The SEC Tuesday announced a one-year pilot program to widen minimum tick sizes for small-cap stocks.
The program, filed by the Financial Industry Regulatory Authority and national securities exchanges like the New York Stock Exchange, will divide stocks of firms with market capitalizations of $5 billion or less into a control group and three test groups. The control group will use the current tick size of 1 cent per share, while the test groups will all quote small-cap shares at 5-cent minimum increments, according to a news release from the Securities and Exchange Commission.
“This is an important step for a valuable initiative that could have meaningful implications for market quality,” said SEC Chair Mary Jo White, in the news release.
(Don't miss: Are you prepared for the next bear market?)
In one test group, trading would continue to occur at any price increment that is permitted today; in the second, trading would be done in 5-cent increments; and in the third group, securities would be subject to a “trade-at” requirement, which prevents price matching by a trading center that is not displaying the best bid or offer.
The SEC in June ordered the exchanges and the Financial Industry Regulatory Authority to develop and file a proposal for a tick size program. The commission wants to determine whether such changes would enhance market quality for smaller capitalization stocks.
The SEC will vote on implementing the plan following a 21-day public comment period.
After one year, the proposal will be subject to commission approval following a 21-day public comment period.
Rick Baert is a reporter at sister publication Pensions & Investments.