November 1, 2013

Citigroup Pushes Pilot for Bigger Ticks

By

Peter Chapman

Following recent comments by Securities and Exchange Commission Chair Mary Jo White about a pilot program allowing larger trading increments for smaller stocks, one of the industry's largest market-making firms is promoting a tick-size plan of its own.

Speaking at a recent industry conference, Mike Masone, general counsel for Citigroup's equities division, said his firm was supportive of such a pilot and was about to send the SEC a letter outlining a possible structure.

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Importantly, Citi's plan would not lead to wider spreads, according to Masone. "We shouldn't be looking to widen spreads," he said, "where the spreads are already tighter than nickels or dimes."

Citi's proposal is three-pronged. It would create three groups of emerging growth company stocks, or those with less than $1 billion in revenues, and apply different quote and trading rules to them. Any pilot would last no longer than a year, but could be extended for another year if the data was inconclusive.

For the first group of stocks, traders could only quote and trade in the same increment.

For the second group, market centers could also allow trading at the midpoint of the bid-ask spread.

For the third group, market makers, such as wholesalers, would be permitted to trade at any point in between the spread. Each group would contain between 100 and 200 securities, Masone noted.

The executive did not mention the size of any new trading increment, but the SEC is considering a range of between two cents and nine cents.

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