Penny Pricing for U.S. Stocks Said to Get Scrutinized for Harm

According to Bloomberg,

Securities executives are trying to determine if the 12-year-old decision to narrow the price increments for American stock trading has harmed investors, according to two people with knowledge of the matter.

Representatives from exchanges, brokers, mutual funds and regulatory agencies held two conference calls today to discuss concerns about market structure, said the people, who requested anonymity because the discussions were private. One topic was the U.S. mandate in 2001 to trade equities in pennies rather than eighths or sixteenths of a dollar, they said.

Compressing what traders call tick sizes reduced profits for human market makers and helped drive the ascent of high-frequency traders, which now account for about half of U.S. volume, according to data compiled by Tabb Group LLC. Widening price increments for smaller companies to a five or ten cents could spur trading and prompt more initial public offerings, according to U.S. Representative Sean Duffy, who has sponsored legislation to test such a shift.

“There are a couple of groups that are really driving this and want it to happen, and it seems like everybody else may not be convinced it’ll make a huge difference but feels it should be tried because it probably won’t hurt anything,” said Justin Schack, partner and managing director for market structure analysis at Rosenblatt Securities Inc. He declined to comment on the ICI meetings.

Third Meeting

Today’s talks were the third hosted in 2013 by the Investment Company Institute, a trade group whose members manage $16 trillion, according to two people with knowledge of the matter. This year’s participants have included senior officials from the New York Stock Exchange and Nasdaq Stock Market, mutual fund companies Fidelity Investments and T. Rowe Price Group Inc., broker-dealer Morgan Stanley, and the Securities and Exchange Commission, among others, according to one of the people.

Representatives of those firms declined to comment on the meetings.

Supporters of larger price increments for some stocks argue that it would encourage more volume for small companies by making trades more profitable for market makers.

The Jumpstart Our Business Startups Act, signed into law last year, instructed the SEC to study the impact of penny pricing and mandate a new minimum increment of less than 10 cents for “emerging growth companies” if the regulator found that was warranted.

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