I have a theory that I haven't seen posted here before. My theory is this:
If U.S. Markets did not convert to Decimals in 2001, ETFs never would have become so popular. This is because the larger spreads would have discouraged their use and ETFs would have remained a niche product only in specialized areas. investors willing to pay a one or two penny spread for a Total Market or S&P 500 would not have paid 6 cents.
Decimalization has led to tighter spreads since smaller price movements can be accounted for. For example, prior to decimalization, one-sixteenth (1/16) of $1 was the minimum price movement represented in a price quote (this is equal to $0.0625).
With decimalization, the minimum price movement is 1 cent for stocks over $1, providing a greater number of price levels and allowing for tighter spreads between the bid and the ask levels for trading instruments.
I have seen graphs of ETF sales volume growth but my Google searches bring up too much information to find them. If anyone has a link to such a chart (Nisiprius?), I'd be interested to see if it supports or detracts from my theory. I'd also be interested to hear from ETF experts like Rick Ferri. In today's world it seems no thought is unique, so I am sure it's been written about, but it's not a topic I have seen here.