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SEC oks Small Cap Tick Size Pilot

http://tinyurl.com/qejmjhl

SEC Gives the Small Cap Tick Size Pilot A Green Light

Traders Magazine Online News, August 27, 2014

John D'Antona Jr.

3-2-1, liftoff. And the program has started,

The Securities and Exchange Commission announced what the equities market had long expected - a test program to allow for a wider minimum tick size increment for small cap stocks. The program will last one year.

The move by the regulator comes in response to brokerages seeking more incentive to provide research and trade smaller and less liquid stocks. The thinking goes that by increasing the tick size will incentivize brokers to make more markets and provide more research for these smaller and, presumably, less liquid companies. Also, the companies would benefit from more active trading of their respective stocks and so would the trading venues, such as the exchanges, who would see their volumes get a boost.

See the Ofiicial SEC Announcment

The program, which has been talked about for months, saw the proposal filed by FINRA and public exchanges like the New York Stock Exchange, will divvy stocks of firms with market caps 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 SEC.

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 will vote on implementing the plan following a 21-day public comment period.

Once implementation and the one year test, the SEC can vote on whether or not to make the program permanent.