b ........................................... 33,000 9,000 5 165,000 $45,000 

612 ............................... SIPs c ................................................................. 13,000 9,000 2 26,000 18,000 

612 ............................... Broker-dealers with order entry systems d ........ 33,000 ................ 1,161 38,313,000 ................

612 ............................... Broker-dealers with smart order routers e ......... 11,000 ................ 270 2,970,000 ................

610 ............................... Exchanges f ....................................................... 57,000 ................ 15 855,000 ................

600, 603 ....................... Exchanges g ....................................................... 3,500 6,500 16 56,000 104,000 

600, 603, 612 ............... SIPs h ................................................................. 613,000 174,000 2 1,226,000 348,000 

Total ...................... ............................................................................ ................ ................ ........................ 86,823,000 515,000 

Sources: Across estimates below, salaries are derived from SIFMA’s Management & Professional Earnings in the Securities Industry 2013, 

modified to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and 

overhead. The burden hours estimates are based on Commission’s experiences with burden estimates. aSee Proposing Release, supra note 11, at 80333. The Proposing Release’s estimate of $140,000 is adjusted to $156,000 to account for an 

11.4% increase in the Producer Price Index for Data Processing, Hosting and Related Services from December 2014, when the $140,000 estimate was first made. See U.S. Bureau of Labor Statistics, Producer Price Index by Industry: Data Processing, Hosting and Related Services: 

Hosting, Active Server Pages (ASP), and Other Information Technology (IT) Infrastructure Provisioning Services [PCU5182105182105], retrieved 

from FRED, Federal Reserve Bank of St. Louis; available at https://fred.stlouisfed.org/series/PCU5182105182105 (Mar. 11, 2024). bThe $33,000 estimate per listing exchange is based on the following calculations: $19,950 (hourly rate for Sr. Programmer at $399 for 50 

hours) + $6,860 (hourly rate for Sr. Systems Analyst at $343 for 20 hours) + $3,730 (hourly rate for Compliance Manager at $373 for 10 hours) + 

$2,940 (hourly rate for Director of Compliance at $588 for 5 hour) $33,000, for a total annual monetized burden of $165,000 (i.e., $165,000 = 

$33,000 × 5 listing exchanges). The $9,000 estimate per listing exchange is based on the following calculations: ($2,640 (hourly rate for Compliance Attorney at $440 for 6 hours) + $746 (hourly rate for Compliance Manager at $373 for 2 hours)) × 4 tick size revisions per year) $9,000, for 

a total annual monetized burden of $45,000 (i.e., $45,000 = $9,000 × 5 listing exchanges). cThe $13,000 estimate per listing exchange is based on the following calculations: $4,788 (hourly rate for Sr. Programmer at $399 for 12 

hours) + $1,715 (hourly rate for Sr. Systems Analyst at $343 for 5 hours) + $3,730 (hourly rate for Compliance Manager at $373 for 10 hours) + 

$2,940 (hourly rate for Director of Compliance at $588 for 5 hour) $13,000. The $9,000 estimate per listing exchange is based on the following 

calculations: ($2,640 (hourly rate for Compliance Attorney at $440 for 6 hours) + $746 (hourly rate for Compliance Manager at $373 for 2 hours)) 

× 4 tick size revisions per year) $9,000. 

dThe $11,000 estimate per system change is based on the following calculations: ($2,005 (hourly rate for Attorney at $401 for 5 hours) + 

$2,980 (hourly rate for Compliance Manager at $298 for 10 hours) + $4,640 (hourly rate for Programmer Analyst at $232 for 20 hours) + $1,325 

(hourly rate for Senior Business Analyst at $265 for 5 hours) ≈ $11,000. The Commission expects that broker-dealers are likely to have to undertake 3 system changes, for a total one-time expense of $33,000. See also Transaction Fee Pilot Adopting Release, infra note 1644, at 5271 

n.770. eThe $11,000 estimate per broker-dealers with smart order routers is based on the following Manager at $298 for 10 hours) + $4,640 (hourly 

rate for Programmer Analyst at $232 for 20 hours) + $1,325 (hourly rate for Senior Business Analyst at $265 for 5 hours) ≈ $11,000. See also 

Transaction Fee Pilot Adopting Release, infra note 1644, at 5274 n.796 where the cost to broker-dealers to update systems for the TSP was estimated to be $9,000. Here, we are allowing for an additional 10 hours of Programmer Analyst time. fSee Proposing Release, supra note 11, at 80333. gThe additional $3,500 in one-time costs and $6,500 in ongoing costs represent a 5% addition over the costs reported in the MDI release. See 

supra note 10, section V.C.2(d)(ii) to account for the new requirement to send the necessary data to generate odd-lot information to the exclusive 

SIPs. hThe $613,000 estimate in one-time costs is based on the following calculations: $33,000 (costs under the amendments to Rule 612 to update 

data specifications and internally and externally test the updates) + $167,670 ($83,790 (hourly rate for Sr. Programmer at $399 for 210 hours) + 

$61,740 (hourly rate for Sr. Systems Analyst at $343 for 180 hours) + $7,460 (hourly rate for Compliance Manager at $373 for 20 hours) + 

$5,880 (hourly rate for Director of Compliance at $588 for 10 hours) + $8,800 (hourly rate for Compliance Attorney at $440 for 20 hours) + 

$412,500 (costs for external services). The $174,000 estimate in ongoing costs is based on the following calculations: $50,301 ($25,137 (hourly 

rate for Sr. Programmer at $399 for 63 hours) + $18,522 (hourly rate for Sr. Systems Analyst at $343 for 54 hours) + $2,238 (hourly rate for 

Compliance Manager at $373 for 6 hours) + $1,764 (hourly rate for Director of Compliance at $588 for 3 hours) + $2,640 (hourly rate for Compliance Attorney at $440 for 6 hours)) + $123,725 (costs for external services). See infra notes 1745, 1747, 1749, and 1750 and accompanying text 

for relevant details on these cost estimates. 

a. Estimates for Rule 612 

Each trading venue will have to 

update systems to comply with the 

change in tick size for some NMS stocks 

under the Rule 612 amendments. Due to 

similarities with the changes that were 

required by the TSP, the Commission 

estimated, in the Proposing Release, that 

the amendments to Rule 612 would 

impose the same costs to trading venues 

as those estimated for the TSP.1634


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1635An exchange commenting on the Tick Size 

Pilot estimated $140,000 as its expected expense to 

comply with the Tick Size Pilot’s requirement to 

change the tick size for some stocks. See James G. 

Ongena, Chicago Stock Exchange (CHX), Comment 

Letter Re: File No. 4–657; Notice of Filing of the 

Proposed National Market System Plan to 

Implement a Tick Size Pilot Program On a One-Year 

Pilot Basis (Dec. 2014), available at https://

www.sec.gov/comments/4-657/4657-67.pdf. 

1636See FIF Letter at 9–10 and FISD Letter at 3. 

1637See Proposing Release, supra note 11, at 

80333 n.618 and surrounding text. 

1638See FIF Letter at 9 (‘‘Some FIF members 

would estimate that the increased server, 

bandwidth and other costs would be roughly 

proportional to the increase in message traffic’’). 

1639The Commission has updated the expected 

costs to $156,000 from $140,000 to reflect the 

roughly 11.4% increase in the Producer Price Index 

for Data Processing, Hosting and Related Services 

from December 2014, when the $140,000 estimate 

was first made. See U.S. Bureau of Labor Statistics, 

Producer Price Index by Industry: Data Processing, 

Hosting and Related Services: Hosting, Active 

Server Pages (ASP), and Other Information 

Technology (IT) Infrastructure Provisioning Services 

[PCU5182105182105] (Mar 11, 2024, retrieved from 

FRED, Federal Reserve Bank of St. Louis, available 

at https://fred.stlouisfed.org/series/

PCU5182105182105. 

1640The technical aspect of a broker-dealer that 

internalizes customer orders updating its system to 

reflect the tiered tick regime is likely similar to that 

of an exchange or an ATS. Thus, the Commission 

is applying the same cost estimate for wholesalers 

and other broker-dealers that execute customer 

orders to update their systems as that applied to 

exchanges and ATSs. In Q1 2023 there were 16 

registered exchanges, 33 ATSs, and 228 other 

FINRA members (including wholesalers) that 

executed orders off-exchange. In the first quarter of 

2023, there were 277 total entities affected. See Rule 

605 Amendments, supra note 10, at 26542. 

1641The $33,000 estimate per listing exchange is 

based on the following calculations: $19,950 

(hourly rate for Sr. Programmer at $399 for 50 

hours) + $6,860 (hourly rate for Sr. Systems Analyst 

at $343 for 20 hours) + $3,730 (hourly rate for 

Compliance Manager at $373 for 10 hours) + $2,940 

(hourly rate for Director of Compliance at $588 for 

5 hour) ≈ $33,000. Salaries for estimates in this 

section are derived from SIFMA’s Management & 

Professional Earnings in the Securities Industry 

2013, modified to account for an 1,800-hour workyear and inflation, and multiplied by 5.35 to 

account for bonuses, firm size, employee benefits 

and overhead. 

1642See generally CTA–UTP Operating 

Committee Letter and FIF Letter. 

1643 Id. 

1644The $13,000 estimate per listing exchange is 

based on the following calculations: $4,788 (hourly 

rate for Sr. Programmer at $399 for 12 hours) + 

$1,715 (hourly rate for Sr. Systems Analyst at $343 

for 5 hours) + $3,730 (hourly rate for Compliance 

Manager at $373 for 10 hours) + $2,940 (hourly rate 

for Director of Compliance at $588 for 5 hour) 

$13,000. Salaries for estimates in this section are 

derived from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified 

to account for an 1,800-hour work-year and 

inflation, and multiplied by 5.35 to account for 

bonuses, firm size, employee benefits and overhead. 

1645The $9,000 estimate per listing exchange is 

based on the following calculations: ($2,640 (hourly 

rate for Compliance Attorney at $440 for 6 hours) 

+ $746 (hourly rate for Compliance Manager at $373 

for 2 hours)) × 4 tick size revisions per year) $9,000. 

1646See, e.g., 17 CFR 242.605(a)(ii)(E), requiring 

the reporting of the number of shares executed with 

price improvement, and 17 CFR 600(b)(36) defining 

‘‘executed with price improvement’’ to mean, for 

buy orders, execution at a price lower than the 

national best offer at the time of order receipt and, 

for sell orders, execution at a price higher than the 

national best bid at the time of order receipt. 

1647See, e.g., 17 CFR 242.605(a)(ii)(A), requiring 

the reporting of the average quoted spread for 

executions of covered orders, and 17 CFR 

600(b)(12), defining the average quoted spread as 

the share-weighted average of the difference 

between the national best offer and the national best 

These costs were estimated at $140,000 

in 2014 at the time of the TSP.1635

Some commenters stated that the 

$140,000 estimated cost to trading 

venues in the proposal was too low 

because exchanges would have to 

acquire additional hardware and update 

various systems.1636 These commenters 

did not provide alternative estimates for 

the implementation costs. As discussed 

in the Proposing Release, this $140,000 

estimate is derived from exchange 

feedback on the costs associated with 

the TSP.1637 This estimate 

acknowledges that the market 

participants may have hardware and 

system costs associated with the 

amendments. Given that those hardware 

and system changes are similar in 

nature to those associated with the TSP, 

and the commenters did not provide 

analysis to the contrary, the 

Commission continues to believe that 

this estimate is reasonable. One 

commenter suggested that the costs of 

processing and disseminating trading 

information may increase linearly with 

any increases in message traffic.1638

However, estimating the costs in this 

manner is not possible as the 

Commission does not know the current 

costs incurred by exchanges in 

processing and disseminating trading 

information, is unaware of data sources 

that could provide reliable estimates, 

and commenters did not provide such 

information. As discussed in section 

VII.D.1.c, the Commission 

acknowledges that message traffic may 

increase due to the amendments to Rule 

612, and so the costs of processing and 

disseminating message traffic may 

similarly increase. There is, however, 

uncertainty as to whether exchanges 

will need to incur additional hardware 

investments, and the degree of such 

investments, if they are needed, will 

likely differ from exchange to exchange, 

as it would depend on the capacity of 

their existing infrastructure to handle 

increased data. 

To account for likely increases in the 

costs of computer hardware since 2014, 

the Commission is revising the 

estimated costs from $140,000 to 

$156,000 per trading venue.1639 As 

shown in table 15, the Commission 

estimates that the compliance costs 

associated with the amendments of Rule 

612 across all trading venues are $43 

million. This estimate is computed by 

multiplying an estimated $156,000 in 

one-time costs incurred by each trading 

venue to update systems to comply with 

the amendments to Rule 612, by the 

estimated number of trading venues, 

which is 277 trading venues.1640

Under the amendments to Rule 612, 

listing exchanges will have to calculate 

NMS stocks’ time weighted average 

quoted spreads and transmit their 

associated tick size to the exclusive 

SIPs. The Commission does not believe 

the reduction in the number of tick sizes 

relative to the proposal will 

significantly affect compliance costs 

since the TWAQS still needs to be 

calculated for each stock and assigning 

a stock to a tick size is not 

computationally or conceptually 

difficult once the TWAQS has been 

computed. Thus, the Commission is 

keeping the estimate for listing 

exchanges the same at $33,000 per 

listing exchange. 1641

Commenters stated that modifications 

to the data specifications with regards to 

transferring the tick size information 

from the listing exchanges to the SIPs 

would require both internal and 

external testing by the primary listing 

exchange and the SIPs.1642 Commenters 

stated that modifications to data 

specifications require software changes 

and require testing.1643 The Commission 

anticipates that the SIPs will not have 

to acquire additional hardware or 

develop new systems in order to 

incorporate the minimum pricing 

increment indicator; they will rather 

need to update existing specifications. 

The Commission expects that the 

amendments to Rule 612 will require a 

one-time cost for updating existing 

systems and will not increase the cost 

of becoming a competing consolidator 

once the MDI Rules are implemented, 

because the amendments are not 

expected to increase the cost of 

establishing new systems. Accordingly, 

the Commission estimates a one-time 

cost of $13,000 1644 and ongoing costs of 

$9,000 per year 1645 for the two SIPs. 

These estimates are based on the 

Commission’s understanding that the 

listing exchanges currently have access 

to the data needed to calculate the time 

weighted average quoted spreads 

because such data, specifically the 

NBBO, are needed for the exchanges to 

compile Rule 605 reports.1646 Thus, the 

Commission does not expect that the 

exchanges will incur additional costs 

associated with gathering data. 

Additionally, the listing exchanges have 

experience computing a share-weighted 

measure of average quoted spreads for 

their Rule 605 reports.1647 The listing 


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bid at the time of order receipt or, for order 

executions of midpoint-or-better limit orders, the 

difference between the national best offer and the 

national best bid at the time such orders first 

become executable. Additionally, some listing 

exchanges have issued white papers that include 

statistics based on time weighted average quoted 

spreads. See, e.g., Nasdaq Intelligent Tick, supra 

note 150, Chart 3 and Cboe Proposal, supra note 

150, Exhibit 1. 

1648See MDI Adopting Release, supra note 10, at 

18612 n.1133 and surrounding text. The costs for 

the competing consolidators to connect to the 

exchanges is accounted for in the MDI Rules and 

thus would not represent costs associated with this 

proposal. 

1649See Proposing Release, supra note 11, at 

80332–34. 

1650See Apex Letter at 15. 

1651See FIF Letter at 9, TradeStation Letter at 6, 

Citigroup Letter at 2, and FISD Letter at 3. 

1652See FIF Letter at 9. 

1653See Proposing Release, supra note 11, at 

80332. 

1654See table 15 note d. 

1655The Commission believes that the order 

management, execution management, and customer 

trading functions highlighted by the commenter are 

sufficiently similar to be covered under a single 

system change. The middle-office trade processing, 

reporting, and settlement functions constitute 

another system change. Surveillance and 

compliance systems constitute a third system 

change. 

1656Using CAT data from December 2023, the 

Commission calculated the total number of unique 

Central Registration Depository Numeric Identifiers 

‘‘CRDs’’ that originated an order to estimate the 

number of entities with an order entry system. 

1657The $11,000 estimate per broker-dealers with 

smart order routers is based on the following 

Manager at $298 for 10 hours) + $4,640 (hourly rate 

for Programmer Analyst at $232 for 20 hours) + 

$1,325 (hourly rate for Senior Business Analyst at 

$265 for 5 hours) ≈ $11,000. See also Securities 

Exchange Act Release No. 84875 (Dec 19, 2018), 84 

FR 5202 (Feb 20, 2019) (‘‘Transaction Fee Pilot 

Adopting Release’’) at 5274 n.796 where the cost to 

broker-dealers to update systems for the TSP was 

estimated to be $9,000. Here, we are allowing for 

an additional 10 hours of Programmer Analyst time. 1658See FIF Letter at 9. 1659See supra section VII.D.1.c for additional 

discussion about costs to market participants 

stemming from increases in message traffic. 1660This number is estimated by counting the 

number of unique CRDs that submitted an order 

directly to an exchange or ATS in the month of 

December 2023. 1661The Commission also expects there may be 

other costs associated with updating systems to 

account for an increase in message traffic resulting 

from the new tick sizes. See supra section VII.D.1.c 

for additional discussion. 

exchanges also already have 

connections to the exclusive SIPs, and 

once competing consolidators replace 

the exclusive SIPs it is the competing 

consolidators that will have the 

responsibility to connect to the 

exchanges in order to receive data. 

Thus, under the MDI Rules the 

exchanges will not incur additional 

costs to connect to the competing 

consolidators.1648 Additionally, the SIPs 

have experience distributing regulatory 

data and so the costs represent those of 

adding the tick size to existing data. 

Consequently, the Commission expects 

that having the listing exchange 

compute time weighted average quoted 

spreads and transmit the associated tick 

to the exclusive SIPs currently, or to the 

competing consolidators once the 

exclusive SIPs are discontinued, will 

require listing exchanges to modify 

existing systems, rather than build or 

acquire new systems or hardware. 

The Commission expects that brokerdealers with order entry systems will 

need to modify their existing systems to 

comply with the tick size changes and 

will not need to acquire new hardware 

or develop new systems for this specific 

aspect of the adopted rule. In the 

Proposing Release, the Commission had 

estimated the cost of a broker-dealer 

system change at $11,000.1649 One 

commenter stated that for most firms a 

significant technological build will not 

be needed,1650 other commenters stated 

that broker-dealers would have to 

undertake significant systems work, or 

acquire additional hardware, as a result 

of the amendments to Rule 612, 

specifically if there is a significant 

increase in message traffic.1651 The 

message traffic implications and costs 

are discussed in section VII.D.1.c. This 

section deals specifically with 

modifications to broker-dealer order 

entry systems. 

One commenter stated that the 

$11,000 estimate was too low because 

the proposed amendments to Rule 612 

would necessitate additional expenses 

in order to update ‘‘their order 

management, execution management, 

customer trading, middle-office trade 

processing, reporting, settlement, 

surveillance and compliance 

systems.’’ 1652 In the Proposing Release, 

when the Commission estimated the 

cost of a broker-dealer system change at 

$11,000, it assumed that a single system 

change would be needed in response to 

the Rule 612 amendments.1653 In light 

of the various functions described by 

the commenter which would need to be 

updated, the Commission is revising the 

estimated one-time cost to brokerdealers to $33,000 per broker-dealer 

with an order-entry system as reported 

in table 15.1654 The revised estimate 

stems from the expectation that brokerdealers are more likely to have to 

undertake three system changes, rather 

than one,1655 although the Commission 

recognizes that these costs could be 

greater if additional hardware 

investment is needed. 

The Commission estimates that there 

are 1,161 broker-dealers with order 

entry systems.1656 Thus, the 

Commission estimates that the 

amendments will lead to a one-time 

aggregate cost of around $38.5 million 

(i.e., $38.5 million ≈ $33,000 × 1,161) 

across broker-dealers with order entry 

systems to update their systems to 

account for the new tick sizes. 

The Commission expects that brokerdealers with smart order routers will 

also need to modify their existing 

systems to comply with the tick size 

changes and will not need to acquire 

new hardware or develop new systems. 

The Commission estimates a one-time 

cost of $11,000 to broker-dealers 

operating smart order routers.1657 These 

broker-dealers already have systems that 

can adjust for tick sizes that change 

around the $1.00 threshold. Thus, the 

Commission expects that they will 

modify existing systems rather than 

build new systems. Any broker-dealer 

that will need to build new systems will 

likely incur costs greater than $11,000 to 

do so. One commenter stated that 

significant system changes and 

hardware costs would also be required 

by broker-dealers operating smart order 

routers due to an increase in message 

traffic.1658 The Commission 

acknowledges that the one-time costs to 

broker-dealers operating smart order 

routers may be greater than estimated if 

additional hardware investment will be 

required.1659

The Commission estimates an upper 

bound of 270 broker-dealers operating 

smart order routers.1660 This number 

provides an upper bound as it assumes 

that all entities with direct connections 

to exchanges or ATSs use a smart order 

router, which is likely an over-estimate. 

Aside from potential additional costs 

due to increased message traffic, the 

Commission thus estimates a one-time 

cost of $3.0 million (i.e., $3.0 million ≈ 

$11,000 × 270) for market participants to 

update smart order routers.1661 If fewer 

than 270 broker-dealers operate their 

own smart order routers, then the $3.0 

million estimate is likely higher than 

the aggregate cost for these brokerdealers to adjust their order routing 

systems to comply with these 

amendments. 

