Money managers and their brokers are overwhelmingly opposed to trading in increments of less than a penny, the current minimum for stocks trading at $1 or more. They contend it will result in unfair competition for order flow as traders step in front of each other by insignificant amounts.
The firms and their representatives voiced their opposition in letters sent to the Securities and Exchange Commission in April, in response to suggestions in the regulator's Concept Release that sub-penny trading be extended to low-priced stocks. Currently, sub-penny quoting and trading is limited to stocks trading at less than $1.
"Quoting in sub-penny increments would not contribute to the maintenance of orderly markets," the Securities Industry and Financial Markets Association told the SEC in a letter. "Sub-penny pricing would encourage market participants to 'step ahead' of competing limit orders by submitting an order with an economically insignificant price enhancement."
The Investment Company Institute, which represents mutual fund companies, echoed that sentiment. "We oppose any reduction in the minimum pricing increment for Regulation NMS stocks," the ICI wrote in its comment letter. Sub-penny trading could result in a "potential increase in instances of stepping-ahead of investor orders" and effect "market transparency and depth," the ICI added.
Individual brokerage firms also added their two cents. TD Ameritrade asked the SEC to ban all trading in increments of less than a penny, including in stocks trading for less than $1. In a survey, the big broker's customers "demanded that TD Ameritrade request the Commission ban trading, printing and ranking of orders at a minimum price variation of no less than $0.01," Chris Nagy, in charge of order strategy and co-head of government relations, told the SEC.
Citigroup Global Markets told the SEC that "expanding sub-penny quoting would do more harm than good to the stability of the equity markets." In addition to stepping ahead, Dan Keegan, a Citi managing director, told the SEC, sub-penny pricing would increase the number of available price points, thus decreasing depth and "rendering the NBBO less effective."
more at http://www.tradersmagazine.com/news/sub-penny-trading-sec-exchanges-ici-105734-1.html
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