Sept 18 (Reuters) - Wall Street's top regulator on

Wednesday unanimously voted to allow stock exchanges to price

many stocks in increments of half a penny, rather than the

current minimum size of 1 cent, aiming to promote more

competitive pricing and reduce investor costs on the $55

trillion U.S. equities markets.

The new rule should also help stock exchanges compete with

off-exchange trading venues, which represent nearly half of

trading volume, according to the U.S. Securities and Exchange

Commission.

"This will lower costs for investors as well as improve

liquidity, competition and price efficiency in the markets," SEC

Chair Gary Gensler said. "The one-penny minimum has become

outdated. It's too wide in many stocks."

The new rule from the five-member SEC marks another step in

the agency's plans to adopt what would be the most important

market structure reforms in nearly 20 years. However the SEC

faces election-year headwinds in completing the changes unveiled

in 2022.

The rules apply to the highly technical space between

prices stock sellers are willing to accept in a trade and what

buyers are willing to pay, known as the bid-ask spread.

Allowing prices to be quoted in increments, or "tick sizes,"

of less than a penny will result in narrower spreads, cutting

transaction costs and allowing for more aggressive pricing,

according to the SEC.

"This is an industry where people will sell their

grandmothers for four basis points," James Angel, a professor at

Georgetown University's McDonough School of Business, said ahead

of the vote. "But for the retail investor who buys and sells a

share here and there, they're not gonna notice a difference."

Prior to the vote, SEC officials told reporters that

2023 data showed that as many as 1,700 stocks would have

qualified as "tick constrained" under the rule due to be

adopted, meaning a weighted average of the spread was 1.5 cents

or less over a certain period.

The SEC's decision not to include pricing increments smaller

than half a cent represents a likely win for industry, which had

favored the half-penny increment and objected to sizes included

in the 2022 proposal that were as small as a fifth or a tenth of

a cent.

Market maker Citadel Securities said such small sizes

threatened to reduce liquidity and worsen investor panic in

times of stress. Other industry participants pointed to problems

such as "queue jumping," in which buyers jump ahead of existing

orders by placing bids that are only fractionally higher.

The new rules are due to take effect in November 2025.

They SEC's market structure reforms are in part driven by

the GameStop ( GME ) trading frenzy of 2021, in which retail traders

suffered substantial losses.

The agency last year shortened the trading settlement cycle

to help reduce default risk and in March of this year adopted

rules requiring expanded public reporting on the quality of

trade executions by broker-dealers and others.