The SEC Adopts New Rules On Penny Stocks

For cinema lovers, the Securities and Exchange Commission (“SEC”) appears to have addressed financial issues reminiscent of those touched in the 1999 satirical comedy, Office Space—i.e., impact of fractional pennies—and 2013 black comedy, The Wolf of Wall Street—i.e., volatile penny stocks. On September 18, 2024, the SEC adopted amendments for Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders: (1) a second minimum pricing increment of half-penny was established for Regulation National Market System (“NMS”) stocks valued $0.015 or less; (2) a reduction of access fee caps and an increased requirement for submitted orders (all fees and rebates must be determined by execution); and (3) a faster turnaround deadline for sharing data from NMS orders. The SEC hopes these amendments will “prevent[] bid-ask spreads for [NMS] stocks from being less than $0.01[,]” “ensure that market participants have fair access to the best displayed prices[,]” and “increase transparency regarding the cost of executing transactions in NMS stocks.”[1]

In other words, now penny stocks can be quoted in half-penny increments, which Office Space highlighted how lucrative fractional pennies can be. The SEC hopes the update “will help drive greater efficiency, competition and fairness[.]”[2]  The Wolf of Wall Street parodied the complexity of the market-structure, and the new rules should help investors know the rebates and fees resulting from their trades as soon as the orders are executed as opposed to days or weeks after the trades.