Further, the Commission believes that 

broker-dealers operating smart order 

routers already subscribe to SIP data 

and will subscribe to consolidated 

market data products once the 

competing consolidators become 

operative. Thus, they will not incur a 

separate data expense to receive the 

regulatory messages necessary to 

comply with Rule 612 amendments. The 

Commission also assumes that system 

updates will impose a similar cost on 

larger and smaller entities given that, 

once code is written, scaling it up is 

relatively inexpensive. 


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1662This is a result of a smaller tick size allowing 

liquidity to spread over more levels, reducing the 

depth at each level and could increase the number 

of odd-lot quotes at each level. See supra section 

VII.D.1.b for additional discussion. 

1663See supra note 1334 and accompanying text. 

1664See, e.g., FISD Letter at 2, TastyTrade Letter 

at 19, and TradeStation Letter at 6. 

1665See TradeStation Letter at 6. 

1666See Proposing Release, supra note 11, at 

80333. 

1667The Commission does not expect other 

market participants to incur significant incremental 

costs associated with the change in the access fees 

and rebates. As shown in table 4, market 

participants deal with over 100 fee changes per year 

across all exchanges and thus it reasonable to 

expect that one fee change by the exchanges to 

bring their fees into compliance with these 

amendments would represent an economically 

trivial incremental cost to these market participants. 

1668 In the MDI Adopting Release, supra note 10, 

at 18764, the Commission estimated costs to the 

exchanges of collecting and transmitting the 

necessary information to the competing 

consolidators to be approximately $70,000 in onetime costs and approximately $130,000 in ongoing 

costs. The additional $3,500 in one-time costs and 

$6,500 in ongoing costs represent a 5% addition 

over the costs in the MDI release to account for the 

new requirement to send the necessary data to 

generate odd-lot information to the exclusive SIPs 

(i.e., $3,500 ≈ $70,000 × 0.05 and $6,500 ≈ $130,000 

× 0.05). See infra note 1841 and accompanying text. 

Lastly, the Commission recognizes 

that Rule 612 amendments could 

increase the overall implementation 

costs of the MDI Rules. In particular, 

stocks that will become less tickconstrained as a result of the smaller 

tick size following these amendments 

could have more odd-lot quotes inside 

the NBBO than anticipated when the 

Commission adopted the MDI Rules.1662

As a result, the costs to SROs and 

competing consolidators of collecting, 

transmitting, consolidating, and 

disseminating odd-lot information will 

be greater than those described in the 

MDI Rules. The Commission is unable 

to provide an estimate of this cost 

because it would require predicting a 

complex interaction between behavior 

changes from multiple types of market 

participants and the resulting effect on 

the number of ticks inside the NBBO 

and the volume of odd-lots submitted 

inside the NBBO. However, the cost 

increase may not be significant, because 

the Commission generally estimates that 

the infrastructure cost increases 

associated with an increase in message 

traffic from the amendments to be 

approximately 1%.1663

Multiple commenters stated that 

many broker-dealers, particularly those 

with retail customers, would have to 

incur additional costs for investor 

education and customer assistance in 

order to handle any investor confusion 

arising from the amendments to Rule 

612.1664 One commenter specifically 

mentioned that the amendments to Rule 

612 would complicate ‘‘good-tilcancelled’’ orders (‘‘GTC orders’’) as the 

orders could be placed under one tick 

size and could still be active after a tick 

size change.1665 This scenario is 

unlikely given that there will be a 

period of one-month between end of the 

evaluation period and the tick size 

implementation during which market 

participants will be able to know which 

stocks will be changing their tick size. 

For an issue to arise, the GTC order 

would have to be in place over the 

course of that month and the trader 

would have to be unaware of the 

upcoming tick size change. Retail facing 

broker-dealers will likely implement 

some method of notifying their 

customers that the tick size for some 

stocks will change following the end of 

the evaluation period. To the extent to 

which customer confusion causes these 

costs to materialize, the Commission 

would expect that these costs would 

likely be greater in the time immediately 

following the implementation of the 

amendments, and they would decrease 

over time as investors become 

accustomed to the new tick size regime. 

b. Estimates for Rule 610 

As in the Proposing Release, the 

Commission estimates a $57,000 onetime cost to exchanges to comply with 

changes to Rule 610.1666 This estimate 

assumes that exchanges will combine in 

the same Rule 19b–4 filing their 

proposals to amend their fees and 

rebates and make fees and rebates 

determinable at the time of execution, 

and that this process will not increase 

the cost of those filings. The 

Commission recognizes that if these 

filings are not efficiently combined, 

then the costs to exchanges could be 

higher than $57,000. The Commission 

estimates also assume that LTSE will 

not file a proposed rule change with the 

Commission because it does not 

currently charge access fees or offer 

rebates, but that the other 15 exchanges 

will file proposed rule changes. If so, 

these amendments will lead to an 

estimated one-time total cost of 

$855,000 across exchanges to comply 

with Rule 610.1667

c. Estimates for Rules 600 and 603 

The exclusive SIPs and exchanges 

will incur compliance costs associated 

with accelerating the inclusion of oddlot data inside the NBBO in SIP data, 

adding the BOLO to SIP data, and 

accelerating the implementation of the 

round lot definitions as amended in this 

release. The round lot definitions (but 

for amendments to them in this release) 

and the inclusion of odd-lot data inside 

the NBBO were both parts of the MDI 

Rules. Thus, the amendments will 

accelerate the compliance costs 

associated with these aspects of the MDI 

Rules. One difference is that the MDI 

Rules anticipated that these changes to 

NMS data would occur after the 

competing consolidator model was up 

and running. Thus, the MDI Rules did 

not anticipate that the exclusive SIPs 

would incur such costs unless they 

chose to become competing 

consolidators. The addition of the best 

odd-lot order to the SIP data was not 

part of the MDI Rules and will thus be 

a new cost under the amendments. 

Accordingly, the discussion below 

distinguishes costs to the exclusive SIPs 

in terms of those included in the MDI 

Rules and new costs from these 

amendments. 

The Commission estimates a one-time 

cost of $3,500 and ongoing costs of 

$6,500 per year for at least two years for 

exchanges to comply with the 

amendments to Rules 603 and 600.1668

This estimate accounts for the 

acceleration of the necessary data to 

generate the odd-lot information, 

including the best odd-lot order, and 

transmit this information to the 

exclusive SIPs. The costs reported here 

account for an increase in the costs 

associated with the MDI Rules that will 

require the exchanges to transmit to 

competing consolidators all of the data 

necessary for generating consolidated 

market data. 

Consequently, for the exchanges, the 

costs associated with providing the 

exclusive SIPs with odd-lot information 

will represent an acceleration of costs 

anticipated in the MDI Rules rather than 

new costs, with a few differences. First, 

the odd-lot information will be 

transmitted to the exclusive SIPs as 

opposed to the competing consolidators. 

Second, the ongoing costs of these 

amendments will be incurred only until 

the exclusive SIPs are retired, which the 

Commission estimates will be at least 

two years after the Commission’s 

approval of the plan amendment(s) 

required by Rule 614(e). 

Compliance with the amendments to 

Rules 603 and 600 will require the 

exclusive SIPs to develop, operate, and 

maintain systems to collect and 

disseminate the odd-lot information 

inside the NBBO as well as the best oddlot order. The Commission expects that 

these costs will primarily consist of 

costs that an exclusive SIP would incur 

if it were to convert to a competing 

consolidator. Thus, for exclusive SIPs 

that would have become competing 

consolidators in the absence of these 

amendments, initial compliance costs 


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1669The $613,000 estimate in one-time costs is 

based on the following calculations: $33,000 (costs 

under the amendments to Rule 612 to update data 

specifications and internally and externally test the 

updates; see supra note 1651, see also section 

VII.D.5.a) + $167,670 ($83,790 (hourly rate for Sr. 

Programmer at $399 for 210 hours) + $61,740 

(hourly rate for Sr. Systems Analyst at $343 for 180 

hours) + $7,460 (hourly rate for Compliance 

Manager at $373 for 20 hours) + $5,880 (hourly rate 

for Director of Compliance at $588 for 10 hours) + 

$8,800 (hourly rate for Compliance Attorney at $440 

for 20 hours) + $412,500 (costs for external 

services). The $174,000 estimate in ongoing costs is 

based on the following calculations: $50,301 

($25,137 (hourly rate for Sr. Programmer at $399 for 

63 hours) + $18,522 (hourly rate for Sr. Systems 

Analyst at $343 for 54 hours) + $2,238 (hourly rate 

for Compliance Manager at $373 for 6 hours) + 

$1,764 (hourly rate for Director of Compliance at 

$588 for 3 hours) + $2,640 (hourly rate for 

Compliance Attorney at $440 for 6 hours)) + 

$123,725 (costs for external services). See infra 

notes 1830, 1832, 1834 and 1835 and accompanying 

text for relevant details on these cost estimates. 

1670See MDI Adopting Release, supra note 10, at 

18761. 

1671See supra section VII.D.5 for further 

discussion of how or whether this requirement 

would alter the compliance costs of competing 

consolidators. 

1672As explained above, the Commission 

considers recently adopted rules, but not recent 

proposals, as part of its baseline against which it 

measures the economic effects of its rules. See 

supra section VII.C and notes 1034 and 1047. 

1673See supra section II for further discussion. 

1674See Rule 605 Amendments, supra note 10. 

1675See supra note 1672. 

1676See, e.g., Virtu Letter II at 55–56 (stating ‘‘that 

the proposals are designed to accomplish the same 

overarching goals,’’ that ‘‘each rule ignores the 

possibility that the other three rules may already 

address the Commission’s concerns,’’ that ‘‘the 

expected benefit the Commission believes its rules 

will achieve is overlapping,’’ and that an important 

policymaking question that arises from these 

overlapping objectives is whether ‘‘the estimated 

benefits [are] purely additive’’) see also SIFMA 

Letter II at 100 (stating that ‘‘the Proposed Rules 

may, each individually, largely affect the same 

aspects of equity markets, including the economics 

of liquidity provision, spreads (particularly for 

retail investors), and costs (particularly for 

wholesalers)’’); Virtu Letter II at 20 (stating that, if 

any of the other rules (including Rule 605) are 

successful at achieving their stated purpose, 

‘‘competition would be enhanced without the 

Proposed [Tick Size] Rule (and its significant risks 

and costs) and the claimed benefits of the Proposed 

Rule are overstated’’); Virtu Letter III at 2 (stating 

Continued 

represent an acceleration of costs under 

the MDI Rules, rather than new 

additional costs. Further, the ongoing 

costs for exclusive SIPs to comply with 

Rules 600 and 603 will be incurred only 

until the exclusive SIPs are retired, after 

which time these costs will consist of 

ongoing costs that were previously 

accounted for in the MDI Rules. The 

Commission estimates that the exclusive 

SIPs will incur a one-time cost of 

approximatively $613,000 and ongoing 

costs of approximatively $174,000 per 

year.1669

The Commission recognizes some 

uncertainty in the assumption that 

exclusive SIPs will become competing 

consolidators. If one or both exclusive 

SIPs are not planning to become 

competing consolidators under the MDI 

Rules, and the amendments do not 

change their plans, then the estimated 

initial and ongoing costs in table 15 

represent new costs associated with the 

amendments. If the amendments were to 

prompt one or both exclusive SIPs to 

become competing consolidators, when 

they otherwise would not have done so, 

then the costs in table 15 underestimate 

the total costs of these SIPs becoming 

competing consolidators. In the MDI 

Rules, however, the Commission 

anticipated that both exchanges 

operating exclusive SIPs would have 

strong incentives to enter the competing 

consolidator market.1670 The 

amendments require that the exclusive 

SIPs build out the capacity to 

disseminate aspects of the data required 

by the MDI Rules. This could increase 

the likelihood that the exclusive SIPs 

will choose to become competing 

consolidators because they will already 

have implemented some of the 

technology needed to comply with the 

requirements of a competing 

consolidator, thereby lowering their 

subsequent cost of becoming a 

competing consolidator. In this context, 

the Commission continues to expect 

that the exclusive SIPs will become 

competing consolidators, and the 

estimated costs in table 15 largely 

represent costs that the exclusive SIPs 

would have borne in the process of 

becoming competing consolidators. 

The Commission recognizes that the 

amendment to Rule 600 could increase 

the initial costs of becoming a 

competing consolidator as well as the 

ongoing costs of competing 

consolidators, but the Commission 

believes that such costs are already 

accounted for in the MDI Rules.1671 In 

particular, competing consolidators 

could incur additional compliance costs 

to estimate and disseminate the best 

odd-lot order. To the extent such costs 

are not accounted for in the MDI Rules, 

they will likely be a small fraction of the 

compliance costs of including odd-lot 

information in SIP data stated above. 

Indeed, the competing consolidators 

will already have the information 

necessary to calculate the BOLO, so 

most of the cost incurred under the 

amendment to Rule 600 will be the 

initial cost of coding the information 

and the cost of processing and 

monitoring that code in real time. 

6. Interactions With Recently Adopted 

Rules 

The Commission acknowledges that 

the effects of any final rule may be 

impacted by recently adopted rules that 

precede it. Accordingly, each economic 

analysis in each adopting release 

considers an updated economic baseline 

that incorporates any new regulatory 

requirements, including compliance 

costs, at the time of each adoption, and 

considers the incremental new benefits 

and incremental new costs over those 

already resulting from the preceding 

rules. We discuss below economic 

effects stemming from interactions 

between the final rule and other 

recently adopted rules.1672

a. Amendments to Rule 605 

Commenters have specifically 

questioned the Commission’s analysis of 

interactions between the four EMS 

Proposals,1673 of which only the Rule 

605 Proposal has been adopted.1674

Because the amendments to Rule 605 

were not yet adopted at the time of the 

Proposing Release and were thus not a 

part of the baseline in the Proposing 

Release,1675 the economic effects 

described in the Proposing Release may 

differ from those described here to the 

extent those effects change due to the 

amendments to Rule 605. Below, we 

discuss specific impacts the 

amendments to Rule 605, which is now 

part of the baseline, may have on the 

expected economic effects of the final 

rules compared to description of those 

effects in the Proposing Release, as well 

as the impact the final rules may have 

on the effects of amended Rule 605. In 

response to comments, we also consider 

whether the amended Rule 605 data is 

needed to assess the impact of the final 

rules. Overall, the inclusion of the 

amendments to Rule 605 in the baseline 

does not significantly change the costs 

and benefits of the final rules, and the 

final rules adopted herein have 

significant benefits even taking into 

account the adopted amendments to 

Rule 605 as part of the baseline. 

i. Impact of Amended Rule 605 on the 

Final Rules 

First, the Commission considers 

whether the amendments to Rule 605, 

which are now part of the baseline, may 

have affected certain benefits of the final 

rules compared to how those benefits 

were described in the Proposing 

Release. Some commenters stated that 

the four EMS Proposals, including the 

amendments to Rule 605 and these final 

rules, have similar objectives, such that 

the benefits of each rule may be 

overlapping, and that therefore each 

successive rule would have fewer 

benefits than were described in each 

proposing release.1676 However, the 


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that the amendments in the Rule 605 Amendments 

may ‘‘otherwise address any concerns that formed 

the impetus for the [EMS] Proposals,’’ including the 

Proposing Release). 

1677See supra section II for further discussion. 

1678See supra sections VII.D.1.b, VII.D.2, and 

VII.D.3 for further discussion of the benefits of the 

final rules and supra section VII.C.5 for a 

discussion of the benefits resulting from the 

amendments to Rule 605. 

1679See supra note 1676. 

1680See Rule 605 Amendments, supra note 10, at 

26543–75. 

1681Specifically, the increase in transparency in 

exchange access fees and rebates in the final rules 

is expected to decrease the extent to which brokerdealers’ routing decisions are based on access fees 

and rebates and increase the extent to which these 

decisions are based on other factors, including the 

execution quality of market centers See supra 

section VII.D.3. 

1682For example, the amendments to Rule 605 

increase the granularity of time-to-execution 

buckets, which will improve broker-dealers’ ability 

to compare execution speeds across trading venues 

and route their orders accordingly. See Rule 605 

Amendments, supra note 10, at 26561. 

1683See Rule 605 Amendments, supra note 10, at 

26544–26547 (discussing the impact of the 

amendments to Rule 605 on competition between 

broker-dealers). 

1684See Rule 605 Amendments, supra note 10, at 

26586. 

1685See supra section VII.D.3 for a discussion of 

the economic effects of requiring exchange fees and 

rebates to be determinable at the time of execution. 

1686See supra section VII.D.2 for a discussion of 

the economics effects of reducing the access fee cap 

on conflicts of interest. 

1687For example, in the Rule 605 Amendments, 

an analysis of Tick Size Pilot data found that, 

between April 2016 and March 2019, approximately 

25% of orders were flagged as having special 

handling requests, which would exclude them from 

the scope of Rule 605 reporting requirements. See 

Rule 605 Amendments, supra note 10, at 26514. 

1688The Rule 605 Amendments estimated that 

only 85 out of 1,245 broker-dealers with at least one 

customer account would qualify as a larger brokerdealer and therefore be required to prepare Rule 605 

reports; however, these 85 broker-dealers are 

responsible for more than 98% of customer 

accounts and more than 60% of customer orders. 

See Rule 605 Amendments, supra note 10, at 26428 

(table 13). 

1689The Rule 605 Amendments acknowledge 

that, if smaller broker-dealers are also incentivized 

to produce execution quality information for their 

customers as a result of the expanded scope of Rule 

605 to include larger broker-dealers, the benefits of 

increased competition could indirectly extend to 

smaller broker-dealers as well. See Rule 605 

Amendments, section IX.C.1.(D)(1), supra note 10, 

at 26428. 

1690See Rule 605 Amendments, supra note 10, at 

26552. 

1691See 17 CFR 242.603(b)(3) for rule text relating 

to this requirement under Rule 603. 

1692See supra section VII.D.4.c. 

1693See supra note 1151 and corresponding text. 

See MDI Adopting Release, supra note 10, at 18753, 

stating that ‘‘if a broker-dealer previously did not 

have access to odd-lot information, then a brokerdealer receiving the additional information may 

help facilitate best execution of its clients’ orders.’’ 

final rules address different and 

significant issues in the national market 

system distinct from those addressed in 

Rule 605.1677 The final rules have 

benefits, such as certain improvements 

in market quality for stocks that receive 

a smaller tick size, lower trading costs 

for liquidity demanders in certain stocks 

that experience a reduction in their 

access fees, and increased transparency 

and reduced complexity of exchange 

access fees and rebates, that are distinct 

from the benefits resulting from the 

amendments to Rule 605 and could not 

conceivably have been achieved through 

the amendments to Rule 605.1678 While, 

as one commenter stated,1679 both rules 

may improve competition, the issues 

being addressed in these final rules and 

in the amendments to Rule 605, and the 

mechanisms used to address them, 

differ significantly, making these 

benefits additive rather than 

overlapping. For example, the 

amendments to Rule 605 will increase 

competition among trading venues 

through greater transparency,1680 while 

these final rules will increase 

competition between orders on trading 

venues in some stocks by removing 

barriers to sub-penny quoting. Both of 

these competitive effects are expected to 

improve execution quality, but through 

different mechanisms and 

independently of one another. 

In addition, the adoption of the 

amendments to Rule 605 may, to some 

extent, enhance certain benefits of the 

final rules compared to the benefits 

described in the Proposing Release. 

Specifically, the final rules are expected 

to increase the extent to which brokerdealers make decisions based on 

execution quality.1681 At the same time, 

the amendments to Rule 605 improve 

broker-dealers’ access to information 

about the execution quality of market 

centers.1682 Thus, to the extent that 

broker-dealers base their order routing 

decisions more on execution quality as 

a result of the final rules, the improved 

access to market center execution 

quality information under amended 

Rule 605 will help facilitate those 

decisions.1683

The adopted amendments to Rule 605 

may also, in certain circumstances, 

cause the benefits of the final rules 

stemming from transparency to be 

somewhat lower than those described in 

the Proposing Release; however, the 

Commission expects these impacts to be 

minor. Specifically, in the Rule 605 

Amendments, the Commission 

anticipated that the increase in 

transparency and competition on the 

basis of execution quality as a result of 

the amendments to Rule 605 might 

make broker-dealers less likely to route 

customer orders based on exchange fees 

and rebates.1684 At the same time, the 

amendments to Rule 610 that would 

make fees and rebates determinable at 

the time of execution are expected to 

reduce broker-dealer conflicts of interest 

related to fees and rebates.1685 Likewise, 

the lower access fee cap is also expected 

to reduce broker-dealer conflicts of 

interest.1686 If the amendments to Rule 

605 result in exchange fees and rebates 

becoming less important for brokerdealer customers’ order routing 

decisions, the benefits resulting from a 

reduction in conflicts of interest under 

the final rules—caused by reducing the 

access fee cap and increasing the 

transparency of exchange fees and 

rebates—may be reduced compared to 

how they were described in the 

Proposing Release. However, this 

reduction in benefits, compared to the 

Proposing Release, is likely to be minor, 

for several reasons, and the Commission 

still expects the benefits described 

above, in comparison to the baseline, to 

be realized. First, not all orders are 

subject to and directly benefit from 

increased transparency under amended 

Rule 605.1687 Second, the amended Rule 

605 reporting requirements only require 

reporting by larger broker-dealers; while 

these broker-dealers handle the vast 

majority of customer accounts, they 

only handle around 60% of customer 

order flow in terms of number of 

orders.1688 Therefore, the amendments 

to Rule 605 are not expected to directly 

impact customer order routing decisions 

for a significant subset of order flow,1689

such that the final rules lowering the 

access fee cap and increasing the 

transparency of exchange fees and 

rebates are still expected to have 

additional benefits above and beyond 

those of the amendments to Rule 605. 

