Replies to post #33138 on Blackout Media Corp (BKMP)

[Jim Bishop]

Pink Sheets LLC Announces an Innovative Quote-increment Pilot Program

Pink Sheets LLC is excited to announce an innovative quote-increment test planned to start on February 15th. We hope to determine appropriate quote tick sizes specific to OTC equities that will result in increased liquidity in Pink Sheets traded securities.

While “tick sizes” and quote increments on exchange listed securities have been widely studied and discussed, there has not been much work done in OTC markets. The Regulation NMS increments of $.01 for stocks over a $1.00 and $0.0001 otherwise, may not accurately reflect OTC market conditions or the needs of market participants. Especially since most NMS stocks do not trade at prices below $1.00 per share, while many OTC Equity Securities trade at such prices. Public discussion and academic studies are lacking in this significant part of the OTC market.

As such, Pink Sheets is working with Professors William G. and Nick Bollen of the Vanderbilt University’s Owen Graduate School of Management to conduct a test using securities traded on Pink Sheets. The test will impose small quote increments in a subset of Pink Sheets quoted securities. Professors Christie and Bollen will study the results to determine if those quote increments, or other increments are beneficial to Pink Sheets trading and liquidity, and if they should be implemented for all Pink Sheets quoted securities. See article by Christie on tick size increments at: http://tradersmagazine.com/articles.cfm?id=1&aid=1743&searchTerm=christie

The test is an experiment, and we are looking forward to ALL feedback from market participants on their experiences and opinions. The test in securities A through D will run for one month and at that time Pink Sheets will make a decisions regarding expanding the quotation tick sizes to all Pink Sheets securities, if there is a need to adjust tick sizes and/or to discontinue tick sizes.

Subscribers using the Pink Sheets can communicate trading interest in both price and size in the Pink Sheets; however, without any limitations on price increments; the value of communication with size is overshadowed by the ease at which prices can be marginally topped by a scalper. Tick size increments should balance the competing goals of increasing the display of size while not artificially widening spreads. In the Pink Sheets, market participants rarely publish greater than the minimum quotation size, indicating that larger quote publication increments could increase displayed sized and thereby improve the liquidity of the OTC market. Attached below is an article by Professor Christie on Tick Sizes.

The test will begin on February 15th in securities with symbols starting with the letters A through D. The quote tick sizes we plan to use are as follows*:

For quote prices above $10, a quote tick size of .05.
For quote prices at or below $10 but above $1, a quote tick size of .01.
For quote prices at or below $1 but above $.10, a quote tick size of .005.
For quote prices at or below $.10 but above $.001 a quote tick size.0005
For quote prices at or below .001 a quote tick size of .0001

*The above increments will only be implemented in securities exclusively quoted in the Pink Sheets with symbols starting with the letters A-D. The increments will only apply to quotations; there will be no tick sizes, increments or other restrictions in Pink Link. Pink Link Order and execution messages will still be up to 4 decimal place precision.

**Our initial calculations indicate that, for quote prices above $10.00 per share, 97.5% of the inside spreads use whole increments of $0.05, and nearly 91% of trade prices are in whole increments of $0.05. For quote prices above $1.00, but at or below $10.00, 97.4% of the inside spreads use increments of $0.01, and 98.4% of trades use $0.01 increments. For quote prices between $0.10 and $1.00, an increment of $0.005 should be used, as quote and trade clustering is 96.6% for $1.00 quotes and 92.9% for $0.10 quotes. Quote prices at or below $0.10, but above $0.001 use increments of $0.0005 about 84% of the time.

This update will require no changes to broker-dealer systems. Pink Sheets Electronic Quotation System will automatically round down any bid price or round up any ask price to the nearest increment for any quote submitted that is not at an increment.

If you'd like to discuss this change, feel free to e-mail us at [e-mail] or call our Trading Services Dept at 800 LIST OTC.