SIPs Request Two-Year Delay for Key Odd-Lot Quote Regulation Compliance

SIPs Seek Delay in Odd-Lot Quote Regulation Implementation

In a significant move, the Operating Committees of the Securities Information Processors (SIPs) have formally submitted a request to the Securities and Exchange Commission (SEC) seeking a temporary exemption regarding the dissemination of odd-lot depth information. This request focuses on the implementation timeline for new regulations aimed at enhancing the transparency of financial markets, specifically concerning odd-lot quotes.

Understanding Odd-Lot Quotes

Odd-lot quotes refer to trades of shares that are not standard round lots; for example, while a round lot usually consists of 100 shares, an odd lot can be any number that does not align with this standard. The SEC, under the amendments to Regulation National Market System (NMS), mandated that SIPs begin to collect and disseminate certain odd-lot quote information. This includes bids and offers on odd-lots that meet or exceed the National Best Bid and Offer (NBBO).

Reasons for Seeking Exemption

The Committees have proposed a two-year exemption, which would postpone compliance until May 2028. There are several compelling reasons behind this request:

1. Complex Implementation Requirements: As the landscape of the U.S. equities market evolves, SIPs and market participants face an unprecedented level of concurrent obligations. The added requirement to disseminate depth-of-book odd-lot quotations introduces significant complexity into an already evolving system.

2. Development Costs: Implementing these regulations would incur substantial costs for market participants who rely on SIP data. This includes both the initial integration costs for handling depth-of-book odd-lot quotations and ongoing expenses related to increased message traffic.

3. Coordination of Industry Changes: The exemption would also allow for a smoother transition as participants navigate several upcoming changes, including transitioning to fractional share trading data and adjustments to the definition of round lots by November 3, 2025.

4. Market Data Growth: The SIPs require infrastructure enhancements to accommodate the growing volume of market data traffic, especially as changes continue to roll out.

Given the profound changes in regulatory obligations, the Organizational Committees believe that allowing this temporary delay will ease the burden on data recipients as they prepare for these transformations.

What’s Next?

While the request for exemption has been made, SIPs have been instructed to proceed with its Odd Lots project assuming that the dissemination of depth-of-book data will be mandated from day one despite the uncertainty regarding whether the SEC will approve the exemption. Therefore, industry participants are also encouraged to proceed with preparations for this initiative.

About the SIPs

SIPs play a critical role in U.S. equity markets by consolidating and processing all protected bid and ask quotes and trades from registered exchanges and FINRA’s Alternative Display Facility (ADF). This unique asset ensures that the equity markets remain transparent and accessible to investors across the globe. The two main SIPs, CPA/CQ and UTP, handle varying sectors of the market, including the New York Stock Exchange listed securities and Nasdaq listed securities, respectively. Their combined efforts are central to the integrity and efficiency of the financial market's operations today.

The request for a delay will undoubtedly have widespread implications, as participants from all corners of the financial industry brace for these upcoming changes long before they are fully materialized, making dialogue and clarity from regulators essential during this period of uncertainty.

For more details on the exemption request and ongoing initiatives, interested parties can visit the CTA/CQ and UTP official websites.