Securities and Exchange Commission Approves Temporary Exemption for Odd-Lot Depth of Book Dissemination

SEC Grants Temporary Exemption for Odd-Lot Depth of Book Dissemination

The Securities and Exchange Commission (SEC) has made a pivotal decision regarding the dissemination of odd-lot quotes, granting a temporary exemption requested by the CTA/CQ and UTP Operating Committees (collectively known as SIP OCs). This exemption, effective until May 2028, delays the requirement to disseminate odd-lot quotes beyond a Participant's best bid or offer for each National Market System (NMS) stock.

Background of the Decision

Odd-lot transactions refer to trades that involve fewer shares than the standard round lot, which is typically 100 shares. The SEC's approval to delay this dissemination is significant for market participants who will now have more time to prepare for the changes. Under the new plan, starting in May 2026, top-of-book odd-lot quotations will be disseminated. This includes the best odd-lot bid and offer that are better priced than the National Best Bid and Offer (NBBO) across all Participants.

Details on Implementation

The initial rollout will focus on delivering odd-lot quotes that reflect more competitive pricing, ensuring that market participants have better access to real-time data. This will enhance the transparency of odd-lot trading by highlighting improved pricing options available to investors. However, the implementation regarding odd-lot quotes priced beyond each Participant's best odd-lot bid or offer will now take place in May 2028, providing a substantial deferment for market participants.

Significance for Market Transparency

The SEC's decision aims to further realize the objectives of transparency and accessibility in U.S. equity markets. The SIPs, which are unique assets within the U.S. market structure, play a crucial role in consolidating and processing all protected quotes and trades from registered Participants. By allowing this exemption, the SEC is helping to ensure that the markets remain efficient and accessible to both institutional and retail investors.

Regulatory Framework and Future Steps

The governance of SIPs involves an Operating Committee made up of various market Participants, including advisory representatives to ensure a broad perspective on market needs. It is noteworthy that this governance structure has been in place since the late 1970s, following a mandate by the SEC.

Commitment to Continuous Improvement

The SIP OCs regularly review their policies and performance metrics which are publicly available on their respective websites. Future enhancements and technological adaptations will be monitored as the exemption period unfolds, ensuring that all stakeholders are well-informed and prepared for future transitions.

Conclusion

In conclusion, the SEC's granting of a temporary exemption concerning the dissemination of odd-lot depth of book quotes marks a significant shift in regulatory practices aimed at improving market operations. Stakeholders should continue to stay tuned for updates as the implementation strategies are refined leading up to the planned changes in May 2026 and beyond. The overarching goal of this approach remains the reinforcement of market transparency and accessibility, key pillars that uphold investor confidence in the financial ecosystem.

As the financial landscape evolves, these regulatory adjustments will play a pivotal role in shaping a more dynamic environment conducive to all market participants, ultimately leading to a more robust trading infrastructure.