Third, the Commission anticipated 

that the amendments to Rule 605, by 

expanding the scope of covered orders 

to include odd-lots, would encourage 

broker-dealers to compete for these 

orders on the basis of execution 

quality.1690 The final rule’s requirement 

that the exclusive SIPs disseminate oddlot data1691 is expected to accelerate the 

benefits of accelerating the 

implementation of including odd-lot 

information in NMS data,1692 which 

may include facilitating better execution 

quality for these orders by brokerdealers who newly have access to 

information about odd-lots.1693 To the 

extent that the increase in competition 

for odd-lot execution quality under 

amended Rule 605 has already 

incentivized broker-dealers to increase 

their usage of existing sources of odd-lot 

data (such as proprietary data feeds) in 

routing decisions, this would reduce the 

number of broker-dealers without preexisting access to odd-lot information 

and thus may reduce the benefits from 


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1694See MDI Adopting Release, supra note 10, at 

18753 and 18793–95 (discussing market 

participants substituting MDI odd-lot information 

for exchange proprietary data feeds). 

1695As another example, the Rule 605 

Amendments stated that one indirect effect of the 

amendments to Rule 605 might be an increase in 

incentives for reporting entities to compete in areas 

other than improved execution quality, including 

lowering their access fees. See Rule 605 

Amendments, supra note 10, at 26575. This could 

also reduce incentives to route based on fees and 

rebates, which would reduce the benefits of 

increased transparency under the final rules. 

However, this would only be the case in limited 

circumstances, i.e., when exchanges are not able to 

differentiate themselves based on execution quality. 

Furthermore, the Rule 605 Amendments also 

acknowledged that Rule 605 reporting entities may 

pass some of the costs of amended Rule 605 on to 

their customers. See Rule 605 Amendments, supra 

note 10, at 26586. If exchanges pass on their 

compliance costs by raising their access fees, then 

the benefits of the final rules may be heightened by 

the adopted amendments to Rule 605, rather than 

lessened. 

1696See supra section VII.D.4.c. 

1697See 17 CFR 242.600(b)(14) (defining the ‘‘best 

available displayed price’’) and 17 CFR 

242.605(a)(1)(ii)(M) through (Q); see also Rule 605 

Amendments, supra note 10, section III.B.4(g) for 

further discussion of these amendments. 

1698See supra note 1176 and corresponding text. 

1699See supra section VII.D.1.b for further 

discussion. 

1700See supra note 1179 and corresponding text. 

1701An analysis of CAT data in the Rule 605 

Amendments found that, in the quartile of stocks 

with the lowest quoted spreads (an average quoted 

spread of around $0.026), midpoint-or-better orders 

still compromise a non-negligible percent of order 

flow, representing 5.15% of submitted orders 

(4.32% of submitted shares). This is compared to 

the quartile with the highest quoted spreads (an 

average quoted spread of $20.26), where midpointor-better orders are 9.66% of submitted orders 

(8.62% of submitted shares). See Rule 605 

Amendments, supra note 10, at 26428 n.1448. 

1702See supra note 1182 and corresponding text. 

1703See supra section VII.D.4.d. 

1704See supra note 1178. 

1705The amendments to include in Rule 605 

information about price improvement relative to the 

best displayed price, size improvement, and 

beyond-the-midpoint NMLOs (which are a subset of 

midpoint-or-better NMLOs) were also considered in 

the Rule 605 Proposal; see Rule 605 Proposal, supra 

note 117, at 3817, 3819, and 3810. The Commission 

acknowledges that, to the extent that it occurs, an 

increase in the cost of processing and storing 

consolidated market data may be higher for larger 

broker-dealers, who will be required to prepare 

Rule 605 reports for the first time under the adopted 

amendments to Rule 605. As a result, the additional 

cost of preparing Rule 605 reports may be higher 

for these broker-dealers as a result of the final rules. 

See supra section VII.D.1.c for a discussion of how 

the final rules may increase the cost of processing 

and storing consolidated market data. 

1706The final amendments to Rule 605 likewise 

included an amended definition of ‘‘categorized by 

order size’’ that requires orders to be categorized 

according to whether they are round lots. See Rule 

605 Proposal, supra note 117, at 3807; proposed 

Rule 600(b)(19). As amended, rather than requiring 

the reporting of order sizes in terms of whether an 

order was less than one share, an odd-lot, or in one 

of five categories based on numbers of round lots, 

final Rule 605 requires the reporting of order sizes 

in terms of notional values, with each order size 

category further separated into whether an order is 

a round lot, odd-lot, or fractional order, for a total 

of 24 reporting categories. See Rule 605 

Amendments, supra note 10, at section III.B.1; 

adopted Rule 600(b)(18). Prior Rule 600(b)(13) 

required reporting of order sizes in one of four 

categories based on numbers of round lots, with no 

reporting of fractional orders or odd-lots. 

1707See Tastytrade Letter at 5. 

1708See Rule 605 Amendments, supra note 10, at 

26428 n.375. It may be the case that, within a given 

notional order size bucket in Rule 605 reports, the 

distribution of orders across round-lot and odd-lot 

categories may change for some stocks following the 

implementation of the new round lot definition. 

1709See supra section VII.C.5 for discussion of the 

implementation timeline for the adopted 

amendments to Rule 605. See supra section VI for 

further discussion of the compliance dates for the 

final rules. 

disseminating odd-lot information in 

the SIP as described in the Proposing 

Release. However, if broker-dealers that 

rely on odd-lot information from 

proprietary data feeds are able to reduce 

their costs by switching to using odd-lot 

information from the SIP,1694 this would 

result in benefits even to those brokerdealers with pre-existing access to oddlot information.1695

ii. Impact of the Final Rules on 

Amended Rule 605 

In addition to the impact amended 

Rule 605 may have on the effects of the 

final rules compared to those described 

in the Proposing Release, the 

Commission also considered the 

reverse, i.e., whether the final rules may 

impact the effects of amended Rule 605 

going forward. Specifically, the final 

rules will enhance certain benefits and 

reduce certain costs of amended Rule 

605. As discussed above, the 

amendments accelerating MDI Rules 

related to including information about 

odd-lots into SIP data will accelerate the 

realization of the benefits of this 

information.1696 In turn, the MDI Rules 

increase the usefulness of price 

improvement statistics included in 

amended Rule 605 using the best 

available displayed price as the 

benchmark by providing market 

participants with price improvement 

information relative to a benchmark 

price that more accurately reflects 

liquidity available in the market.1697

Increasing the usefulness of price 

improvement statistics promotes 

incentives for reporting entities to seek 

out or offer price improvement relative 

to the best displayed price, taking into 

account all available displayed liquidity 

(including odd-lots). 

In addition, the value of reporting 

price improvement relative to the best 

displayed price relative to the NBBO, 

now required by amended Rule 605,1698

will increase for those stocks for which 

the reductions in the tick size in the 

final rules result in an increase in the 

number of price levels within the 

spread.1699 If there are more price 

increments within the spread, it is more 

likely that the best displayed price will 

be different from the NBBO. Similarly, 

the availability of a greater number of 

price increments within the spread 

increases the value of the separate 

reporting of execution quality 

information for midpoint-or-better 

NMLOs 1700 because the prevalence of 

these orders is likely to increase.1701

Furthermore, if a reduction in the tick 

size results in a reduction of depth at 

the NBBO, this increases the usefulness 

of the recently adopted measures of size 

improvement included in amended Rule 

605 reports.1702 Finally, the final rule 

requiring NMS data to also include 

information on the best priced odd-lot 

orders across all markets 1703 will 

reduce ongoing compliance costs related 

to compiling information about price 

improvement relative to the best 

displayed price under amended Rule 

605.1704 This is because reporting 

entities will be able to access 

standardized information about the best 

odd-lot order, rather than needing to use 

odd-lot trade and quote data to calculate 

the best odd-lot order themselves.1705

One commenter stated that because of 

the proposed amendments to the 

definition of ‘‘categorized by order size’’ 

in Rule 605,1706 subsequent changes to 

the definition of tick sizes and round 

lots would ‘‘create customer confusion’’ 

regarding their Rule 605 reporting 

requirements.1707 The Commission does 

not believe that market centers and 

brokers-dealers will be confused about 

their reporting obligations under 

amended Rule 605 as a result of the new 

round lot definition and the new 

minimum tick size under the final rules. 

The rule texts for both amended rules 

are clearly stated. Further, the use of 

notional value in the order size 

categories under the adopted 

amendments to Rule 605 will help end 

users of these reports understand the 

effect of a change in round lot size for 

a security because a notional value 

range will remain constant even if the 

size of a round lot changes.1708

iii. Delaying the Final Rules Until 

Amended Rule 605 Data are Available 

Third, in response to comments, the 

Commission considers whether 

adoption of the final rules should be 

delayed until amended Rule 605 data 

are available.1709 Several commenters 

suggested that the Commission wait to 

adopt the final rules until after the 

amended Rule 605 data are available so 

that amended Rule 605 data could be 


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81758 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

1710See, e.g., Virtu Letter II at 24 (recommending 

that ‘‘the Commission amend Rule 605 to provide 

more comprehensive execution quality statistics on 

retail activity based on input from investors and 

market participants, and then pause to study and 

assess market quality based on the newly collected 

data before determining whether to move forward 

with the Proposed Rule’’); Citadel Letter II at 1–2 

(stating that ‘‘the data provided pursuant to an 

updated Rule 605 should be the primary input in 

determining whether the other proposals are 

necessary)’’ See also Letter from Ellen Greene, 

Managing Director, Equities & Options Market 

Structure, and Joseph Corcoran, Managing Director, 

Associate General Counsel, SIFMA, dated Aug. 14, 

2024 at 3; SIFMA Letter II at 3; Virtu Letter II at 

1–2; and comments discussed in supra note 122 

and accompanying text. 

1711This was supported by a commenter, who 

stated that ‘‘better data from Rule 605 reports, 

among other sources, could be useful in making 

additional decisions about tick size in the future. 

But it is certainly not needed to decide whether to 

make changes to the tick size now.’’ See IEX Letter 

I at 4. 

1712 Data used in the Proposing Release, supra 

note 11, included CAT data, see, e.g., Proposing 

Release at 80340 n.673; MIDAS data, see, e.g., id. 

at 80297 Tables 1, 2; TAQ data, see, e.g., id. at 

80313 Table 6; WRDS intraday indicators, see, e.g., 

id. at 80316 Table 8; Rule 606(a)(1) reports, see, e.g., 

id. at 80306 n.467; and Tick Size Pilot data and 

Rule 606(a)(1) reports, see, e.g., id. at 80320 Table 

9. While the Proposing Release included an 

estimate of the number of trading venues who 

report Rule 605 statistics, see id. at 80333, Rule 605 

data itself was not used. One commenter stated that 

the Proposing Release, ‘‘relies, in part, on data from 

Rule 605 reports—which use metrics that the 

Commission has acknowledged are deficient and in 

need of modification.’’ The commenter proceeded 

to cite the Proposing Release at 80321 n.557, which 

discusses the horizon over which realized spreads 

are calculated in both the TSP analysis and in Rule 

605 reports. See Virtu Letter II at 5 and n.8. The 

realized spread is a common and useful metric that 

will continue to be reported under the amendments 

to Rule 605. While both the TSP analysis and Rule 

605 reports calculate realized spreads using a fiveminute horizon, the commenter is incorrect in 

stating that the Proposing Release relied on data 

from Rule 605 reports. In the TSP analysis, the 

Commission calculates realized spreads using trade 

and quote data from TAQ; when completing Rule 

605 reports, trading centers calculate realized 

spreads using similar trade and quote data. Rule 

605 reports are therefore not necessary to obtain the 

realized spreads used in the TSP analysis. 

1713See, e.g., SIFMA Letter II at 3 (stating that a 

quantitative analysis ‘‘can only be done effectively 

after the implementation and operation of the 

proposed amendments to Rule 605 to allow the 

Commission and the public to measure the impact 

of modified tick sizes and/or access fee caps’’); see 

also Citadel Letter I at 29 (stating that ‘‘if both 

proposals were to be finalized, it appears that 

market participants and regulators would be unable 

to accurately assess the true impact of the market 

structure changes contained in this Proposal, 

precluding an ‘apples-to-apples’ before-and-after 

comparison’’). 

1714See IEX Letter III at 3 (‘‘There are myriad 

sources of information that both regulators and 

market participants draw on to consider how orders 

are handled and how markets compete with and 

compare to each other.’’). See also supra section II 

for additional discussion. 

1715See supra note 1035. 

1716 ICI Letter II. 

1717See supra section VII.C. 

1718The compliance date for the May 2023 SEC 

Form PF Adopting Release occurred on December 

11, 2023 and June 11, 2024, and the compliance 

date for the Settlement Cycle Adopting Release 

occurred on May 28, 2024. 

1719See supra section VII.C. 

1720See, e.g., MFA Comment Letter II (asserting 

that the adoption of multiple proposals would 

impose ‘‘unprecedented operational and other 

practical challenges’’). 

1721See Beneficial Ownership Adopting Release, 

supra note 1029 at 76897, 76945; Rule 10c–1a 

Adopting Release, supra, note 1030 at 75647, 

75717–18; Short Position Reporting Adopting 

Release, supra note 1031 at 75150; Dealer Adopting 

used to assess whether the final rules 

are necessary.1710

Although the information disclosed 

under Rule 605 is a significant source of 

information about execution quality, the 

Commission did not rely on, and does 

not believe that it is necessary to rely 

on, Rule 605 data (either adopting or 

pre-existing) in its analyses in the 

Proposing Release or in the adoption of 

the final rules.1711 Instead, the 

Commission utilized other data sources 

for conducting the relevant analyses, 

including with respect to execution 

quality, which it believes has 

sufficiently informed the Commission 

and the public on the issues being 

addressed in the final rule.1712 Other 

commenters suggested waiting until 

after the amended Rule 605 data is 

available so that amended Rule 605 data 

could be used to evaluate the impact of 

the implementation of the final 

rules.1713 The Commission 

acknowledges that Rule 605 data is an 

important source of public information 

about order execution quality. However, 

as stated by another commenter, there 

are other data products that provide 

relevant information on execution 

quality that can be used to evaluate the 

impact of the final rules.1714 Waiting 

until amended Rule 605 data are 

available to adopt the final rules would 

delay the significant benefits of the final 

rules to be realized, and the Rule 605 

Amendments cannot and do not solve 

the main concerns that the final rules 

address by reducing the tick size, 

lowering the access fee cap, and 

accelerating the round lot definition are 

designed to solve. 

b. Implementation Costs From 

Overlapping Compliance Periods 

Several commenters stated that the 

Commission should consider the 

cumulative costs of implementing the 

proposed amendments and other recent 

Commission rules and proposed 

rules.1715 Specifically, one commenter 

requested that the Commission ‘‘publish 

a thorough analysis of the cumulative 

effects of the Interconnected Rules that 

accounts for interconnections and 

dependencies among them and any 

other rules the Commission has 

proposed or intends to propose in the 

near term,’’ and ‘‘tak[e] into account not 

just the expected effects on investors 

and our capital markets but also 

practical realities such as 

implementation timelines as well as 

operational and compliance 

requirements.’’ 1716 We consider here 

recently adopted rules, including the 

Settlement Cycle Adopting Release, 

February 2024 Form PF Adopting 

Release, May 2023 SEC Form PF 

Adopting Release, Dealer Adopting 

Release, Rule 605 Amendments, 

Beneficial Ownership Adopting Release, 

Rule 10c–1a Adopting Release, Short 

Position Reporting Adopting Release, 

Treasury Clearing Adopting Release, 

and Customer Notification Adopting 

Release.1717

Consistent with its long-standing 

practice, the Commission’s economic 

analysis in each adopting release 

considers the incremental benefits and 

costs for the specific rule—that is the 

benefits and costs stemming from that 

rule compared to the baseline. The 

Commission acknowledges the 

possibility that complying with more 

than one rule may entail costs that 

could exceed the costs if the rules were 

to be complied with separately. Two of 

the rules identified by commenters have 

compliance dates that occur before the 

effective date of the final 

amendments.1718 The compliance 

periods for other rules overlap in part, 

but the compliance dates adopted by the 

Commission in recent rules are 

generally spread out over an 

approximately two-year period 

extending to June 2026,1719 which could 

limit the number of implementation 

activities occurring simultaneously. 

Where overlap in compliance periods 

exists, the Commission acknowledges 

that there may be additional costs on 

those entities subject to one or more 

other rules as well as implications of 

those costs, such as impacts on entities’ 

ability to invest in other aspects of their 

businesses.1720

Affected entities subject to the 

amendments may be subject to one or 

more of the other recently adopted rules 

depending on whether those entities’ 

activities fall within the scope of the 

other rules. Specifically, the Rule 605 

Amendments, which require disclosures 

for order executions in NMS stocks, 

affects market centers and certain larger 

broker-dealers that were not required to 

publish Rule 605 reports prior to the 

Rule 605 amendments. The Beneficial 

Ownership, Rule 10c–1a, Short Position 

Reporting, Dealer, and Customer 

Notification Adopting Releases also 

apply to certain brokers and 

dealers 1721—although due to differing 


ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81759 

Release, supra note 1028 at 14938, 14967–71; 

Customer Notification Adopting Release, supra note 

1034 at 47689, 47725. 1722See Treasury Clearing Adopting Release, 

supra note 1045, at 2717, 2791. 1723See, e.g., Citadel Letter I at 26; SIFMA Letter 

II at, e.g., 41–42; Robinhood Letter at 44. 

1724See MDI Adopting Release, supra note 10, at 

18699–18701. 

1725See supra note 1139 and accompanying text. 

1726See also section VII.D.4 (discussing the 

acceleration and implementation of the MDI Rules). 

1727See Robinhood Letter at 44. 

1728See section VII.D.1 for a discussion of this 

effect. 

1729See NASAA Letter at 9, and Vanguard Letter 

at 6. 

1730As discussed in section VII.B, the reduction 

in the fee cap will primarily lower trading costs and 

distortions for stocks that are tick-constrained; for 

stocks that are not tick-constrained, the reduction 

in the fee cap may lead to wider quoted spreads 

which will offset the lower fee. See supra note 1508 

for a discussion of the fee cap’s contribution to 

liquidity distortions for tick-constrained stocks; see 

also supra section VII.D.2.c on the effect of the fee 

cap reduction for stocks that are not tickconstrained. 

1731See, e.g., Dixon, supra note 1277 for a 

discussion of this concept in the context of short 

selling. 

1732 Id. 

requirements, these rules may not all 

apply to any given broker or dealer. The 

Treasury Clearing Adopting Release 

applies to certain participants of the 

covered clearing agencies which could 

include broker-dealers.1722 We 

acknowledge that entities subject to 

multiple rules may still experience 

increased costs associated with 

implementing multiple rules at once as 

well as implications of those costs, such 

as impacts on entities’ ability to invest 

in other aspects of their businesses. 

In addition, while the Commission 

received comments on the interaction of 

the MDI Rules and these 

amendments,1723 commenters did not 

specifically address costs associated 

with overlapping compliance periods. 

When the Commission adopted the MDI 

Rules, it outlined a phased transition 

plan for implementation.1724 Based on 

the times provided in the transition plan 

for implementation of the MDI Rules, 

the Commission estimated that the full 

implementation of the MDI Rules will 

be at least two years after the 

Commission’s approval of the plan 

amendment(s) required by Rule 

614(e).1725 Therefore, the length of time 

affected market participants will have to 

come into compliance with both the 

MDI Rules and these amendments, and 

the likelihood of limited overlap in 

compliance periods, will mitigate 

compliance costs.1726

One commenter stated that the 

complete implementation of the MDI 

Rules will undermine the Commission’s 

economic analysis of amendments to 

Rules 610 and 612. The commenter 

stated: ‘‘Implementation of the MDI 

Rules would . . . likely mute any 

potential benefits of or weaken the case 

for the additional costs associated with 

the Tick Size Proposal . . . At 

minimum, the Commission is obligated 

to consider the fully implemented MDI 

Rules as part of the ‘baseline’ against 

which the asserted need for this new 

rule, and its impact, are assessed.’’ 1727

The MDI Rules form part of the 

baseline for the amendments to Rules 

610 and 612. The MDI Rules and these 

amendments will increase transparency, 

achieve better order execution, lower 

costs, and lead to better investment 

decisions and increased market 

efficiency. However, the MDI Rules and 

these amendments—while sharing 

broad goals—achieve their benefits 

through distinct channels; therefore, 

implementation of the MDI Rules is 

unlikely to mute benefits arising from 

these amendments. The channel 

through which the MDI Rules achieves 

their benefits is data—the MDI Rules 

will increase the granularity of data that 

is included in NMS data and further 

introduce a decentralized competing 

consolidator model to lower the cost of 

purchasing this data. For market 

participants who already purchase 

proprietary data from exchanges, the 

MDI Rules may have a limited direct 

impact because these participants will 

not experience a change in their 

information set. Nonetheless, these 

participants will still see many benefits 

from the reduction in tick size and 

access fee cap. For example, they will be 

able to quote at more precise prices, 

which more accurately reflect the 

competitive cost of liquidity, and 

experience fewer instances of tick 

constraints. Also, any stocks that remain 

tick-constrained would have fewer 

distortions due to excess liquidity as a 

result of the reduction in the access fee 

cap. Therefore, the benefits of the MDI 

Rules do not lessen the benefits of the 

amendments to Rules 610 and 612 for 

these market participants. 

