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SEC Creates a Smaller Tick Half Penny Trades Approved for National Exchanges- The U.S. Securities and Exchange Commission (SEC) has introduced new rules allowing stock markets to price shares in increments of half a penny, rather than the current minimum of one cent. This change aims to promote more competitive pricing and reduce investor costs. The SEC’s five-member commission, which often splits along political lines, unanimously proposed these pricing changes, affecting the nearly $55 trillion U.S. equity markets. The pricing changes establish a second minimum pricing increment, also known as tick size, of $0.005 under Rule 612 of Regulation NMS for the quoting of certain NMS stocks, which are stocks listed on a national securities exchange, regardless of trading venue. The new rules target the bid-ask spread, the difference between the prices sellers are willing to accept and what buyers are willing to pay. By allowing prices to be quoted in smaller increments, the SEC expects narrower spreads, which should cut transaction costs and enable more aggressive pricing. The rule change will affect both stocks and exchange traded funds. Prior to the Commission’s vote, the SEC reported that, based on 2023 data, approximately 1,700 stocks would have qualified as “tick constrained” under the new rule, meaning their weighted average spread was 1.5 cents or less over a certain period. The SEC decided against smaller increments, such as a fifth or a tenth of a cent, which some industry participants argued could reduce liquidity and increase investor panic during stressful times. The new rules are set to take effect in November 2025 and are part of a broader effort by the SEC to implement significant market structure reforms, the largest in nearly 20 years. This initiative was partly driven by the GameStop trading frenzy of 2021, when retail traders experienced substantial losses. To access the SEC Fact Sheet: https://www.sec.gov/files/34-101070-fact-sheet.pdf Not Moving Up External Hiring of CFOs Hits 10-Year High The number of companies looking outside their ranks for Chief Financial Officers (CFOs) has hit a 10-year high, with a recent report suggesting a lack of internal succession planning in many organizations as a major reason. Executive placement firm Crist Kolder’s 2024 Volatility Report highlights a significant trend in the external hiring of CFOs over the past decade, with data showing that in 2024, 44% of Fortune 500 and S&P companies hired CFOs from outside their organizations, marking a 10-year high. This is a notable increase from the historical average of 39%, and surpasses the previous high of 43.4% seen in 2017. The lack of internal succession planning, which caused a reliance on external hires indicates a potential gap in developing internal talent pipelines for the CFO role. Potential reasons cited include the rapid pace of change in the business landscape and the evolving skill set required for modern CFOs. The report suggests that the 2020 pandemic pushed many companies to seek experienced leaders who could navigate uncertainty and drive financial stability. External candidates often brought fresh perspectives and diverse experiences, which could be crucial in times of volatility. To view the report: https://www.cristkolder.com/volatility-report Stressed by The Stress Test Bank Stress Tests Need Overhaul One-size-fits-all annual stress tests conducted by the Federal Reserve on banks and financial institutions don’t work and don’t comply with the transparency requirements set in the Administrative Procedures Act (APA). That’s according to the US Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC) which, in a recently published statement, argues for a more tailored regulatory approach that considers the size and risk profile of banks, and calls on policymakers to adhere to the APA to ensure clarity. Mandated by the 2010 Dodd-Frank Act, the nation’s largest banks undergo annual stress tests to gauge a bank’s resilience and ability to remain stable in market downturns. Annual stress tests require banks to maintain high levels of capital reserves to withstand economic downturns. In CCMC’s statement, Director Foxhall Parker said “Businesses of all sizes depend on the financial support banks offer to launch, expand, and innovate. However, banks face an unsustainable and unclear regulatory landscape as the Federal Reserve administers opaque stress tests that restrict a bank’s ability to provide loans.” The Chamber’s call for the Federal Reserve to comply with the APA, is part of an increasing number of cases challenging federal agency powers, following the Supreme Court’s overturn of the 1984 Chevron decision in June. Chevron gave administrative agencies sweeping powers to impose regulations over businesses and individuals. “The stress test functions as a regulation but does not adhere to the Administrative Procedure Act, a law specifically designed to improve regulations through transparency and public comment,” he added. “The Federal Reserve’s process for administering stress tests is opaque, which creates uncertainty for banks to navigate and remain compliant. For example, the Federal Reserve does not publish the models for the stress tests.” “The unlawful stress testing requirements imposed on banks negatively impact our local communities and economies by locking up capital that could otherwise fuel new and existing businesses of all sizes,” he continued. “The uncertainty and financial strain caused by the current stress testing regime is ultimately borne by people in the real economy, like aspiring entrepreneurs and consumers supporting local businesses.” The Chamber noted that local banks, which are often the primary source of funding for small businesses, are disproportionately affected by existing stress test regulations. When smaller banks are required to hold more capital in reserve, it limits their ability to lend. This restriction is particularly challenging for small businesses that do not have the same access to capital markets as larger corporations. The Chamber argues that the current one-size-fits-all approach of stress tests does not account for the unique characteristics and lower risk profiles of smaller banks. Unlike large, multinational banks, local banks have a more intimate understanding of their community’s economic conditions and the specific needs of their clients. The rigid regulatory framework, however, does not provide the flexibility needed to accommodate these differences. To read the US Chamber’s statement: https://www.uschamber.com/finance/stress-tests-restrict-hometown-businesses-access-to-capital Can’t Knock TikTok The IRS is facing a conundrum: how does it combat false tax advice on TikTok, when its employees are banned from accessing it on their work desktops and work cell phones? In a recent speech at the AICPA & CIMA Engage conference in Las Vegas, National Taxpayer Advocate Erin Collins said, “We are prohibited from going into TikTok as a federal agency, so how do you counter a social media site that you can’t go into? If people are giving advice on TikTok, we can’t give a counter advice on TikTok. We’re not supposed to even see what’s in there.” The ban, enacted as part of a broader national security measure, prohibits federal employees from using TikTok on government-issued devices. This decision stems from concerns that the Chinese-owned app could be used to collect sensitive data and potentially influence users through misinformation. It is part of a larger effort to secure federal data and protect national security, and reflects ongoing worries about the app’s data privacy practices and its potential to share information with the Chinese government. Under the ban, the IRS, along with other federal agencies, must comply, creating a challenge on how to reach a younger demographic that relies on social media for their news. Though the TikTok ban for federal workers was imposed in February 2023, a year-end report by the Treasury Inspector General for Tax Administration (TIGTA) revealed that more than 2,800 mobile devices used by the IRS Criminal Investigations (CI) unit were still accessing TikTok’s website, and 900 other CI employees could access TikTok on computers assigned to CI. The IRS had disagreed with TIGTA’s recommendation to block TikTok on devices used by the criminal investigations unit. To view the TIGTA report: https://www.tigta.gov/sites/default/files/reports/2023-12/2024ier003fr.pdf |
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