- A startup backed by BlackRock and JPMorgan sent a proposal to the SEC to modernize how stocks are priced.
- Members Exchange or MEMX, said the SEC should consider letting popular stocks be priced in half-cent increments.
- Robinhood CEO Vlad Tenev has argued that sub-penny pricing would let exchanges compete for Robinhood’s business on equal footing with off-exchange middlemen.
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A startup backed by the likes of BlackRock and JPMorgan sent a proposal to the Securities and Exchange Commission to modernize how stocks are priced, according to a Wall Street Journal report.
The startup, called Members Exchange or MEMX, said the SEC should consider letting popular stocks be priced in half-cent increments, which it said would make buying stocks cheaper for investors. A MEMX study found that half-penny pricing would push more equity trades to public stock exchanges, whereas 40% now occur off-exchange, according to the Journal.
MEMX’s proposal is notably similar to an idea floated by Robinhood CEO Vlad Tenev in June, when he proposed pricing stocks down to the hundredth of a penny.
At the time, Tenev argued that sub-penny pricing would let exchanges compete for Robinhood’s business on equal footing with off-exchange middlemen like Citadel Securities and Virtu Financial – both of whom back MEMX.
Tenev’s idea followed on comments made by SEC Chair Gary Gensler, who suggested the agency might consider waiving the rule that bars sub-penny pricing. Unlike public exchanges, off-exchange venues are not held to the sub-penny rule.
The original intention of the rule was to prevent a practice called “stepping ahead,” where aggressive traders try to outbid others by tiny fractions, according to the Journal. The MEMX proposal focuses on heavily traded stocks that have small bid-ask spreads, on the theory that sub-penny pricing would allow public markets to better reflect real prices.
MEMX – co-owned by a group of big Wall Street players including JP Morgan, Morgan Stanley, Goldman Sachs, and BlackRock- was launched in 2020 as a competitor to the Nasdaq and NYSE exchanges, and it currently hosts around 3% of total US stock trading volume.