For market participants who do not 

purchase proprietary data from 

exchanges, the MDI Rules, once fully 

implemented, as well as the market data 

amendments associated with this 

release, may complement the benefits of 

amendments to Rules 610 and 612. This 

is because the MDI Rules, including the 

amendments in this release, will result 

in more information being made 

available to non-consumers of 

proprietary data, while amendments to 

Rules 610 and 612 remove constraints 

on trading by alleviating tick 

constraints. The amendments in this 

release to Rules 610 and 612, the 

amendments to the MDI Rules, and the 

MDI Rules in total (once fully 

implemented), will create an 

environment where there is more, as 

well as better, information available to 

market participants that do not 

subscribe to proprietary data products. 

These market participants will also have 

an improved ability to trade on that 

information due to the lower expected 

cost of transacting for some stocks due 

to the lower tick size and access fee. The 

eventual inclusion of depth-of-book 

information in core data under the MDI 

Rules will also mitigate costs from the 

tick reduction causing liquidity to 

spread across multiple price 

points 1728—market participants will 

more readily be able to see the liquidity 

available at these price points. 

E. Effect on Efficiency, Competition, and 

Capital Formation 

1. Efficiency 

The amendments will improve price 

efficiency, namely the degree to which 

the price of a stock reflects its 

fundamental value. The improvement in 

price efficiency is expected largely to 

come through the reduction in the tick 

size and the reduction of the access fee 

cap. The acceleration of portions of the 

MDI Rules could also increase price 

efficiency, but those effects are largely 

to accelerate the economic impact 

already anticipated in the MDI Rules. 

Lowering the tick size for some NMS 

stocks with prices equal to or greater 

than $1.00, as well as lowering the 

access fee cap for all stocks to 10 mils 

for stocks with prices equal to or greater 

than $1.00, or to 0.10% for stocks with 

prices lower than $1.00, will increase 

price efficiency.1729 The reduction in 

the tick size for some stocks along with 

the reduction of the access fee cap for 

all stocks will lower transaction 

costs.1730 When trading becomes less 

costly, market participants have an 

increased incentive to gather more 

information because doing so is more 

profitable.1731 Gathering more 

information and trading on that 

information means that prices are more 

reflective of the fundamental value of 

the firm. Consequently, for stocks that 

receive an improvement in market 

quality due to the lower tick size or the 

reduction in the access fee, the 

Commission expects an improvement in 

price efficiency.1732

The Commission further expects that 

quoted spreads will better reflect the 

cost of liquidity as a result of these 

amendments. As discussed in section 


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1733See also Proposing Release, note 11, at 80328: 

‘‘If tick sizes were infinitely small, and absent other 

distortions, then fees and rebates would not affect 

the cost of trading because markets would simply 

adjust quotes by the amount of the rebate such that 

the spread with rebates included is the same. 

However, current U.S. equity markets differ from 

this frictionless construct because there is a finite 

tick. In this environment, and particularly for stocks 

with narrower spreads, high access fees and rebates 

can distort liquidity supply and demand by 

artificially increasing the cost of taking liquidity 

and the revenue to providing liquidity. This 

dynamic creates an environment with too much 

liquidity supply relative to liquidity demand.’’ 

1734One commenter stated that the Commission 

did not explain these distortions, see Virtu Letter 

II at 16. The subsequent discussion (as well as the 

discussion surrounding note 1508, supra) explains 

the distortions. 

1735See also Citadel Letter I at 16, CCMR Letter 

at 26. 

1736See 87 FR 80313. 

1737See also supra note 1128. 

1738See Quarter Penny Tick, supra note 1127. 

1739See supra note 1128 for an explanation of 

how variation in fee and rebate schedules across 

trading venues can increase price fidelity by 

allowing for more effective intra-tick pricing. 

Reducing the access fee cap reduces this effective 

intra-tick pricing by limiting the degree to which 

fee and rebate schedules can differ from one 

another. 

1740Under the preexisting Rule 610 fees, makertaker venues can offer liquidity demanders net 

prices that are 30 mils worse than quoted prices; 

inverted venues, in contrast, tend to offer net prices 

that are 30 mils better than quoted prices, creating 

a grid of price points that are 40 to 60 mils 

separated from each other. E.g., the net prices 

available at a maker-taker venue may be $10.003, 

$10.013, etc., while the net prices available at an 

inverted venue may be $9.997, $10.007, etc.; the 

price points are 40 to 60 mils apart from each other. 

Under the reduced fee cap, maker-taker venues will 

only be able to offer liquidity demanders net prices 

that are 10 mils worse than quoted prices; to 

maintain a grid of price points that are 50 mils 

apart, an inverted venue could offer a net price that 

is 40 mils better than the quoted price by instituting 

a 40 mil rebate for liquidity takers. E.g., the net 

prices available at a maker-taker venue will be 

$10.001, $10.013, etc.; with a 40 mil rebate, 

inverted venues could offer net price points of 

$9.996, $10.006, etc., so that the price points are 50 

mils apart from each other. See also Quarter Penny 

Tick, supra note 1127, for a discussion of this 

concept. 

1741See infra section VII.E.2.a and VII.E.2.b for 

additional discussion. Specifically see discussion 

surrounding infra note 1752. 

1742See, e.g., IEX Letter VI at 1–6. 

1743See supra notes 1219, 1220 and 1398, as well 

as related discussion in sections VII.D.1.b.i and 

VII.D.1.e. The Commission acknowledges that tickconstrained stocks receiving a tick reduction may 

experience an increase in execution costs for 

sufficiently large orders—evidence from the TSP 

suggests that this occurs for orders that are quite 

large (approximately 50 round lots). See discussion 

surrounding note 1284. 

1744See RBC Letter at 4 stating (‘‘we believe that 

lowering the access fee cap would lead to a 

reduction in broker conflicts of interest . . .’’); 

NASAA Letter at 9 (stating ‘‘reducing access fee 

caps could help reduce incentives for brokerdealers to route orders to trading venues that benefit 

those broker-dealers (such as venues in which a 

broker-dealer is rebated), but may provide 

suboptimal execution to the detriment of the 

broker-dealer’s customers.’’). See also Themis Letter 

at 7; supra section VII.D.3. 

VII.B.3,1733 high access fees and rebates 

can distort liquidity supply and 

demand.1734 The tick acts as a price 

floor that prevents the spread from 

reflecting the true cost of liquidity; 

likewise, access fees—and the rebates 

they fund—further distort quoted 

spreads by taxing liquidity demand and 

subsidizing liquidity supply at this 

price floor. By reducing both the tick 

and the access fee cap, quoted spreads 

will better reflect the cost of liquidity 

and allow for more efficient liquidity 

provision. 

Some commenters expressed the 

concern of diminished intra-tick pricing 

from reduced access fees.1735 As shown 

in the Proposing Release, the NYSE, 

Nasdaq, and Cboe exchange families 

each operate both a maker-taker venue 

and an inverted venue.1736 Variation in 

fee and rebate schedules across trading 

venues effectively allow for intra-tick 

pricing.1737 However, that intra-tick 

pricing via access fees and rebates is an 

imperfect solution to the problem of a 

stock having a tick that is too large.1738

Reducing the access fee cap can reduce 

the degree to which maker-taker trading 

centers can offer effective intra-tick 

pricing which could potentially lead to 

pricing distortions—i.e., less efficient 

prices.1739 However, the ability for 

markets to establish efficient prices will 

increase overall due to the reduced tick 

size for stocks with TWAQS less than or 

equal to $0.015. The reduced tick size 

reduces the need for intra-tick pricing 

by providing a finer pricing grid on 

which market participants can submit 

orders. Specifically, a tick size of $0.005 

with an access fee and rebate of 10 mils 

provides an effective pricing grid with 

price pints at every $0.005 and plus or 

minus $0.001, which is finer than the 

current pricing grid with a tick size of 

$0.01 and an access fee/rebate of 

$0.003.1740 For stocks not subject to the 

reduced tick size, the Commission 

acknowledges some reduction in the 

ability to price intra-tick. However, the 

efficiency loss is limited due to the fact 

that, by definition, these stocks have 

sufficiently wide average spreads, and 

thus sufficient ticks within the spread, 

to avoid qualifying for the lower tick 

size. For these stocks, there is less of a 

need to price intra-tick. 

The reduction in the tick is expected 

to reduce the cost of transacting on 

exchanges, which will result in an 

increase in orders being sent to lit 

markets.1741 The reduction in the access 

fee cap is expected to widen quoted 

spreads, and the quote differential 

between lit exchanges and other trading 

venues may widen. This need not, 

however, lead to lower demand for lit 

liquidity, as the access fee, which 

currently disincentivizes investors to 

access liquidity on exchanges, will also 

be lower.1742 Thus, the net effect of the 

rules is an increase in orders on lit 

markets and an improvement in price 

efficiency. 

Some commenters stated that a finer 

tick size could cause information 

leakage. Large orders may need to be 

divided into smaller orders due to the 

fragmentation of liquidity across 

multiple price levels; executing a large 

order may therefore reveal more 

information, which could increase price 

impact and trading costs.1743 The 

Commission acknowledges that 

information leakage may, in turn, 

reduce incentives to collect information 

ex-ante and thereby reduce price 

efficiency. However, on balance, the 

effect of the amendments to increase 

price efficiency by, on average, reducing 

trading costs. This is because the cost of 

information leakage primarily shows up 

in the form of wider spreads when a 

large trade is anticipated and higher 

costs of trading for large orders. If 

information leakage was a primary— 

rather than mitigating—effect of the 

smaller tick size, then in the TSP 

analysis discussed in section 

VIII.D.1.b.ii spreads would not have 

narrowed and round-trip trading costs 

would not have fallen for stocks with 

narrow spreads when the tick size was 

reduced. But this is not what that 

analysis found; thus, while increased 

information leakage could be a factor 

mitigating the reduction in spreads due 

to the smaller tick size, the net effect is 

expected to be lower trading costs for 

stocks receiving the smaller tick size. 

Additionally, the commenter’s concerns 

are mitigated by the fact that the 

amendments do not include the 

proposed smaller tick sizes (0.001 and 

0.002). 

Lowering access fees also increases 

the efficiency with which the quote 

conveys information regarding the cost 

of liquidity. As discussed in section 

VII.D.2.d, access fees that fund rebates 

contribute to complexity and lack of 

transparency in markets because they 

separate both the true cost of demanding 

liquidity and the proceeds from 

supplying liquidity, as represented by 

the quoted half-spread. Reducing the 

wedge between the spread and the true 

cost also reduces conflicts of interest 

between broker-dealers and their 

customers. Multiple commenters stated 

that a lower access fee cap would help 

mitigate the conflict of interest because 

lowering the access fee is expected to 

reduce rebates available and thus the 

incentive to route based on rebates 

instead of execution quality.1744


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1745One commenter stated that they agreed with 

the Commission’s analysis of these effects, see 

Council of Institutional Investors Letter at 5; see 

also Themis Letter at 7. 

1746See Vanguard Letter at 6. See also supra 

sectionVII.D.2 for additional discussion of access 

fees. 

1747See Retirement Coalition Letter at 2. 

1748See supra section VII.D.3 for further 

discussion on basing fees and rebates on historical 

activity. 

1749See Robert P. Bartlett et al., The Market 

Inside the Market: Odd-Lot Quotes, Rev. Fin. Stud. 

(Sep. 19, 2023), available at https://doi.org/10.1093/ 

rfs/hhad074. 

1750There is the possibility that competing 

consolidators may not choose to distribute odd-lot 

information (because the MDI Rules do not require 

them to do so), in which case the positive effects 

of including odd-lots in NMS data on price 

efficiency will be lost. This outcome is unlikely 

because the odd-lot information is valuable in terms 

of having information relevant to stock prices, see 

Bartlett et al., id, and the alternative to odd-lot 

information from the competing consolidators 

would be to subscribe to all of the proprietary data 

feeds, which is expensive. Given that there will be 

significant demand for the odd-lot information, 

competing consolidators will therefore offer the 

data. 

1751See supra section VII.D.1.b for additional 

discussion of the effects of pennying. 

1752See two industry studies attached to MEMX 

Letter at 43–63 and 64–70. These studies examine 

the relaxation of tick constraints following reverse 

splits and find that the reduction in on-exchange 

trading costs results in an increase in on-exchange 

trading volume. See also Panel A of table 2 in 

Bidisha Chakrabarty, et al., Tick Size Pilot Program 

and Price Discovery in US Stock Markets, 59 J. Fin. 

Mkt. 100658 (2022). This academic study uses the 

TSP and finds that an increase in tick constraints 

results in an increase in off-exchange trading 

volume. See also Amy Kwan et al., Trading Rules, 

Competition for Order Flow and Market 

Fragmentation, 115 J. Fin. Econ. 330 (2015). This 

academic study examines the change in the tick 

from $0.01 to $0.0001 for orders priced in the 

vicinity of $1.00, and finds that more volume is 

executed on exchanges when the trade price dips 

below $1.00 and is therefore subject to the smaller 

tick. 

1753 Id. 

1754See supra section VII.D.1.c. 

1755See Themis Letter at 6 and Cboe Letter II at 

7. 

1756See supra note 1752. 

1757See SIFMA Letter II at 41. 

1758See supra section VII.D.1. 

Making fees and rebates determinable 

at the time of execution, along with the 

reduction of the access fee cap could 

also increase price efficiency by helping 

minimize potential conflicts of 

interest.1745 Fees and rebates create a 

potential conflict for a broker in 

situations where incentives related to 

transaction fees, which are paid by the 

broker, potentially conflict with 

incentives to obtain execution quality, 

which may affect the customer.1746 This 

conflict, if acted on, can lead to 

inefficient order routing and worse 

transaction outcomes for customers; 1747

it can also lead to an inefficient 

incorporation of information into stock 

prices, harming market efficiency. 

Making access fees determinable at the 

time of execution will enhance 

efficiency by providing market 

participants with certainty concerning 

the fees that they will be charged per 

transaction. This certainty could also 

allow broker-dealers to examine their 

own best-execution performance more 

efficiently. Greater certainty about fees 

and rebates in advance of routing an 

order could also increase the efficiency 

of the broker-dealers’ best execution 

assessments by providing them with 

greater certainty about the full cost of a 

transaction when executing the order. 

Additionally, to the extent that 

determinable fees make it easier for 

broker-dealers to communicate fees and 

transmit them to end customers, doing 

so could help eliminate distortions that 

might occur due to potential conflicts of 

interest. However, to the extent that 

exchanges are not able to as effectively 

replicate some incentives that were 

based on using historical activity,1748

requiring these fees to be determinable 

at time of execution may reduce 

efficiency. 

Accelerating the addition of odd-lot 

information to NMS data and the 

inclusion of information relating to the 

best odd-lot quote will realize some of 

the price efficiency benefits articulated 

in the MDI Rules at an earlier date, 

providing improved price efficiency 

earlier than anticipated in the MDI 

Rules. Specifically, research suggests 

that adding information on the shares 

available at price levels inside the 

NBBO may improve price efficiency.1749

Currently only market participants who 

subscribe to proprietary data feeds can 

view the odd-lot information and thus 

adjust trading strategies and decisions 

based on that information. Expanding 

the SIP feeds to include odd-lot 

information will provide new 

information to those investors who 

subscribe to the SIP data but do not 

subscribe to proprietary data feeds.1750

2. Competition 

a. Modification of Rule 612 

The amendments will promote 

competition both on price on a given 

venue and across venues. This will 

occur because the amendments will 

allow liquidity providers to compete at 

more price points on exchange. By 

limiting the affected stocks to those with 

low spreads, the amendments 

ameliorate possible effects of pennying 

which may accompany a finer pricing 

grid.1751

In addition, the amendments will 

improve the efficiency of on-exchange 

trading, allowing exchanges to better 

compete with off-exchange market 

makers. Empirical evidence suggests 

that, on average, relaxing tick 

constraints leads to volume moving onto 

exchanges primarily by improving 

market quality on the exchanges.1752

Research suggests that this occurs both 

because of the reduction in transaction 

costs resulting from a finer pricing grid, 

and also because a tick that is too wide 

creates long queues for limit order 

execution and increase the incentives to 

send orders off-exchange.1753

The increase in message traffic 

expected from the reduction in the tick 

sizes for certain stocks will result in a 

mild increase in costs to process such 

traffic for those who receive the relevant 

data feeds.1754 Because such 

technological costs are largely fixed, and 

do not depend on the size of the brokerdealer, this could disadvantage smaller 

broker-dealers in the market to provide 

broker-dealer services to investors. 

Some commenters stated that variable 

tick sizes could increase confusion 

among investors trading on-exchange, 

thereby driving orders off-exchange.1755

The potential for investor confusion is 

addressed generally in section VII.D.1.d. 

To the point about confusion due to a 

smaller tick size driving order flow off 

of exchanges, this is unlikely. The 

ability to trade at finer price points, and 

the reduced need to wait in the queue 

should contribute to on-exchange 

trading, not off-exchange trading. 

Indeed, relaxing of tick constraints has 

been associated empirically with 

volume moving on-, not offexchange.1756

One commenter asked the 

Commission to consider the competitive 

effects of Rule 612 on stocks that have 

similar quoted spreads but fall just on 

either side of the threshold, specifically 

similar ETPs that may have quoted 

spreads that are similar but fall on either 

side of the threshold and so receive 

different tick sizes.1757 The commenter 

considers two issuers, Issuer A and 

Issuer B, and explains that a narrower 

tick sizes for Issuer A could attract more 

liquidity to Issuer A’s stock and less 

liquidity to Issuer B’s stock. Once Issuer 

A’s stock attracts more liquidity, its 

spreads could potentially narrow 

further, perpetuating a cycle in which 

Issuer B’s shares are unable to catchup 

to Issuer A. The Commission, however, 

does not expect significant competitive 

effects in this situation. While the 

evidence suggests that stocks with 

quoted spreads less than the threshold 

will, on average, benefit from the lower 

tick, those benefits attenuate as spreads 

widen.1758 Thus, for stocks or ETPs with 


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1759We focus on the competitive effect of the 

access fee cap relative to the alternative, as failure 

to reduce the access fee cap in the presence of the 

tick constraint would lead to a loss of price 

coherence. For commenters stating that reducing 

the access fee cap would increase off-exchange 

volume, see, e.g., Nasdaq Letter II at 4 and Cboe 

Letter IV at 2–3. For commenters stating that 

reducing the access fee cap would increase onexchange volume, see IEX Letter VI at 7. 

1760See IEX Letter VI at 4–6. 

1761See Fidelity Letter at 14, Virtu Letter II at 10, 

Cboe Letter II at 8, and Citadel Letter I at 24. 

1762See Virtu Letter II at 19. 

1763See Cboe Letter II at 7. 

1764As explained in section VII.C.2, exchanges 

can differentiate themselves by offering different fee 

schedules—e.g., inverted, flat fee, or maker-taker 

with numerous price strata. Reducing the access fee 

cap can reduce the variation in rebates and fees 

across venues by narrowing the viable range for fees 

and rebates thereby making the different exchange 

price schedules more similar. However, many price 

schedules are already quite similar despite the 30 

mil access fee cap allowing for a greater degree of 

differentiation. For instance, the data reported in 

table 4 does not show that there is currently a large 

degree of variation in the highest fees charged, 

particularly among maker-taker exchanges which 

dominate the market. Additionally inverted 

exchange fees are all set close to the access fee cap. 

1765See table 5. 

1766 Id. 

1767Self-Regulatory Organizations; Investors 

Exchange LLC; Notice of Filing and Immediate 

Effectiveness of Proposed rule Change Pursuant to 

IEX Rule 15.110 to Amend IEX’s Fee Schedule, 

Securities Exchange Act Release No. 98063 (Aug. 4, 

2023), 88 FR 54373 (Aug. 10, 2023). 

1768See Cboe Letter III at 8. 

1769See RBC Letter at 4. 

1770See Verret Letter I at 8. 

spreads right at the threshold, the 

differential effect of the smaller tick size 

may be relatively small. 

b. Lower Access Fee Caps 

The amendments to Rule 610(c) 

reducing the access fee cap will have 

varying effects on competition between 

trading venues as well as competition 

between broker-dealers. The 

Commission does acknowledge that it 

would limit the ability of exchanges to 

differentiate themselves from other 

exchanges on the basis of their pricing 

schedules; however, the Commission 

expects that exchanges will continue to 

set fees and rebates at or near the access 

fee cap. A lower access fee cap 

mechanically reduces the range over 

which pricing tiers can vary, potentially 

reducing the economic differences 

between pricing tiers thereby reducing 

the benefits from routing order flow for 

the purpose of qualifying for one tier 

over another. This can reduce the 

competitive wedge between high and 

lower volume broker-dealers due to 

volume discounts making it easier for 

lower volume broker-dealers to compete 

with larger volume broker-dealers. 

Commenters disagreed regarding the 

effects of the 10 mils cap relative to the 

15 mils/30 mils alternative in terms of 

the competitive dynamics between onand off-exchange venues, with some 

commenters arguing that reducing the 

access fee cap would cause a shift to onexchange trading while others arguing it 

would cause a shift to off-exchange 

trading.1759 The Commission’s 

discussion in section VII.D.2.c suggests 

that it is unlikely that significant 

activity will be driven off-exchange, and 

it is possible that activity may come onexchange as a result of the lower access 

fee cap. Moreover, the lower access fee 

cap will improve competition relative to 

the 15 mils/30 mils alternative in that it 

will reduce information asymmetries 

among investors, better aligning 

displayed prices with the actual costs of 

transactions.1760

Some commenters expressed that the 

reduction in access fees will impede 

exchange competition by reducing their 

ability to offer differentiated pricing.1761

One commenter stated that this will 

particularly disadvantage new 

exchanges with limited opportunities 

for differentiation.1762 Another 

commenter stated that the inability to 

differentiate based on fees and rebates 

will lead volume to congregate on the 

listing exchange to the detriment of nonlisting exchanges.1763

The Commission acknowledges that 

lowering the access fee cap will 

mechanically limit the extent to which 

exchanges can potentially differentiate 

themselves based on varying pricing 

schedules and diminish their ability to 

compete on the basis of their pricing 

schedules. However it is not clear if the 

amount of differentiation or degree of 

competition will diminish because 

exchanges do not appear, in the markets 

today, to be competing on the basis of 

offering substantially different pricing 

schedules or models.1764 The vast 

majority (>85%) of on-exchange trading 

volume executes on exchanges with 

maker-taker pricing models and with 

baseline access fees near the cap and 

rebates slightly lower than the access fee 

cap.1765 The few exchanges which 

deviate from this pricing style do not 

execute a large proportion of trading 

volume.1766 Additionally, smaller or 

newer exchanges (which do not belong 

to one of the three large exchange 

families) have adopted similar pricing 

schedules and thus do not seem to be 

competing for order flow by 

differentiating their pricing schedule. 

