This is correct. In ultra-liquid stocks, with a finer tick increment, natural buyers and sellers could undercut the market-makers' spreads since they aren't con

This is correct. In ultra-liquid stocks, with a finer tick increment, natural buyers and sellers could undercut the market-makers' spreads since they aren't concerned about making short-term profits. Market-makers could also compete with more diverse pricing. It is not necessarily a bad thing to have a price floor. Removing the floor is a good thing for the parties that meet at the tighter spread, but there is an externality where somebody who wants the shares nearly as much has their order go unexecuted despite providing price discovery to the market by showing their order. Look at GOOGL for example. It is $700 with a $0.01 price increment. Somebody can jump in front of your order by paying just 0.0014% more, there is little incentive to show limit orders on the market, which this makes the order book very thin. There is probably a better balance where the tick is large enough to avoid people jumping your order, but small enough that traders can compete: https://www.sec.gov/comments/4-657/4657-40.pdf https://www.sec.gov/comments/4-657/4657-40.pdf has more comments on these effects. You can trade in a single price auction in almost every market worldwide. A large amount of volume in US equities trades in this way, so people already have this option, but many choose not to use it.