Market Structure Report: Examining the Tick Constrained Securities Issue

There are almost one thousand securities that are consistently traded with a penny spread for virtually the entire trading day. Many of these “tick constrained” securities are actively traded by retail and other investors, and in aggregate they make up about half of all volume and a quarter of trades and notional value executed on a daily basis in the U.S. equity markets. In a new whitepaper, we’ve analyzed the data around how these securities trade today and found they are often subject to artificially wide basis point spreads due to the limitations of Rule 612 of Regulation NMS (the “Sub-Penny Rule”). For example, the recent 1-for-8 reverse stock split of GE stock following the close of trading on July 30, 2021 clearly evidences how the current 1-cent tick size regime can bring artificially wide quoted spreads. With the reverse split, GE stock was no longer tick constrained and, as a result, the average quoted spread narrowed by 74% from 7.64 basis points on July 30, 2021 before the split, to 1.95 basis points on August 2, 2021 after the split, resulting in lower trading costs to investors
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