For example, MEMX, the exchange with 

the most market share not affiliated with 

one of the three large exchange families, 

adopted a similar maker-taker pricing 

schedule to what is prevalent in the 

market. Additionally, IEX, a formerly 

flat-fee exchange, has recently switched 

to a maker-taker pricing model, citing 

the need to incentivize liquidity 

provision.1767 This is in line with the 

discussion in section VII.C.2, which 

explains how the structure of markets 

today incentivize the adoption of makertaker pricing where access fees are set 

at or near the access fee cap in order to 

fund large maker rebates as a means of 

attracting competitively priced quotes, 

which in turn increase the trading 

volume executed on the exchange. 

Lowering the access fee cap does not 

change this dynamic, and so the 

Commission expects that exchanges will 

continue to set fees and rebates at or 

near the lowered access fee cap. 

When stating that a lower access fee 

cap would limit competition by 

restricting differentiation, one 

commenter pointed out that when one 

exchange switched from a flat rebate 

model to a tiered pricing model that 

exchange quoted at the NBBO more 

often.1768 This is consistent with a 

tiered pricing structure discouraging 

order routing to competing venues. In 

this case switching to a tiered pricing 

schedule incentivized that exchange’s 

members to not route orders to 

competing exchanges to collect the 

benefits associated with high volume 

tiers. More orders sent to the exchange 

incentivizes more aggressive quoting on 

the exchange leading the exchange to 

quote at the NBBO more often. 

However, the effect on tiering from the 

amendment’s reduction in the access fee 

cap would be different from this 

example because the reduction in the 

access fee cap would apply to all 

exchanges, meaning that the effect on 

competition from tiering will also be 

diminished across all exchanges. 

Therefore, the effect that a lower access 

fee cap would have on one exchange’s 

ability to more consistently quote at the 

NBBO is likely to be weaker than that 

stated by the commenter. 

One commenter expressed the 

concern that the reduced access fee cap 

may also result in exchanges increasing 

the cost to access market data or sell 

preferential access to exchange data to 

some members but not to others.1769

The adopted amendments address this 

concern as compared to the proposal by 

eliminating the proposed requirement 

for an access fee cap of 5 mils on some 

stocks. One commenter stated that while 

it is possible that a sufficiently low cap 

could generate this concern, the access 

fee cap of 10 mils strikes the right 

balance.1770 Furthermore, as explained 

in section VII.D.2.b, the Commission 

does not expect exchange transaction 


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1771See Verret Letter I at 9. 

1772 Id. at 6, 7. 

1773According to table 4 the differences in pricing 

tiers for many exchanges exceed 10 mils therefore 

if the number of pricing tiers does not decrease, by 

necessity, the average difference between the tiers 

would diminish. 1774See Healthy Markets Letter I at 23–24. 

1775For example, some brokers allow customers 

to direct an order to a particular exchange. By 

making the fees and rebates determinable at 

execution, the broker may be better able to inform 

the customer of the net transaction price of a 

prospective directed order. 

1776Under the baseline it would be difficult in 

many cases for a broker-dealer to allocate specific 

rebates received or fees paid to one customer’s trade 

because the fees or rebates in a given month are 

based, in many instances, on that broker-dealer’s 

total trading volume across all customer accounts, 

see section VII.C.2.b. However, if the fees and 

rebates are determinable at the time of execution 

the broker-dealer could feasibly track a specific fee 

or rebate to a specific trade, making it possible for 

a customer to receive such information. 

1777See Danny Mulson Letter. 

1778See supra note 1621, for a discussion on the 

incentives that institutional traders have to monitor 

all aspects of transaction costs. 

revenues on transactions priced greater 

than $1.00 to substantially change as a 

10 mil access fee cap is expected to be 

high enough that exchanges can 

continue to realize their current net 

capture rates for these transactions. 

Reducing the access fee cap may also 

impact competition between brokerdealers who are exchange members, to 

the extent that a lower access fee cap 

diminishes the marginal benefit of 

qualifying for a pricing tier with lower 

fees or higher rebates over another tier 

with less preferential terms. Different 

transaction pricing tiers, particularly 

volume-based pricing tiers providing 

more favorable fees and/or rebates to 

exchange members who execute higher 

relative order volume, introduce a 

competitive wedge between those 

exchange members who qualify for the 

better tiers and those who do not. 

Another commenter stated that high 

access fees disproportionately affect 

smaller firms and investors, and 

lowering the access fee cap would 

promote a more competitive and diverse 

market landscape.1771 The commenter 

stated that exchanges employ pricing 

tiers to extract rents from smaller 

exchange members which are then split 

between the exchange and their high 

tier members, and lowering the access 

fee cap would limit the extent to which 

this can occur.1772 Under the 

assumption that a reduction in access 

fees would be accompanied by a 

reduction in transaction rebates, one 

possible effect of reducing the access fee 

cap would be to diminish the relative 

differences in the fees charged and 

rebates offered between different pricing 

tiers.1773 As shown in table 4 multiple 

exchanges have fee or rebate tiers which 

vary within a range that is greater than 

10 mils. Therefore, lowering the access 

fee cap to 10 mils will necessitate that 

pricing tiers would have to be placed 

within a narrower price range. The 

Commission expects that as the 

differences between pricing tiers 

become less economically meaningful, 

the competitive wedge introduced by 

pricing tiers will diminish, which 

would make it easier for exchange 

members lacking scale to compete with 

exchange members that qualify for 

preferential pricing tiers (i.e., tiers with 

higher rebates/lower fees). 

Another commenter stated that 

although the access fee cap would be 

lowered, it could still allow sufficient 

room for existing differences in 

preferential pricing to persist.1774 The 

commenter used the example of a large 

bank and small broker both paying a 30 

mils rebate with the bank receiving a 32 

mils rebate and the broker receiving 24 

mils. Under a 10 mils access fee cap, the 

exchange could offer a 12 mils rebate to 

the bank and 4 mils to the broker. In 

that case the differential between the 

bank and the broker would remain the 

same despite the reduced access fee cap. 

In the example provided by the 

commenter, the exchanges could 

continue to offer a fully funded rebate 

to some exchange members, which is 8 

mils greater than offered to other 

exchange members, because that 8 mil 

differential would be allowed under a 

10 mil access fee cap. The Commission 

acknowledges that exchanges would be 

able to continue to offer differentiated 

pricing; however, a lower access fee cap 

would reduce the extent to which 

pricing tiers can differ and limit the 

aggregate fees available to the exchange 

to redistribute among its members in the 

form of rebates. It is more difficult for 

an exchange to fund high rebates, 

particularly those greater than the fee 

cap, under a lower access fee cap. 

c. Acceleration of the MDI Rules, 

Addition of Information About Best 

Odd-Lot Orders, Fees and Rebates 

Determinable at Time of Execution 

Accelerating the inclusion of odd-lot 

information in the NMS data, along with 

the implementation of the MDI Rules 

round lot definition, might lead to 

increased competition between 

exchanges and ATSs and OTC market 

makers, including wholesalers. NMS 

stocks priced greater than $250.00 are 

expected to benefit sooner from a tighter 

NBBO, thereby increasing the 

competitiveness of the best displayed 

protected quotes. Greater visibility of 

more competitively priced odd-lot 

orders inside the NBBO could increase 

the competitive position of exchanges 

and ATSs and attract greater order flow. 

This effect will be temporary, only 

lasting until the full implementation of 

the MDI Rules. After the full 

implementation of the MDI Rules, the 

effect on competition is accounted for in 

the MDI Adopting Release and is not 

ascribed to these amendments. 

Making exchange fees and rebates 

determinable at the time of execution 

will enable the customers of brokerdealers to better discuss transaction fees 

and rebates with their broker-dealers, 

and potentially request data on the 

exchange fees incurred by an order,1775

which will increase competition 

between broker-dealers along this 

dimension, leading to better order 

execution and lower costs.1776 In 

particular, while there is currently no 

requirement to either pass on the fees 

and rebates to customers, or account for 

fees and rebates when assessing 

execution quality, there may be 

competitive pressure to do so as a result 

of the amendments because a competing 

broker-dealer will be able to include 

fees and rebates in its transaction cost 

analysis, or simply pass them through to 

the customer. One commenter stated 

that the requirements for exchange 

pricing under this rule change will be 

‘‘even more anti-competitive’’ than the 

current practice, because this would 

mean that ‘‘smaller brokers can’t attract 

new flows based on modelling of what 

such flows will do to their rates upon 

arrival.’’ 1777 The Commission disagrees 

with the statement that this rule change 

will make the market for offering 

executing broker services more anticompetitive. As described in section 

VII.D.3, this rule change allows brokers 

to determine their fees and rebates at 

execution and thereby eliminates the 

need for forecasting future market 

outcomes in order to anticipate the fee 

that will be incurred by an order. To the 

extent such forecasting is more difficult 

for small brokers, the rule change will 

make it easier for small brokers to 

compete. 

Including odd-lot information in the 

exclusive SIPs and providing the best 

odd-lot order information will enhance 

competition among broker-dealers. 

Making the best odd-lot order 

information accessible through the 

exclusive SIPs will facilitate better 

analysis of a broker-dealer’s execution 

quality than is available with just NBBO 

data.1778 Thus, it could be easier for 


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1779 It is possible that some institutional traders 

have access to proprietary data feeds that provide 

the ability to benchmark trades against odd-lot 

orders. Or, they could contract with specialized 

firms that have access to the data and provide 

transaction cost analysis. 

1780See MDI Rules for a discussion of the SIPs’ 

higher latency relative the proprietary feeds offered 

by exchanges. In particular, footnote 26 on page 

18599 summarizes commenters’ views on the 

disadvantages of using SIP data instead of 

proprietary feeds. 

1781See MDI Adopting Release, supra note 10 at 

18603. 

1782See supra section VII.D.4.c for additional 

discussion. While the amendments require the 

exclusive SIPs to distribute odd-lot data, the MDI 

Rules do not require the competing consolidators to 

disseminate odd-lot data. However, the MDI 

Adopting Release anticipated that at least one 

competing consolidator will do so because there 

would be demand for the data. 

1783See MDI Adopting Release, supra note 10, for 

further discussion of how competing consolidators 

have higher barriers to entry than exclusive SIPs, 

such as in the form of compliance costs associated 

with Regulation SCI. 

1784See supra note 1782. 

1785See supra note 1780. 

1786See discussion around note 1780, supra 

explaining that the SIPs’ latency disadvantage 

makes their data useful for visual display. 

1787 In the MDI Adopting Release, the 

Commission anticipated that both exchanges 

operating exclusive SIPs would have strong 

incentives to enter the competing consolidator 

market. See MDI Adopting Release, supra note 10, 

at 18761. 

1788See RBC Letter at 3. 

1789See supra notes 1209 and 1210 and 

surrounding text for a discussion of tick sizes and 

volatility. 

some customers to monitor the 

performance of their broker-dealers.1779

Accelerating the inclusion of odd-lot 

data into the exclusive SIPs will 

increase competition among data 

providers of odd-lot information prior to 

the full implementation of the MDI 

Rules, though it will do so less than 

envisioned in the MDI release for the 

period until the MDI Rules are fully 

implemented. Specifically, under the 

implementation schedule in the MDI 

Rules, adding odd-lot information to 

core data was to occur during the 

parallel operation period. Adding oddlot information to the current exclusive 

SIPs will enable the exclusive SIPs to 

compete directly with the exchanges’ 

proprietary data products for use in 

visual display settings. Without this 

change, the only means to get odd-lot 

information is to subscribe to multiple 

proprietary data feeds. This will change 

when odd-lots are a part of SIP data. 

Unlike the data provided by the 

competing consolidators, the current 

exclusive SIPs are not fast enough for 

use in certain trading.1780 Thus, the 

competition for odd-lot data will be 

limited to odd-lot information used in 

visual display settings. To the extent 

that some market participants subscribe 

to proprietary data for use in visual 

display settings, the introduction of 

odd-lot information to the exclusive 

SIPs will provide competition to this 

segment of the market and reduce the 

prices of odd-lot information provided 

by the proprietary data feeds. However, 

the Commission does not believe that 

this market is very large. Currently, for 

most display settings, market 

participants use SIP data or one of the 

top-of-book data products offered by one 

of the three highest volume exchange 

groups; it is unclear to what extent 

market participants subscribe to 

proprietary data with odd-lot 

information for use in visual display 

settings. 

With respect to competition for topof-book (TOB) data, the exclusive SIPs 

face competition from exchanges’ TOB 

data products. As discussed in the MDI 

adoption,1781 these proprietary products 

are typically less expensive and contain 

less content—being derived from a 

single exchange or exchange family— 

than the exclusive SIPs. If the exclusive 

SIPs charge more for data on account of 

the increased costs associated with 

disseminating odd-lot information, then 

this may provide a competitive 

advantage to providers of proprietary 

TOB products. 

Requiring the exclusive SIPs to 

disseminate the accelerated odd-lot 

information until the exclusive SIPs are 

retired will guarantee that the odd-lot 

information will be disseminated.1782

However, this requirement may also 

affect competition among competing 

consolidators once the MDI Rule is fully 

implemented. On the one hand, these 

new requirements on the SIPs could 

reduce competition among competing 

consolidators and therefore reduce the 

expected benefits of the MDI Rules. This 

reduction in competition could occur 

because the amendments may increase 

the competitive advantage of exclusive 

SIPs relative to non-SIP competing 

consolidators because the SIPs will have 

established a market for odd-lot 

information before having to face 

competition. That is, the SIPs will have 

time to acquire customers for odd-lot 

information before other competing 

consolidators can enter. These 

customers may then face costs should 

they switch to a non-SIP competing 

consolidator; these switching costs may 

dissuade entry by non-SIP competing 

consolidators and thereby lower 

competition.1783

On the other hand, the Commission is 

uncertain whether the SIPs will become 

competing consolidators.1784 The 

amendments’ requirement for SIPs to 

disseminate odd-lot information reduces 

the incremental costs that the SIPs 

would need to bear in order to become 

competing consolidators. Therefore, 

these amendments make it more likely 

that the SIPs will register as competing 

consolidators, which would improve 

competition relative to a scenario in 

which they do not compete. 

Further, non-SIP competing 

consolidators will still have an 

opportunity to compete for significant 

market share. As discussed above, SIPs 

face latency disadvantages relative 

exchanges.1785 If competing 

consolidators can offer a lower latency 

product, then they can capture a part of 

the market that the amendments will 

not affect—those customers who will 

use odd-lot information in ways other 

than visual display.1786 Likewise, 

competing consolidators can offer 

depth-of-book data under the MDI 

Rules, which the SIPs are not required 

to disseminate under these 

amendments. If these markets are 

significantly bigger than the odd-lot 

visual display market, the competitive 

advantage of the exclusive SIPs will be 

less likely to dissuade entry, and nonSIP competing consolidators could have 

sufficient incentive to enter the 

market.1787

3. Capital Formation 

The Commission expects that the 

amendments will promote capital 

formation. First, the combined effect of 

the amendments will be to increase 

liquidity generally, which will increase 

incentives to trade and therefore price 

efficiency. Price efficiency in turn 

promotes capital formation. The 

Commission also expects that the 

alleviation of tick constraints and the 

lower access fee cap will work together 

and separately to lead to displayed 

prices that are more reflective of supply 

and demand for the underlying 

securities, also promoting capital 

formation. 

One commenter stated that a narrower 

tick could increase volatility and 

decrease liquidity which could 

discourage companies from going 

public.1788 As discussed in section 

VII.D.1, stocks receiving the $0.005 tick 

on average will not experience harmful 

liquidity effects. On the contrary, as 

discussed in section VII.D.1, the 

expectation is that on average liquidity 

will improve for stocks with narrow 

quoted spreads that receive the tick size 

reduction. Additionally, as discussed in 

section VII.D.1, the narrower tick will 

not result in increased volatility.1789

Consequently, even if there was a link 

between liquidity and volatility, and the 

decision to go public, those channels 


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1790Research on this topic is exceptionally 

difficult. As stated in the report Assessment of the 

Plan to Implement a Tick Size Program, ‘‘There are 

myriad factors influencing companies’ decisions 

about whether to go public or remain private—and, 

if an IPO is desired, in which country to list shares. 

These include the availability of capital outside the 

public equity market, the regulatory burdens placed 

on public companies, market conditions, broader 

macroeconomic trends and differences in economic 

conditions between countries globally. 

Additionally, broader historical context may reveal 

certain periods of strong IPO issuance, particularly 

during times of high speculative activity in markets, 

as anomalous and unsustainable.’’ See Securities 

and Exchange Commission, Assessment of the Plan 

to Implement a Tick Size Pilot Program (Jul.3, 

2018), available at https://www.sec.gov/files/ 

TICK%20PILOT%20ASSESSMENT%

20FINAL%20Aug%202.pdf (last accessed Feb. 6, 

2024). 

1791See Nasdaq Letter I at 24. 

1792See Nasdaq Letter I at 25. See also Virtu 

Letter II at 10. 

1793One commenter, stating that the reduced 

access fee cap would reduce ‘‘incentives for 

liquidity in thinly traded securities,’’ cited a study 

showing that an improvement in liquidity from 

stock splits resulted in significant reductions in the 

cost of capital for firms that did a stock split (Virtu 

Letter II at 8, citing Ji-Chai Lin, Ajai K. Singh &Wen 

Yu, Stock Splits, Trading Continuity, and the Cost 

of Equity Capital, 93 J. Fin. Econ. 474, 475 (Jan. 1, 

2009)). As stated above, because the reduction of 

the access fee will not result in an increase in the 

cost of liquidity, see supra section VII.D.2.c, 

discussing this point, there is no reason to expect 

the cost of capital to increase as a result of lowering 

the access fee cap. 

1794See Proposing Release, supra note 11, at 

80339. 1795Some commenters discussed ‘‘no action’’ as 

an alternative to the proposed rules. See, e.g., Virtu 

Letter II at 22–23. For purposes of the economic 

analysis, the baseline describes the world as it 

would exist without the rules. 

1796See supra section VII.D.1.b.iii for additional 

discussion of these methodologies. 

1797See supra note 1311 for discussion of specific 

commenter suggestions. 

1798See supra note 1318 and surrounding 

discussion. 

1799See Cboe Letter II at 5. 

1800See supra section VII.D.1.b.iii for additional 

discussion. 

1801See, e.g., UBS Letter at 10 and JPMorgan 

Letter at 4. With a $0.011 threshold, following the 

methodology employed in table 7, an estimated 

Continued 

aren’t expected to be affected in the 

manner mentioned by the commenter. 

Further, the link between tick sizes and 

IPOs is not clearly defined in existing 

research.1790

Commenters expressed the concern 

that wider spreads and reduced depth 

would negatively impact capital 

formation for growth companies.1791

Commenters specifically mentioned the 

importance of rebates for small and 

medium-sized growth companies, 

without which ‘‘market makers may no 

longer find it profitable to make tight 

markets.’’ 1792 Two considerations enter 

in determining the effect of capital 

formation. First, for illiquid stocks, 

spreads are the primary determinant of 

revenue for liquidity providers. The 

rebate makes less of a difference on a 

percentage basis then for stocks that are 

more liquid. Second, the Commission 

does not expect the cost of transacting 

in illiquid securities to rise, net of fees 

and rebates.1793 While the Commission 

acknowledges the crucial role of the 

ability of investors to transact for capital 

formation, it is not quoted spreads that 

matter to investors but rather the net 

spread available on exchange. In sum, 

liquidity is expected to improve for 

stocks with narrow quoted spreads that 

receive the tick size reduction—as 

discussed in section VII.D.1—and 

liquidity is not expected to be harmed 

for stocks that do not receive the tick 

size reduction—as discussed in section 

VII.D.2. Therefore, the amendments are 

expected to improve liquidity and thus 

will not impede capital formation 

through this channel. 

F. Reasonable Alternatives 

This section considers alternatives to 

the amendments. In the Proposing 

Release, we considered the benefits and 

costs of multiple categories of 

alternative, and variations within those 

categories.1794 For brevity we do not 

repeat that discussion here. Instead, this 

section focuses on additional 

alternatives suggested by commenters, 

to the extent they are not incorporated 

into the adopted amendments. We 

organize subsections around key 

elements of the Rule: tick size, 

minimum trading increment, access fee, 

and MDI and BOLO.1795

1. Tick Size Alternatives 

a. Alternative Criteria for Selecting 

Stocks Receiving a Smaller Tick Size 

Commenters suggested alternative 

methodologies for identifying which 

stocks should receive a smaller tick 

size.1796 These alternative 

methodologies are discussed in greater 

detail in section VII.D.1.b.iii and 

generally center on adding additional 

criteria, in addition to the TWAQS, to 

determine which stocks should qualify 

for a lower tick size.1797 In that section, 

analysis failed to find evidence that the 

additional criteria would avert harm to 

market quality. One reason for this is 

likely that much of the information 

contained in these additional thresholds 

suggested by commenters is already 

contained in the TWAQS.1798

Moreover, implementing these 

alternatives would increase the 

complexity of the amendments from the 

perspective of the listing exchanges, 

who would be required to track and 

implement multiple thresholds to 

identify tick-constrained securities. 

