SEC sets plan to expand tick sizes for small-cap trades

Agency seeking to improve market quality by altering rules for trading companies with market caps of $5B or less

Aug 27, 2014 @ 2:12 pm

By Rick Baert

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.

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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.

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