A recent Businees Week article by Nina Mehta states that the SEC will probably consider allowing more stocks to trade in price increments of less than 1 cent. http://www.businessweek.com/news/2010-02-23/sec-may-allow-subpenny-pricing-for-more-stocks-shillman-says.html
Question: Why does a long term investor need sub penny quotes?
Answer: They don’t.
The only market participants seeking sub penny quotes are the high frequency trading firms and the exchanges. We know that the biggest revenue providers to the exchanges are the HFT’s. When the HFT’s want a rule change , the process usually takes a similar approach:
1- They demand that the exchamges provide them what they want or they will take their business elsewhere. The big exchanges are for-profit corporations and have their shareholders interest as their top priority (not investor interest).
2- The exchanges begin to lobby the SEC for the rule change and usually say something like “ it will encourage liquidity and tighten spreads”.
3- The SEC accepts the request and places it out for public comment.
4- Very little public comment and the SEC quickly approves the rule change.
We have seen this movie before. Think “Flash Orders”. Do the exchanges really want to protect the average investor or are they simply now the hired guns of the HFT community?