Increased complexity would increase 

the compliance costs of the amendments 

for these entities. Complexity would 

also increase for broker-dealers and 

investors, who would be required to 

take these changes into account. These 

alternatives would likely not affect the 

compliance costs of the rules for other 

market participants relative to the 

adopted amendments. This is because 

these alternatives would not change 

how these entities learn which stocks 

are subject to the $0.005 tick and which 

are subject to the $0.01 tick size in terms 

of assessing lists from the listing 

exchanges’ websites, and the need to 

update systems to implement the 

different tick sizes. 

The biggest effect of these alternatives 

relative to the adopted amendments is 

that they would reduce the number of 

securities receiving a reduced tick size. 

For example, one proposed alternative 

would limit the number of securities 

receiving a smaller tick size to an 

estimated 58 stocks.1799 Commenters 

stated that limiting the sample via 

additional thresholds and criteria would 

ensure that only the stocks that are 

absolutely the most likely to benefit 

from a smaller tick size would receive 

the smaller tick size.1800 However, the 

drawback to this more limited approach 

is that the analysis presented in sections 

VII.D.1.b.ii and VII.D.1.b.iii suggests 

that many stocks that would not qualify 

for the lower tick size under these 

alternative thresholds would likely still 

benefit from reducing the tick size. This 

conclusion is supported by the findings 

in table 9 which demonstrate that across 

many dimensions TSP stocks with 

narrow spreads that are nonetheless in 

the bottom quartile based on depth, 

price, or trading volume, i.e., those that 

commenters suggest could perhaps be 

excluded from receiving the lower tick 

size, still experienced market quality 

improvements across many dimensions 

with a smaller tick. This analysis also 

fails to find statistically significant 

evidence that such stocks would be 

harmed. Consequently, adding 

additional criteria would add 

complexity to the implementation of the 

Rule, increasing the compliance costs of 

the rule, and would have lower benefits 

than the adopted amendments because 

it would leave some stocks with a wider 

tick size than would be optimal. 

b. Alternative Threshold for Lower Tick 

Size 

Some commenters suggested that the 

Commission adopt a threshold for the 

lower tick size that is different from the 

adopted amendments. The most 

common alternative suggested was a 

TWAQS of $0.011 threshold.1801


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1,216 stocks would receive the lower tick size, with 

a $0.02 threshold an estimated 2,339 stocks would 

receive the lower tick size. 

1802See supra section VII.D.1.b.ii. 

1803See, e.g., FIA PTG Letter II at 2 and JPMorgan 

Letter at 4. 

1804See supra section VII.D.1.d. 

1805See, e.g., NYSE Letter I at 7 and Nasdaq Letter 

IV at 2. Nasdaq’s alternative assumes that the 

Commission will adopt only one additional reduced 

tick size bucket of $0.005 and a uniform access fee 

of $0.10. Nasdaq Letter IV. See also NYSE, Schwab, 

and Citadel Letter at 2 (‘‘we recommend a reduction 

that is proportionate to the proposed reduction in 

the minimum quoting increment for tickconstrained symbols. This would reduce the current 

$.0030/share cap to $.0015/share for the symbols 

with a half-penny minimum quoting increment’’); 

Nasdaq Letter I at 2; MMI Letter at 7 (‘‘access fees 

should be scaled based on 30% of the minimum 

pricing increment’’); Robinhood Letter at 5, 56–59 

(‘‘the Commission should tie access fee caps to be 

consistently proportional to the applicable tick size 

at the current proportion of 30%’’); and MEMX 

Letter at 23–24 (‘‘Lower the access fee cap in tick 

constrained NMS Stocks to $0.0015 to maintain the 

proportionality of access fees and tick sizes, and 

include auction fees within the scope of the rule to 

The Commission estimates that the 

costs to implement this alternative 

would be similar to the adopted 

amendments because all affected 

entities would be required to perform 

the same work as in the adopted 

amendments. From an implementation 

perspective, the key difference between 

this alternative and the adopted 

amendments would be the considerably 

reduced number of stocks that would 

qualify for the alternative’s lower tick 

size. 

This alternative would more 

specifically target trading volume that is 

nearly always trading at the minimum 

trading increment. This alternative 

would leave stocks with quoted spreads 

between $0.011 and $0.015 with the 

$0.01 tick size, whereas the adopted 

amendments assign a tick size of $0.005 

to such stocks. Using the same 

methodology as is used in table 7 there 

would be an estimated 1,216 stocks 

receiving a $0.005 tick size under this 

alternative, a reduction of 

approximately 572 stocks compared to 

the adopted amendments. These 

omitted stocks have between 1.1 and 1.5 

ticks intra-spread on average. Research 

and Commission analysis as well as 

commenters’ analyses suggest that 2 to 

4 ticks intra-spread is likely an optimal 

range for stocks.1802 Thus, assigning 

stocks with a quoted spread between 

$0.011 and $0.015 to a tick size of 

$0.01—resulting in 1.1–1.5 ticks intraspread—is likely to produce worse 

market quality outcomes than assigning 

these stocks a $0.005 tick—which 

would result in 2.2–3 ticks intra-spread. 

Thus, under this alternative these 

stocks, on average, would be expected to 

have lower overall market quality 

relative to the adopted amendments. 

Specifically, analysis in table 8 of stocks 

in bin 2, which had 1–2 ticks intraspread during the TSP, experienced 

significant improvements in market 

quality when the TSP tick size was 

relaxed—providing evidence that such 

stocks would benefit from a lower tick 

size. Consequently, this alternative, by 

failing to reduce the tick size for stocks 

that evidence suggests would benefit 

from a tick size decrease, would have 

lower benefits compared to the adopted 

amendments, while having similar 

costs. 

c. Alternative Measurement Horizons 

for TWAQS and Effective Periods for 

Tick Sizes 

Some commenters suggested 

alternative measurement horizons to 

determine the TWAQS as well as 

alternative periods that the tick size 

would be effective.1803 Much of the 

analysis of alternative measurement 

horizons for the time weighted quoted 

spread as well as alternative operative 

periods for tick sizes is contained in 

VII.D.1.d. In sum, the analysis in that 

section presents tradeoffs. On the one 

hand, a shorter evaluation period ties 

the tick size to the most recent market 

experience for a given stock potentially 

resulting in the most relevant tick size 

to be assigned. On the other hand, if that 

time period is associated with transient 

spikes in quoted spreads, such as during 

the first quarter of 2020 coincident with 

the onset of the Covid–19 pandemic, 

then the time period used to assign tick 

sizes would not be representative of 

current market conditions and a stock 

may be assigned a sub-optimal tick size. 

There is also a tradeoff associated 

with the length of time that tick sizes 

are effective. More frequent updating 

means the tick size can adjust more 

rapidly to changes in the trading 

environment for a given stock and thus 

could increase the amount of trading 

volume associated with optimal tick 

sizes. The downside is that more 

frequent updates would also increase 

the cost and complexity of the 

amendments as market participants 

would have to adjust to tick sizes that 

change more frequently. 

The Commission analyzed many 

iterations of evaluation period and tick 

size operative period and found 

evidence consistent with these 

tradeoffs.1804 Consequently, depending 

on the combination of period used to 

determine the TWAQS and the effective 

period for the tick size, the total fraction 

of trading volume that trades in the 

preferred range may increase or 

decrease relative to the adopted 

amendments as suggested by the 

analysis in table 10. Additionally, the 

costs and complexity of the alternatives 

would similarly be affected by 

alternative horizons chosen with more 

frequent updating associated with 

higher costs and complexity and less 

frequent updating associated with lower 

costs and complexity relative to the 

adopted amendments. 

For example, as shown in panel A of 

table 10, an alternative which would 

have a one-month evaluation period and 

a one-month effective period for a tick 

size would reduce the amount of 

estimated trading volume that trades 

with a wide tick and likely would have 

benefited from a smaller tick to 8.5%, 

compared to an estimated 13.7% in the 

adopted amendments. Consequently, 

more trading volume would be assigned 

a tick size that is expected to improve 

market quality for the stock. However, 

relative to the adopted amendments this 

alternative would have 12 tick size 

changes per year instead of the adopted 

2 changes, thus it would increase the 

complexity and compliance costs 

associated with the rule. Overall, 

relative to the adopted amendments, 

this alternative results in a significant 

increase in complexity but only 

achieves a relatively modest increase in 

effectiveness in terms of trading volume 

with the appropriate tick size. 

On the other side of the spectrum, a 

rule that uses a 12-month operative 

period could produce the opposite 

effect. It would reduce complexity 

somewhat by reducing the number of 

revisions, but with a significant 

decrease in effectiveness of the tiered 

tick size regime. For instance, again 

using data from table 10, this alternative 

would increase the amount of trading 

volume that retains the larger tick size 

but would likely benefit from a smaller 

tick size to 20.8%, up from an estimated 

13.7% associated with the adopted 

amendments. 

2. Access Fee Alternatives 

a. 15 mils/30 mils Access Fee 

Some commenters recommended 

adopting a two-tier approach to existing 

Rule 610(c)’s uniform maximum access 

fee cap. Specifically, these commenters 

recommended an access fee of 15 mils 

for stocks with a $0.005 cent tick and 

maintaining the 30 mils maximum 

access fee for stocks that continue to 

have a $0.01 cent tick (15 mils/30 mils 

alternative).1805 This 15 mils/30 mils 


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prevent competitive distortions that would 

otherwise result if listing exchanges were permitted 

to use auction fees to avoid a lower fee cap’’). 

1806Commenters recommending this alternative 

did not address the treatment of sub $1.00 stocks. 

For purposes of this discussion, we assume a 

proportionately reduced 0.15% access fee cap for 

those stocks. This access fee cap percentage relative 

to the adopted amendments would mitigate the 

expected reduction in exchanges’ revenue resulting 

the lower access fee cap. Cf. Cboe Letter I (not 

recommending any reduction in access fees but, if 

access fees are reduced, recommending that the 

access fee [for stocks priced equal to or greater than 

$1.00] should not be reduced below $.0015 for tick 

constrained securities with a $0.005 [tick] 

increment. For securities priced less than $1.00, the 

access fee cap must remain unchanged to support 

competition, differentiation, and liquidity 

provision.’’). 

1807Nasdaq Letter IV at 11 and passim. See also 

supra notes 529 and 535 and accompanying text. 

1808 It is not necessary to assume that the 

exchange rebates the entire access fee. Rather, it is 

sufficient that the difference between the rebate 

under the access fee cap of 0.30 mils and the rebate 

under the access fee cap of 0.15 mils is 0.15. The 

example is not changed if the rebate goes from 0.28 

mils to 0.13 mils. 

1809As discussed above in section VII.D.1, the 

stock’s having a 0.5 cent tick would likely lead to 

a narrower quoted spread than 1.7 cents. However, 

if the smaller tick causes the quoted spread to fall 

by anything less than 0.2 cents, the tick and access 

fee cap would revert back to 1 cent and 30 mils after 

the next Evaluation Period. 

1810One commenter stated that, ‘‘the Commission 

should consider the possibility of tick size 

oscillation for some stocks that fall close to the 

threshold values for TWAS.’’ The commenter stated 

that such oscillation will impose excessive costs. 

See Mitre Corp. Letter at 5. See also section 

VII.D.1.d for a quantitative analysis on the tradeoff 

between appropriate tick assignment and the 

number of tick changes when evaluating the length 

of the evaluation and operative periods. The 

oscillation discussed in this alternative does not 

present such a tradeoff—this oscillation results in 

both more tick changes and more tick 

misassignment. 

1811See supra section VII.D.2.d. 

1812See supra section VII.D.2.d. For stocks 

receiving the penny tick, the reduction in the access 

fee cap from 30 mils to 10 mils will reduce 

transaction costs for stocks that experience periods 

in which they are tick-constrained, and further 

reduce the probability that a stock becomes tickconstrained. 1813See supra section VII.D.2.d 

1814See supra section VII.D.2.b 

1815See supra section VII.D.2.b 

1816Specifically, see supra note 669, on the issue 

of discontinuities in the cost of accessing liquidity 

near the $1 threshold. 

alternative would be applied to stocks 

priced $1.00 or more.1806

According to one commenter, this 

approach would be beneficial because 

the higher rebate cap for $0.01 tick 

stocks would maintain incentives to 

provide on-exchange lit liquidity.1807

The Commission acknowledges that the 

lower access fee cap on stocks with the 

higher tick is likely to widen spreads. 

As discussed in sections VII.D.2.c and 

VII.E.1, these wider spreads will not 

lead to a diminution of lit liquidity on 

exchanges. Rather, liquidity providers 

will adjust their quotes to reflect the 

change in fees and rebates, resulting in 

higher quoted spreads without an 

increase in transaction costs nor a 

decrease in lit liquidity. 

Relative to the adopted amendments, 

this alternative would raise costs by 

causing stocks to oscillate between the 

two tick sizes, resulting in the tick size 

being consistently mis-assigned for the 

oscillating stocks. Specifically, the 15 

mils/30 mils alternative would result in 

a feedback loop scenario on tick size 

assignment from tying fee caps to tick 

size. As discussed in sections VII.B.3 

and VII.C.2.b, access fees are tied to 

rebates, which in turn influence quoted 

spreads. Consider, for example, a stock 

that trades in an Evaluation Period, on 

average, with a 1.4 cent TWAQS and 30 

mils access fee cap (and rebate). Under 

the amendments to Rule 612, this stock 

would receive a 0.5 cent tick. If this 

stock were to also to be subject to the 

15 mils/30 mils alternative, it would 

thus be subject to a 15 mils fee cap once 

it receives the smaller tick size, instead 

of a 30 mils one, and its average 

TWAQS would increase to 1.7 cents 

(increase by twice the 0.15 cents 

reduction in rebates as result of the 

lower access fee cap).1808 But with a 

TWAQS of 1.7 cents the stock in a 

subsequent Evaluation Period would 

receive a tick of 1 cent and the access 

fee cap would again be 30 mils.1809 At 

that point, the aforementioned process 

would begin again: the stock would yoyo between tick sizes of 0.5 cents and 

1 cent and access fee caps of 15 mils and 

30 mils, generating investor confusion 

and additional costs.1810 In contrast, 

consider what would happen to this 

same stock under a uniform 10 mils 

access fee cap. The average quoted 

spread would widen from 1.4 cents to 

1.8 cents, at which point the stock 

would not be subject to a tick size 

reduction and there would be no 

oscillations. The same problem would 

occur even with a lower threshold for a 

tick size reduction (e.g., if the TWAQS 

threshold for the 0.5 cent tick were to 

be set at 1.1 cents instead of 1.5 cents, 

then the 15 mils/30 mils alternative 

would result in spreads oscillating 

between 1.05 and 1.35 cents for some 

stocks, causing them to yo-yo between 

tick sizes). Moreover, oscillation would 

also occur if one were to add other 

metrics to the TWAQS threshold for 

smaller tick sizes because there will still 

be stocks near the TWAQS threshold. 

The simplest, and perhaps the only, way 

to avoid this feedback loop is to use a 

uniform access fee cap. 

The 15 mils/30 mils alternative would 

also increase complexity because the 

higher level of fees and rebates create a 

larger wedge between the quoted halfspread and the true cost of demanding 

liquidity.1811 Further, this alternative 

would reduce some benefits related to 

the minimum pricing increment, most 

substantially for stocks with the penny 

tick. As discussed in section VII.C.1.b, 

these stocks may have, at times, an 

economic spread that is less than one 

penny. At those times, the difference in 

outcome between a 30 mils and 10 mils 

access fee would be a relatively large 

reduction in distortions.1812 For stocks 

assigned to the half-penny tick that 

remain tick-constrained, the reductions 

would be more minor in an absolute 

sense (15 mils versus 10 mils). The 

analysis for potential conflicts of 

interest is similar.1813 While the 

Commission acknowledges that there is 

some access fee that would be so low as 

to create strain on exchange business 

models, 10 mils appears well above this 

point.1814 Like the adopted 

amendments, this alternative would not 

affect an exchange’s ability to earn its 

baseline net capture on trading volume 

priced greater than $1.00.1815 This 

alternative may also result in 

complications for orders priced below 

$1. Specifically, for orders priced below 

$1 this alternative would lead to one of 

two outcomes that could have negative 

effects for stocks trading right at the 

$1.00 threshold. For these stocks, the 

minimum pricing increment is $0.0001 

regardless of the access fee applied. If 

the fee cap for sub-$1 orders were to be 

kept proportional at 0.30% and 0.15% 

for trades priced above $1.00, then if 

those stocks prices drop below $1.00 

this would result in a situation where 

there was a group of stocks with the 

same tick size (i.e., $0.0001) but two 

different fee caps. This could place 

stocks with the higher fee cap at a 

competitive disadvantage relative to the 

stocks with the lower access fee cap. 

This outcome is also more complicated 

than both the baseline and adopted rule 

which both have at most one fee cap per 

tick size. Alternatively, if the fee cap for 

orders priced below $1 were to be set 

uniformly at 0.30%, then this 

alternative would create a discontinuity 

in the cost of accessing liquidity at the 

$1.00 price threshold for stocks assigned 

the 15 mils fee cap; likewise, if the fee 

cap for orders priced below $1 were to 

be set uniformly at 0.15%, then it would 

create a discontinuity at the $1.00 price 

point for stocks with the 30 mil fee cap. 

This discontinuity could create 

distortions in liquidity provision as 

discussed in section VII.D.2.c.1816

Consequently, this alternative results in 

either a situation in which there are two 


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1817Nasdaq Letter IV at 11. This commenter 

recommended this alternative as phase 1 in a threephase data gathering process where, in phase 2, the 

Commission would collect a year of data from 

phase 1’s changes and then consider a further 

access fee cap reduction for stocks with a $0.005 

tick. In phase 3, the Commission would collect an 

additional year of data to consider a lower fee cap 

for stocks with a $0.01 tick. Id. at 2 and 11. 

1818See supra section VII.D.2.a. 

1819 If the access fee cap was set below an 

exchange’s net capture rate, then its profitability 

would decrease because it would no longer be able 

to charge fees high enough to cover any nonnegative rebate. To retain the same net capture rate, 

the exchange would have to charge a negative 

rebate (i.e., a fee), which would represent a major 

change in pricing model. 

1820See Citigroup Letter at 6, WFE Letter at 4. 

1821See IEX Letter IV at nn.14 and 21. 

1822See supra section VII.D.2.b for a discussion 

of lost revenue under the adopted amendments. 

1823See table 14 in supra section VII.D.2.b. In that 

table, if the access fee percentage were 0.15% 

instead of the adopted 0.10% then the lost revenue 

on sub $1.00 trading would be approximatively $41 

million across exchanges charging the full 0.30% 

under the baseline. 

1824For stocks with wider economic spreads, the 

higher access fee would most likely reduce the 

spread in equilibrium, implying little or no effect 

on transaction costs. See supra sections VII.B.3 and 

VII.D.2.c 

1825See supra note 1480 and surrounding text. 1826See supra section VII.E.2.b. 1827 44 U.S.C. 3501 et seq. 1828See Data Boiler Letter I at 16 (identifying 

what it termed ‘‘inconsistent rates’’ for the Attorney 

and Compliance Manager positions). 

fee caps for the $0.0001 tick, or there 

exists a discontinuity in the cost of 

accessing liquidity at the $1 price point 

causing distortions in liquidity 

provision. Thus, this alternative appears 

to create costs without corresponding 

benefits. 

One commenter suggested the 

Commission plan to further study the 

question of access fee caps in 

combination with the change in the 

tick.1817 For the reasons discussed 

above and elsewhere in this release, the 

Commission adopts the 10 mil access 

fee cap. Commission staff, however, will 

review and study the effects of the 

amendments as described in section 

VII.D. 

b. Higher or Lower Uniform Access Fee 

Cap 

The Commission could have adopted 

different uniform access fee caps. An 

access fee cap must stay below 50% of 

the minimum pricing increment in 

order to preserve price coherence.1818

Alternatively, if the access fee cap is set 

below an exchanges’ net capture rate, 

then it can adversely affect existing 

exchange pricing practices.1819 Some 

commenters suggested retaining the 

current uniform 30 mils cap for stocks 

with prices above $1.00.1820 A uniform 

30 mils level would be above 50% of the 

minimum pricing increment under the 

adopted amendments, and thus would 

not preserve price coherence. Another 

commenter suggested a uniform access 

fee cap below 10 mils.1821

As discussed in section VII.D.2.b, 

exchanges have sufficient flexibility 

under the adopted amendments to 

maintain their current net-capture and 

agency business models on stocks with 

prices above $1. A uniform access fee 

higher than 10 mils would afford 

exchanges more flexibility relative to 

the adopted amendments. For stocks 

with prices less than $1.00, an access 

fee percentage (of the share price) higher 

than the adopted 0.1% would imply, 

relative to the adopted amendments, a 

lower revenue loss on sub $1.00 

trading.1822 To illustrate with an 

example, if the access fee percentage 

were 0.15% instead of the adopted 

0.10%, then exchanges’ expected 

revenue loss on sub $1.00 trading would 

be approximatively $41 million across 

those exchanges charging the full 0.30% 

under the baseline, instead of 

approximatively $55 million under the 

adopted amendments.1823 The main cost 

of an access fee cap above 10 mils 

would be to increase transaction costs 

for stocks with economic spreads 

smaller than the minimum pricing 

increment.1824 Also, an access fee cap 

higher than 10 mils would allow for a 

greater wedge to exist between 

displayed prices and the net prices that 

are actually realized, potentially 

undermining price transparency. 

In contrast, if the access fee caps were 

set below the adopted levels, then the 

effects described in the prior paragraph 

would all flip. Namely, relative to the 

adopted amendments, transaction costs 

for stocks with economic spreads 

smaller than the minimum pricing 

increment would be lower, and there 

could exist a smaller wedge between 

displayed prices and the net prices that 

are actually realized, potentially 

improving price transparency. However, 

relative to the adopted amendments, 

exchanges could no longer have 

sufficient flexibility to earn their net 

capture on stocks with prices above 

$1.00, and exchanges would incur a 

greater loss in revenue on sub $1.00 

trading. 

An access fee cap higher than the 

adopted 10 mils, and the associated 

higher rebates, also exacerbates the 

potential conflict of interest for brokerdealers who route customers’ orders to 

the exchanges. As discussed in section 

VII.D.3, fees and rebates introduce the 

potential for a conflict of interest if 

those fees and rebates are not fully 

passed through to the routing brokerdealers’ customers. A higher access fee 

cap would increase the potential 

proceeds a broker-dealer would receive 

if it acted on the conflict of interest. A 

lower access fee cap would decrease the 

differences between the fees and rebates 

offered by different exchanges, which 

would decrease the potential proceeds a 

broker-dealer would receive if it acted 

on the conflict of interest. 

Additionally, relative to the adopted 

amendments to Rule 610(c), a lower 

access fee cap could hinder an 

exchange’s ability to differentiate itself 

from other exchanges on the basis of its 

pricing schedule, whereas a higher 

access fee cap could enable more 

differentiation. As discussed in section 

VII.E.2.b, the Commission expects that 

exchanges will continue to set fees and 

rebates at or near the access fee cap; 

therefore, a higher or lower access fee 

cap would likely have minimal effect on 

pricing differentiation across exchanges. 

For retail investors, an access fee cap 

different from the adopted levels would 

likely have little effect on retail market 

quality for reasons discussed earlier.1825

With regard to exchange trading versus 

off-exchange trading, as discussed 

above,1826 an access fee cap lower than 

the adopted level could bring more 

trading volume onto exchanges by 

further relieving tick constraints that 

drive volume off-exchange. A higher 

access fee cap would reverse these 

effects. 

VIII. Paperwork Reduction Act 

Certain provisions of the rules and 

rule amendments contain ‘‘collection of 

information requirements’’ within the 

meaning of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’).1827 The 

Commission requested comment on the 

collection of information requirements 

in the Regulation NMS Proposal and 

submitted relevant information to the 

Office of Management and Budget 

(‘‘OMB’’) for review in accordance with 

44 U.S.C. 3507(d) and 5 CFR 1320.11. 

The title of the new collection of 

information is ‘‘Odd-Lot Information 

Acceleration.’’ An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless the agency displays 

a currently valid control number. The 

Commission has received an OMB 

control number (3235–0802) for this 

collection of information. 

One commenter stated that the hourly 

rates for certain positions were 

inconsistent across the four proposals 

related to separate aspects of equity 

market structure and Regulation 

NMS.1828 No other comments were 

received discussing the PRA. The 

hourly rates used to monetize burden 


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1829The exclusive SIPs currently disseminate 

odd-lot transaction data. 

1830The Commission estimates the monetized 

initial burden for this requirement to be $167,670, 

broken down as follows: [(Sr. Programmer at $399/ 

hour for 210 hours) + (Sr. Systems Analyst at $343/ 

hour for 180 hours) + (Compliance Manager at 

$373/hour for 20 hours) + (Director of Compliance 

at $588/hour for 10 hours) + (Compliance Attorney 

at $440/hour for 20 hours)] = 440 initial burden 

hours to modify its systems to comply with the 

requirement to collect, calculate, and disseminate 

odd-lot information. The Commission based these 

estimates on 10% of the initial burden hour 

estimates for each exclusive SIP to become a 

competing consolidator provided in the MDI Rules 

to account for the fact that these amendments do 

not require the exclusive SIPs to calculate and 

disseminate full consolidated market data (e.g., 

depth of book data or auction information) as 

defined in the MDI Rules. See MDI Adopting 

Release, supra note 10, at 18712–13. The 

Commission derived the hourly rate figures from 

SIFMA’s Management & Professional Earnings in 

the Securities Industry 2013, modified to account 

for an 1,800-hour work-year and inflation, and 

multiplied by 5.35 to account for bonuses, firm size, 

employee benefits, and overhead. 

1831The Commission arrived at this estimate by 

dividing the initial external cost estimate provided 

in the MDI Rules for each exclusive SIP to become 

a competing consolidator by three to account for the 

fact that the exclusive SIPs would not need to build 

aggregation systems in three separate data centers 

to collect, calculate, and disseminate odd-lot 

information. See MDI Adopting Release, supra note 

10, at 18712–13. 

1832The Commission estimates the monetized 

initial burden for this requirement to be $335,340, 

broken down as follows: [(Sr. Programmer at $399/ 

hour for 210 hours) + (Sr. Systems Analyst at $343/ 

hour for 180 hours) + (Compliance Manager at 

$373/hour for 20 hours) + (Director of Compliance 

at $588/hour for 10 hours) + (Compliance Attorney 

at $440/hour for 20 hours)] × [(2 exclusive SIPs)] = 

880 total initial burden hours across the exclusive 

SIPs. 

1833The Commission estimates total initial 

external costs as follows: initial external costs of 

$412,500 per exclusive SIP × (2 exclusive SIPs) = 

$825,000. 

1834The Commission estimates the monetized 

annual ongoing burden for this requirement to be 

$50,301, broken down as follows: [(Sr. Programmer 

at $399/hour for 63 hours) + (Sr. Systems Analyst 

at $343/hour for 54 hours) + (Compliance Manager 

at $373/hour for 6 hours) + (Director of Compliance 

at $588/hour for 3 hours) + (Compliance Attorney 

at $440/hour for 6 hours)] = 132 ongoing, annual 

burden hours to operate and maintain its systems 

to comply with the requirement to collect, 

calculate, and disseminate odd-lot information. The 

Commission based these estimates on 10% of the 

ongoing, annual burden hour estimates provided in 

the MDI Rules for each exclusive SIP competing 

consolidator to operate and maintain its systems to 

comply with Rules 614(d)(1) through (4) to account 

for the fact that these amendments do not require 

the exclusive SIPs to calculate and disseminate full 

consolidated market data (e.g., depth of book data 

or auction information) as defined in the MDI 

Rules. See MDI Adopting Release, supra note 10, at 

18712–13. The Commission derived the hourly rate 

figures from SIFMA’s Management & Professional 

Earnings in the Securities Industry 2013, modified 

to account for an 1,800-hour work-year and 

inflation, and multiplied by 5.35 to account for 

bonuses, firm size, employee benefits, and 

overhead. 

1835The Commission arrived at this estimate by 

dividing by three the ongoing, annual external cost 

estimate provided in the MDI Rules for each 

exclusive SIP competing consolidator to operate 

and maintain its systems to comply with rules 

614(d)(1) through (4) to account for the fact that the 

exclusive SIPs will not need to build aggregation 

systems in three separate data centers to collect, 

calculate, and disseminate odd-lot information. See 

MDI Adopting Release, supra note 10, at 18712–13. 

1836The Commission estimates the monetized 

annual ongoing burden for this requirement to be 

$100,602, broken down as follows: [(Sr. 

Programmer at $399/hour for 63 hours) + (Sr. 

Systems Analyst at $343/hour for 54 hours) + 

(Compliance Manager at $373/hour for 6 hours) + 

(Director of Compliance at $588/hour for 3 hours) 

+ (Compliance Attorney at $440/hour for 6 hours) 

× (2 exclusive SIPs)] = 264 total ongoing, annual 

burden hours across the exclusive SIPs. 

1837The Commission estimates total annual 

ongoing external costs as follows: annual ongoing 

external costs of $123,725 per exclusive SIP × (2 

exclusive SIPs) = $247,450. 

hours differ across releases in order to 

account for changes in inflation rates. 

Consistent with this approach, the 

hourly rate figures discussed below 

have been updated from those cited in 

the Proposing Release to reflect recent 

inflation rates. In addition, certain 

estimates outlined in the MDI Adopting 

Release have been modified, as 

discussed in section VII.G below, to 

conform to the adopted amendments. 

A. Summary of Collection of 

Information 

The rule amendments include a 

collection of information within the 

meaning of the PRA. Specifically, the 

amendments to Rule 603(b) require the 

exclusive SIPs to collect, consolidate, 

and disseminate odd-lot information, 

including the best odd-lot orders to buy 

and sell. The exclusive SIPs are also 

required to disseminate indicators of the 

applicable round lot size and minimum 

pricing increment for each NMS stock, 

both of which will be provided to the 

exclusive SIPs by the primary listing 

exchange. 

B. Proposed Use of Information 

The information collected under the 

amendments to Rule 603(b) will be 

consolidated and disseminated by the 

exclusive SIPs to market participants 

who will use this odd-lot information 

for trading. Widespread availability of 

odd-lot information promotes fair and 

efficient markets and facilitates the 

ability of brokers and dealers to trade 

more effectively and to provide best 

execution to their customers. The round 

lot and minimum pricing increment 

indicators that will be disseminated by 

the exclusive SIPs will provide market 

participants with information about the 

parameters for trading in a particular 

NMS stock. 

C. Respondents 

The collection of information under 

amended Rule 603(b) will apply to the 

two exclusive SIPs. 

D. Total Annual Reporting and 

Recordkeeping Burden 

1. Initial Burden Hours and Costs 

The two exclusive SIPs will have to 

modify their systems to collect, 

consolidate, and disseminate the odd-lot 

information, including the best odd-lot 

orders to buy and sell, that they do not 

currently collect, consolidate, and 

disseminate 1829 and to disseminate the 

round-lot and minimum pricing 

increment indicators provided by the 

primary listing exchange. These 

modifications will involve the addition 

of new hardware, network 

infrastructure, and bandwidth, as well 

as programming and development costs, 

to take in additional inbound odd-lot 

quotation messages from SROs, to 

calculate odd-lot information, and to 

consolidate and disseminate odd-lot 

information and the round lot and 

minimum pricing increment indicators 

to subscribers. 

The Commission estimates that each 

exclusive SIP will incur 440 initial 

burden hours to modify its systems to 

collect, calculate, consolidate and 

disseminate odd-lot information and to 

disseminate the round-lot and minimum 

pricing increment indicators 1830 and 

initial external costs of $412,500 to 

purchase the necessary technology to 

effect such modifications.1831 Thus, the 

Commission estimates that the total 

initial burden hours for two exclusive 

SIPs will be 880 burden hours 1832 and 

that total initial external costs would be 

$825,000.1833

2. Ongoing Burden Hours and Costs 

The Commission believes that the two 

exclusive SIPs will incur annual 

ongoing burden hours and external costs 

to operate and maintain their modified 

systems to collect, calculate, and 

disseminate odd-lot information and to 

disseminate the round-lot and minimum 

pricing increment indicators. The 

Commission estimates that each 

exclusive SIP will incur 132 ongoing, 

annual burden hours 1834 and ongoing, 

annual external costs of $123,725 to 

operate and maintain its systems to 

collect, calculate, and disseminate oddlot information and to disseminate the 

round-lot and minimum pricing 

increment indicators.1835 Thus, the 

Commission estimates that the total 

ongoing, annual burden hours for two 

exclusive SIPs will be 264 burden 

hours 1836 and that total ongoing, annual 

external costs would be $247,450.1837


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1838 In the MDI Adopting Release, the 

Commission estimated the monetized initial burden 

for this requirement to be $70,865. The Commission 

derived this estimate based on per hour figures from 

SIFMA’s Management & Professional Earnings in 

the Securities Industry 2013, modified to account 

for an 1,800-hour work-year and inflation, and 

multiplied by 5.35 to account for bonuses, firm size, 

employee benefits, and overhead: [(Compliance 

Manager at $310 for 105 hours) + (Attorney at $417 

for 70 hours) + (Sr. Systems Analyst at $285 for 20 

hours) + (Operations Specialist at $137 for 25 

hours)] = 220 initial burden hours and $70,865. 

1839 In the MDI Adopting Release, the 

Commission estimated the monetized ongoing, 

annual burden for this requirement to be $128,064. 

The Commission derived this estimate based on per 

hour figures from SIFMA’s Management & 

Professional Earnings in the Securities Industry 

2013, modified to account for an 1,800-hour workyear and inflation, and multiplied by 5.35 to 

account for bonuses, firm size, employee benefits, 

and overhead: [(Compliance Manager at $310 for 

192 hours) + (Attorney at $417 for 48 hours) + (Sr. 

Systems Analyst at $285 for 96 hours)] = 336 initial 

burden hours and $128,064. 

1840See MDI Adopting Release, supra note 10, at 

18599. 1841The Commission believes that 5% of the 

initial and ongoing, annual burden hour estimates 

provided in the MDI Rules for each SRO to make 

the data necessary to generate consolidated market 

data available to competing consolidators and selfaggregators is appropriate because the SROs already 

collect the data necessary to generate odd-lot 

information and this information is a subset of 

consolidated market data as defined in the MDI 

Rules. 

1842The Commission estimates the monetized 

initial burden for this requirement to be $4,261. The 

Commission derived this estimate based on per 

hour figures from SIFMA’s Management & 

Professional Earnings in the Securities Industry 

2013, modified to account for an 1,800-hour workyear and inflation, and multiplied by 5.35 to 

account for bonuses, firm size, employee benefits, 

and overhead: [(Compliance Manager at $373 for 

5.25 hours) + (Attorney at $501 for 3.5 hours) + (Sr. 

Systems Analyst at $343 for 1 hour) + (Operations 

Specialist at $165 for 1.25 hours)] = 11 initial 

burden hours and $4,261. 

1843The Commission estimates the monetized 

ongoing, annual burden for this requirement to be 

$7,646.6. The Commission derived this estimate 

based on per hour figures from SIFMA’s 

Management & Professional Earnings in the 

Securities Industry 2013, modified to account for an 

1,800-hour work-year and inflation, and multiplied 

by 5.35 to account for bonuses, firm size, employee 

benefits, and overhead: [(Compliance Manager at 

$373 for 10.6 hours) + (Attorney at $501 for 3.4 

hours) + (Sr. Systems Analyst at $343 for 5.8 hours)] 

= 19.8 annual burden hours and $7,646.6. 

1844The Commission estimates the monetized 

initial burden for this requirement to be $19,000 per 

primary listing exchange. Salaries are derived from 

SIFMA’s Management & Professional Earnings in 

the Securities Industry 2013, modified to account 

for an 1,800-hour work-year and inflation, and 

multiplied by 5.35 to account for bonuses, firm size, 

employee benefits and overhead: [(Sr. Programmer 

at $368 for 25 hours) + (Sr. Systems Analyst at $316 

for 10 hours) + (Compliance Manager at $344 for 10 

hours) + (Director of Compliance at $542 for 5 

hour)] ≈ $19,000 per listing exchange). See supra 

notes 1644–1645 and accompanying text. 

1845The Commission estimates the monetized 

ongoing, annual burden for this requirement to be 

$9,000 per primary listing exchange. ((Compliance 

Attorney at $406 for 6 hours) + (Compliance 

Manager at $344 for 2 hours)) × 4 tick size revisions 

per year] ≈ $9,000 per listing exchange. Id. 

1846 50 initial burden hours per primary listing 

exchange × 5 primary listing exchanges = 250 total 

initial burden hours. The Commission estimates the 

total monetized initial burden of this requirement 

to be $95,000 ($19,000 per primary listing exchange 

× 5 primary listing exchanges = $95,000). Id. 

1847 32 annual burden hours per primary listing 

exchange × 5 primary listing exchanges = 160 total 

annual burden hours. The Commission estimates 

the total monetized annual burden of this 

requirement to be $45,000 ($9,000 per primary 

listing exchange × 5 primary listing exchanges = 

$45,000). Id. 

E. Collection of Information Is 

Mandatory 

The collection of information 

discussed above is a mandatory. 

F. Confidentiality 

This information collection will be 

public. 

G. Revisions to Current MDI Rules 

Burden Estimates 

Currently, the MDI Rules impose 

‘‘collection of information’’ 

requirements within the meaning of the 

PRA. Specifically, pursuant to Rule 

603(b), SROs are required to make 

available all data necessary to generate 

consolidated market data to competing 

consolidators and self-aggregators. As 

explained in more detail below, the 

Commission is revising the burden 

estimates associated with this 

requirement in light of the amendments. 

In the MDI Rules, the Commission 

estimated that each SRO will require an 

average of 220 initial burden hours of 

legal, compliance, information 

technology, and business operations 

personnel time to prepare and 

implement a system to collect the 

information necessary to generate 

consolidated market data (for a total cost 

per SRO of $70,865).1838 The 

Commission estimated that each SRO 

would incur an annual average burden 

on an ongoing basis of 396 hours to 

collect the information necessary to 

generate consolidated market data 

required by Rule 603(b) (for a total cost 

per SRO of $128,064).1839

As described above, the amendments 

to Rule 603(b) require SROs to make 

available all data necessary to generate 

odd-lot information to the exclusive 

SIPs whereas, under the decentralized 

consolidation model set forth in the 

MDI Rules, consolidated market data 

would be provided by competing 

consolidators and self-aggregators. The 

SROs already provide certain quotation 

information to the exclusive SIPs, and 

many SROs already provide odd-lot 

quotation information to customers 

through their proprietary data feeds.1840

Nevertheless, providing the exclusive 

SIPs with the data necessary to generate 

odd-lot information may entail 

additional burdens. Specifically, 

technical development work may be 

needed to direct odd-lot quotations to 

the exclusive SIPs and to expand the 

capacity of the existing connections 

(including acquiring the necessary 

hardware, network capabilities and 

power) through which the SROs provide 

data to the exclusive SIPs to support the 

additional message traffic associated 

with odd-lot quotations. Therefore, the 

Commission is revising its burden 

estimates for Rule 603(b) upwards by 

5% to account for the provision of the 

data necessary to generate odd-lot 

information to the exclusive SIPs.1841

Specifically, the Commission is adding 

11 initial burden hours 1842 and 19.8 

annual burden hours 1843 to its previous 

estimates. 

In addition, the amendments require 

the primary listing exchange for each 

NMS stock to provide an indicator of 

the round lot size to the applicable 

exclusive SIP for dissemination and to 

calculate and provide to competing 

consolidators, self-aggregators, and the 

applicable exclusive SIP an indicator of 

the applicable minimum pricing 

increment for dissemination. The 

primary listing exchange is already 

required to calculate the applicable 

round lot size and provide it to 

competing consolidators and selfaggregators under the MDI Rules, and 

the incremental burden of providing 

this indicator to the two exclusive SIPs 

is likely to be minimal. However, 

calculating the applicable minimum 

pricing increment and providing it to 

competing consolidators, selfaggregators, and the exclusive SIPs will 

entail additional burdens. 

Specifically, primary listing 

exchanges will need to program systems 

to calculate the applicable minimum 

pricing increment for each NMS stock 

that they list semiannually based on its 

TWAQS and to include this information 

in the data that they provide to 

competing consolidators, selfaggregators, and the exclusive SIPs. 

Therefore, the Commission revising its 

burden estimates for Rule 603(b) 

upwards to account for the calculation 

of the applicable minimum pricing 

increment and the provision of this 

information to competing consolidators, 

self-aggregators, and the exclusive SIPs. 

Specifically, the Commission is adding 

50 initial burden hours 1844 and 32 

annual burden hours 1845 for each 

primary listing exchange to its previous 

estimates and 250 total initial burden 

hours 1846 and 160 total annual burden 

hours 1847 for five primary listing 

exchanges. 

In addition, the MDI Rules include a 

collection of information requirement 


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1848MDI Adopting Release, supra note 10, at 

18703. 

1849 5 U.S.C. 553. 

1850See 5 U.S.C. 604.6. 

1851See section VIII of the Proposing Release, 

supra note 11. 

1852See supra id. 

1853See section VIII of the Proposing Release, 

supra note 11. See supra section VII.B. 

1854 5 U.S.C. 604. 

1855 17 CFR 240.0–10(e). 

1856See Securities Exchange Act Release No. 

62174 (May 26, 2010), 75 FR 32556 (June 8, 2010) 

(‘‘FINRA is not a small entity as defined by 13 CFR 

121.201.’’). 

1857 17 CFR 240.0–10(c). 

1858 In the Proposing Release, the Commission 

estimated that as of June 30, 2022, there were 

approximately 761 Commission registered brokerdealers that would be small entities for purposes of 

the statute. 

1859See rule 301(b)(1) of Regulation ATS. 

1860A list of NMS Stock ATSs with Form ATS on 

file with the Commission is available at https://

www.sec.gov/about/divisions-offices/divisiontrading-markets/alternative-trading-systems/formats-n-filings-information#ats-n. The Commission 

examined the list as of January 31, 2024. The 

number of broker-dealers that operate NMS Stock 

ATSs has not changed from the Proposing Release. 

1861See 17 CFR 242.600(b)(100). 

1862See 17 CFR 242.0–10(g). 

under rules 614(d)(1) through (3), which 

require competing consolidators to 

collect from the SROs quotation and 

transaction information for NMS stocks, 

calculate and generate a consolidated 

market data product, and make the 

consolidated market data product 

available to subscribers.1848 As 

discussed above, the amended 

definition of odd-lot information 

includes a specified best odd-lot order 

to buy and best odd-lot order to sell. 

Since the odd-lot quotes that a 

competing consolidator would use to 

identify and disseminate the best oddlot orders—if the competing 

consolidator offers a consolidated 

market data product that includes this 

information—are already included in 

the data necessary to generate odd-lot 

information, the Commission believes 

that the existing burden estimates for 

rules 614(d)(1) through (3) account for 

the identification and dissemination of 

the best odd-lot orders. 

IX. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires the Commission, in 

promulgating rules,1849 to consider the 

impact of those rules on small entities. 

This Final Regulatory Flexibility 

Analysis has been prepared in 

accordance with section 604 of the 

RFA.1850 The Commission prepared an 

Initial Regulatory Flexibility Analysis 

and a Regulatory Flexibility Act 

certification in accordance with the RFA 

and included in the Proposing 

Release.1851

In the Proposing Release, the 

Commission certified that the proposed 

amendments to Rules 600, 603 and 610 

would not have a significant economic 

impact on a substantial number of small 

entities for purposes of the RFA.1852 The 

Proposing Release solicited comments 

on the certification. The Commission 

received no comments on this 

certification. 

With respect to Rule 612, an initial 

Regulatory Flexibility Analysis 

(‘‘IFRA’’) was prepared in accordance 

with the RFA and was included in the 

Proposing Release.1853 The Commission 

has prepared this Final Regulatory 

Flexibility Analysis (‘‘FRFA’’) in 

accordance with section 604 of the 

RFA.1854 The Commission did not 

receive comments on the IRFA. 

A. Amendments to Rule 612—Final 

Regulatory Flexibility Analysis 

1. Reasons for the Action 

As discussed in section III, the 

Commission is adopting amendments to 

Rule 612 to update and modernize the 

rule for the current trading 

environment. As adopted, Rule 612 will 

reduce minimum pricing increment for 

orders and quotes priced $1.00 or 

greater for certain NMS stocks. 

2. Small Entities Subject to the Rule 

Rule 612 would apply to national 

securities exchanges, national securities 

associations, ATSs, vendors, and broker 

or dealers. 

National securities exchanges are not 

small entities as defined by Commission 

rules. Exchange Act rule 0–10(e) 1855

states that the term ‘‘small business’’ 

when referring to an exchange means 

any exchange that has been exempted 

from the reporting requirements of 

Exchange Act rule 601 and is not 

affiliated with any person that is not a 

small business or small organization. 

There is only one national securities 

association, and the Commission has 

previously stated that it is not a small 

entity as defined by 13 CFR 121.201.1856

Commission rule 0–10(c) defines a 

broker-dealer as a small entity for the 

purpose of this section if the brokerdealer had a total capital (net worth plus 

subordinated liabilities) of less than 

$500,000 on the date in the prior fiscal 

year as of which its audited financial 

statements were prepared, had less than 

$200 million of funds and securities in 

its custody of control at all times during 

the preceding fiscal year, and the 

broker-dealer is not affiliated with any 

person (other than a natural person) that 

is not a small entity.1857 The 

Commission is updating the estimate 

from the Proposing Release and 

estimates that as of December 31, 2023, 

there were approximately 734 

Commission registered broker-dealers 

that would be small entities for 

purposes of the statute that would be 

required to comply with the 

amendments to Rule 612 regarding 

quotation in the minimum pricing 

increments.1858 The updated estimate 

number is approximately 3.5% lower 

and does not impact the Commission’s 

analysis. 

Rule 612 applies to NMS stocks and 

the rule would apply to NMS Stock 

ATSs. NMS Stock ATSs that are not 

registered as exchanges are required to 

register as broker-dealers.1859

Accordingly, NMS Stock ATSs would 

be considered small entities if they fall 

within the standard for small entities 

that would apply to broker-dealers. The 

Commission examined FOCUS data for 

the 33 broker-dealers that currently 

operate NMS Stock ATSs and, applying 

the test for broker-dealers described 

above, believes that none of the NMS 

Stock ATSs currently trading NMS 

stocks were operated by a broker-dealer 

that is a ‘‘small entity.’’ 1860

A vendor is defined in rule 

600(b)(100) of Regulation NMS as any 

SIP engaged in the business of 

disseminating transaction reports, last 

sale data, or quotations with respect to 

NMS securities to brokers, dealers, or 

investors on a real-time or other current 

and continuing basis, whether through 

an electronic communications network, 

moving ticker, or interrogation 

device.1861 Commission rule 0–10(g) 

states that the term small business when 

referring to a SIP, means any SIP that 

had gross revenues of less than $10 

million during the preceding year, 

provided service to fewer than 100 

interrogation devices or moving tickers 

at all times during the preceding year, 

and is not affiliated with any person 

that is not a small business or small 

organization.1862 The Commission 

estimates as of August 31, 2022, that 

there are approximately 80 vendors, 13 

of which would be small entities. 

3. Reporting, Recordkeeping, and Other 

Compliance Requirements 

Rule 612 will no impose any new 

reporting, recordkeeping, or other 

compliance requirements on market 

participants that are small entities. 

4. Significant Alternatives 

Pursuant to section 3 of the RFA, the 

Commission must consider the 

following types of alternatives: (a) the 

establishment of differing compliance or 


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1863See 17 CFR 240.0–10(e). 

1864 Id. 

1865See 17 CFR 240.0–10(e). 

1866See supra note 1856. 

1867See 17 CFR 240.0–10(g). See also Securities 

Exchange Act Release No. 61595 (Feb. 26, 2010), 75 

FR 11232, 11320 (Mar. 10, 2010) (determining that 

SIAC and Nasdaq are not small entities for purposes 

of the RFA). 

1868 5 U.S.C. 801 et seq. 

reporting requirements or timetables 

that take into account the resources 

available to small entities; (b) the 

clarification, consolidation, or 

simplification of compliance and 

reporting requirements under the 

proposed rule for small entities; (c) the 

use of performance rather than design 

standards; and (d) an exemption from 

coverage of the proposed rule, or any 

part thereof, for small entities. 

The primary goal of Rule 612 is to 

provide uniform minimum pricing 

increments for NMS stocks. This 

primary goal continues with the 

amendments to Rule 612. As such, 

imposing different compliance or 

reporting requirements or possibly a 

different timetable for implementing 

compliance or reporting requirements, 

for small entities, could undermine the 

goal of uniformity. In addition, the 

Commission has concluded similarly 

that it would not be consistent with the 

primary goal to further clarify, 

consolidate, or simplify the 

amendments to Rule 612 for small 

entities. The amendments to Rule 612 

are performance standards and do not 

dictate for entities of any size any 

particular design standards, e.g., 

technology, that must be employed to 

achieve the objectives of the rule. It 

would be inconsistent with the 

purposes of the Exchange Act to specify 

different requirements for small entities 

or to exempt broker-dealers from the 

amendments to Rule 612. 

B. Amendments to Rule 610 

The changes to Rule 610(c) would 

apply to trading centers as defined in 

rule 600(b)(95) that impose fees for 

access against a protected quotation or 

any other quotation of the trading center 

that is the best bid or best offer of a 

national securities exchange or national 

securities association. As discussed 

above, currently national securities 

exchanges are the only trading centers 

publishing protected quotations. 

Pursuant to rule 0–10(e), none of the 

national securities exchanges are small 

entities for purposes of the RFA.1863

New Rule 610(d) will require all fees 

charged and rebates paid by national 

securities exchanges to be determinable 

at the time of execution. Pursuant to 

rule 1–10(e), none of the national 

securities exchanges are small entities 

for purposes of the RFA.1864

C. Amendments to Rule 603 and 

Definitions Odd-Lot Information and 

Regulatory Data Under Rule 600 

The amendments to Rule 603(b) and 

to the definitions of odd-lot information 

and regulatory data in rule 600(b) would 

apply to national securities exchanges 

registered with the Commission under 

section 6 of the Exchange Act, national 

securities associations registered with 

the Commission under section 15A of 

the Exchange Act, and the exclusive 

SIPs. As stated above, pursuant to rule 

0–10(e), none of the national securities 

exchanges small entities for the 

purposes of the RFA.1865 There is one 

national securities association, and the 

Commission has previously stated that 

it is not a small entity.1866 With respect 

to the exclusive SIPs, neither SIAC nor 

Nasdaq meet the criteria for a ‘‘small 

business’’ or ‘‘small organization’’ when 

used with reference to a securities 

information processor.1867 Thus the 

amendments to rules 600(b) and 603(b) 

would not affect any small entities. For 

the purposes of the RFA, the 

Commission certifies that the 

amendments to Rule 603(b) and rule 

600(b) would not have a significant 

economic impact on a substantial 

number of small entities. 

D. Certification 

For the reasons described above, the 

Commission certifies that the final 

amendments to Rules 600, 603(b) and 

610 would not have a significant 

economic impact on a substantial 

number of small entities for purposes of 

the RFA. 

X. Other Matters 

Pursuant to the Congressional Review 

Act,1868 the Office of Information and 

Regulatory Affairs has designated these 

rules as a ‘‘major rule’’ as defined by 5 

U.S.C. 804(2). The Commission 

considers the provisions of the final 

amendments to be severable to the 

fullest extent permitted by law. ‘‘If parts 

of a regulation are invalid and other 

parts are not,’’ courts ‘‘set aside only the 

invalid parts unless the remaining ones 

cannot operate by themselves or unless 

the agency manifests an intent for the 

entire package to rise or fall together.’’ 

Bd. of Cnty. Commissioners of Weld 

Cnty. v. EPA, 72 F.4th 284, 296 (D.C. 

Cir. 2023); see K mart Corp. v. Cartier, 

Inc., 486 U.S. 281, 294 (1988). ‘‘In such 

an inquiry, the presumption is always in 

favor of severability.’’ Cmty. for Creative 

Non-Violence v. Turner, 893 F.2d 1387, 

1394 (D.C. Cir. 1990). Consistent with 

these principles, while the Commission 

believes that all provisions of the final 

amendments are fully consistent with 

governing law, if any of the provisions 

of these amendments, or the application 

thereof to any person or circumstance, 

is held to be invalid, the Commission 

intends that such invalidity shall not 

affect other provisions or application of 

such provisions to other persons or 

circumstances that can be given effect 

without the invalid provision or 

application. In particular, the 

amendments relating to round lots, oddlot information, Rule 610(c), and Rule 

610(d) can operate independently from 

each other and from the amendments 

related to Rule 612. Additionally, the 

amendments to Rule 612 can operate 

independently from the amendments 

relating to round lots, odd-lot 

information, and Rule 610(d). 

Statutory Authority and Text of Rule 

Amendments 

Pursuant to the Exchange Act, and 

particularly sections 2, 3(b), 5, 6, 11, 

11A, 15, 15A, 17, 19, 23(a), and 36 

thereof, 15 U.S.C. 78b, 78c, 78e, 78f, 

78k, 78k–1, 78o, 78o–3, 78q, 78s, 

78w(a), and 78mm the Commission is 

amending sections 242.600, 242.603, 

242.610, and 242.612 of chapter II of 

title 17 of the Code of Federal 

Regulations. 

List of Subjects in 17 CFR Part 242 

Brokers, Confidential business 

information, Fraud, Reporting and 

recordkeeping requirements, Securities. 

For the reasons stated in the 

preamble, the Commission is amending 

title 17, chapter II of the Code of Federal 

Regulations as follows: 

PART 242—REGULATIONS M, SHO, 

ATS, AC, NMS, AND SBSR, AND 

CUSTOMER MARGIN REQUIREMENTS 

FOR SECURITY FUTURES 

■ 1. The authority citation for part 242 

continues to read as follows: 

Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 

78b, 78c, 78c–4, 78g(c)(2), 78i(a), 78j, 78k– 

1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 

78q(a), 78q(b), 78q(h), 78w(a), 78dd–1, 

78mm, 80a–23, 80a–29, 80a–37, and 8343. 

■ 2. Amend § 242.600 by: 

■ a. In paragraph (b)(69)(i), removing 

the word ‘‘and’’ from the end of the 

paragraph; 

■ b. In paragraph (b)(69)(ii), removing 

the period at the end of the paragraph 

and adding the text ‘‘; and’’ in its place; 

■ c. Adding paragraph (b)(69)(iii); 


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■ d. In paragraph (b)(89)(i)(D), removing 

the word ‘‘and’’ from the end of the 

paragraph; 

■ e. In paragraph (b)(89)(i)(E), removing 

the period from the end of the paragraph 

and adding the text ‘‘; and’’ in its place; 

■ f. Adding paragraphs (b)(89)(i)(F) and 

(89)(iv); and 

■ g. Revising and republish paragraph 

(b)(93). 

The additions and revisions read as 

follows: 

§ 242.600 NMS security designation and 

definitions. 

* * * * * 

(b) * * * 

(69) * * * 

(iii) Best odd-lot order to buy and best 

odd-lot order to sell. The best odd-lot 

order to buy means the highest priced 

odd-lot order to buy that is priced 

higher than the national best bid, and 

the best odd-lot order to sell means the 

lowest priced odd-lot order to sell that 

is priced lower than the national best 

offer, for an NMS stock that are 

calculated and disseminated on a 

current and continuing basis by a 

competing consolidator or plan 

processor or calculated by a selfaggregator; provided, that in the event 

two or more market centers transmit to 

a competing consolidator, plan 

processor, or a self-aggregator identical 

odd-lot buy orders or odd-lot sell orders 

for an NMS stock, the highest priced 

odd-lot buy order or lowest priced oddlot sell order (as the case may be) shall 

be determined by ranking all such 

identical odd-lot buy orders or odd-lot 

sell orders (as the case may be) first by 

size (giving the highest ranking to the 

odd-lot buy order or odd-lot sell order 

associated with the largest size), and 

then by time (giving the highest ranking 

to the odd-lot buy order or odd-lot sell 

order received first in time). 

* * * * * 

(89) * * * 

(i) * * * 

(F) An indicator of the applicable 

minimum pricing increment required 

under § 242.612. 

* * * * * 

(iv) The primary listing exchange 

shall also provide the information 

required under paragraphs (b)(89)(i)(E) 

and (F) of this section to the applicable 

plan processor for dissemination. 

* * * * * 

(93) Round lot means: 

(i) For any NMS stock for which the 

average closing price on the primary 

listing exchange during the prior 

Evaluation Period was: 

(A) $250.00 or less per share, an order 

for the purchase or sale of an NMS stock 

of 100 shares; 

(B) $250.01 to $1,000.00 per share, an 

order for the purchase or sale of an NMS 

stock of 40 shares; 

(C) $1,000.01 to $10,000.00 per share, 

an order for the purchase or sale of an 

NMS stock of 10 shares; 

(D) $10,000.01 or more per share, an 

order for the purchase or sale of an NMS 

stock of 1 share; and 

(ii) New NMS stocks. Any security 

that becomes an NMS stock during an 

operative period as described in 

paragraph (b)(93)(iv) of this section shall 

be assigned a round lot of 100 shares. 

(iii) For purposes of this section only, 

the Evaluation Period means: 

(A) All trading days in March for the 

round lot assigned on the first business 

day of May; and 

(B) All trading days in September for 

the round lot assigned on the first 

business day of November during which 

the average closing price of an NMS 

stock on the primary listing exchange 

shall be measured by the primary listing 

exchange to determine the round lot for 

each NMS stock. 

(iv) The round lot assigned under this 

section shall be operative on: 

(A) The first business day of May for 

the March Evaluation Period and 

continue through the last business day 

of October of the calendar year; and 

(B) The first business day of 

November for the September Evaluation 

Period and continue through the last 

business day of April of the next 

calendar year. 

* * * * * 

■ 3. Amend § 242.603 by revising the 

section heading and paragraph (b) to 

read as follows: 

§ 242.603 Distribution, consolidation, 

dissemination, and display of information 

with respect to quotations for and 

transactions in NMS stocks. 

* * * * * 

(b) Consolidation and dissemination 

of information. (1) Application of 

paragraphs (b)(2) and (3) of this section: 

(i) Compliance with paragraph (b)(3) 

of this section is required until the date 

indicated by the Commission in any 

order approving amendments to the 

effective national market system plan(s) 

to effectuate a cessation of the 

operations of the plan processors that 

disseminate consolidated information 

regarding NMS stocks. 

(ii) Compliance with paragraph (b)(2) 

of this section is required 180 calendar 

days from the date of the Commission’s 

approval of the amendments, filed as 

required under § 242.614(e), to the 

effective national market system plan(s). 

(2) Every national securities exchange 

on which an NMS stock is traded and 

national securities association shall act 

jointly pursuant to one or more effective 

national market system plans for the 

dissemination of consolidated market 

data. Every national securities exchange 

on which an NMS stock is traded and 

national securities association shall 

make available to all competing 

consolidators and self-aggregators its 

information with respect to quotations 

for and transactions in NMS stocks, 

including all data necessary to generate 

consolidated market data, in the same 

manner and using the same methods, 

including all methods of access and the 

same format, as such national securities 

exchange or national securities 

association makes available any 

information with respect to quotations 

for and transactions in NMS stocks to 

any person. 

(3) Every national securities exchange 

on which an NMS stock is traded and 

national securities association shall act 

jointly pursuant to one or more effective 

national market system plans to 

disseminate consolidated information, 

including a national best bid and 

national best offer and odd-lot 

information, on quotations for and 

transactions in NMS stocks. Such plan 

or plans shall provide for the 

dissemination of all consolidated 

information for an individual NMS 

stock through a single plan processor 

and such single plan processor must 

represent quotation sizes in such 

consolidated information in terms of the 

number of shares, rounded down to the 

nearest multiple of a round lot. Every 

national securities exchange on which 

an NMS stock is traded and national 

securities association shall make 

available to a plan processor all data 

necessary to generate odd-lot 

information. 

* * * * * 

■ 4. Amend § 242.610 by: 

■ a. Revising paragraph (c); 

■ b. Redesignating paragraphs (d) and 

(e) as paragraphs (e) and (f); and 

■ c. Adding new paragraph (d). 

The revisions and addition read as 

follows: 

§ 242.610 Access to quotations. 

* * * * * 

(c) Fees for access to quotations. A 

trading center shall not impose, nor 

permit to be imposed, any fee or fees for 

the execution of an order against a 

protected quotation of the trading center 

or against any other quotation of the 

trading center that is the best bid or best 

offer of a national securities exchange or 

the best bid or best offer of a national 

securities association in an NMS stock 

that exceed or accumulate to more than 

the following limits: 


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(1) If the price of a protected 

quotation or other quotation is $1.00 or 

more, the fee or fees cannot exceed or 

accumulate to more than $0.001 per 

share; or 

(2) If the price of a protected 

quotation or other quotation is less than 

$1.00, the fee or fees cannot exceed or 

accumulate to more than 0.1% of the 

quotation price per share. 

(d) Transparency of fees. A national 

securities exchange shall not impose, 

nor permit to be imposed, any fee or 

fees, or provide, or permit to be 

provided, any rebate or other 

remuneration, for the execution of an 

order in an NMS stock that cannot be 

determined at the time of execution. 

* * * * * 

■ 5. Revise § 242.612 to read as follows: 

§ 242.612 Minimum pricing increment. 

(a) Definitions. For purposes of this 

section only, the following terms shall 

have the meanings set forth in this 

section. 

(1) Evaluation Period means: 

(i) The three months from January 

through March of a calendar year; and 

(ii) The three months from July 

through September of a calendar year 

during which the Time Weighted 

Average Quoted Spread of an NMS 

stock shall be measured by the primary 

listing exchange to determine the 

minimum pricing increment for each 

NMS stock. 

(2) Time Weighted Average Quoted 

Spread means 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. 

(b) Minimum pricing increments. (1) 

The minimum pricing increment under 

paragraph (b)(2) of this section shall be 

operative on: 

(i) The first business day of May for 

the Evaluation Period from January 

through March and continue through 

the last business day of October of the 

calendar year; and 

(ii) The first business day of 

November for the Evaluation Period 

from July through September and 

continue through the last business day 

of April of the next calendar year. 

(2) No national securities exchange, 

national securities association, 

alternative trading system, vendor, or 

broker or dealer shall display, rank, or 

accept from any person a bid or offer, 

an order, or an indication of interest in 

any NMS stock in an increment smaller 

than required pursuant to either 

paragraph (b)(2)(i) or (ii) of this section 

if that bid or offer, order, or indication 

of interest is priced equal to or greater 

than $1.00 per share: 

(i) $0.01, if the Time Weighted 

Average Quoted Spread for the NMS 

stock during the Evaluation Period was 

greater than, $0.015; or 

(ii) $0.005, if the Time Weighted 

Average Quoted Spread for the NMS 

stock during the Evaluation Period was 

equal to or less than $0.015. 

(3) No national securities exchange, 

national securities association, 

alternative trading system, vendor, or 

broker or dealer shall display, rank, or 

accept from any person a bid or offer, 

an order, or an indication of interest in 

any NMS stock priced in an increment 

smaller than $0.0001 if that bid or offer, 

order, or indication of interest is priced 

less than $1.00 per share. 

(c) New NMS Stocks. Any security 

that becomes an NMS Stock during an 

operative period as described in 

paragraph (b)(1) of this section shall be 

assigned a minimum pricing increment 

of $0.01 for bids or offers, orders, or 

indications of interest priced equal to or 

greater than $1.00 per share. 

(d) Exemptions. The Commission, by 

order, may exempt from the provisions 

of this section, either unconditionally or 

on specified terms and conditions, any 

person, security, quotation, or order, or 

any class or classes of persons, 

securities, quotations, or orders, if the 

Commission determines that such 

exemption is necessary or appropriate 

in the public interest, and is consistent 

with the protection of investors. 

By the Commission. 

Dated: September 18, 2024. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2024–21867 Filed 10–7–24; 8:45 am] 

BILLING CODE 8011–01–P 


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