Agency-only broker and technology firm ITG has affirmed its support of the proposal for a pilot program that would allow the widening of tick sizes for small stocks, but without including the so-called ‘trade-at’ provision.
ITG, in a comment letter to the Securities and Exchange Commission, said the pilot should be implemented through the public notice and comment process required under the Administrative Procedures Act, as opposed to an NMS Plan fashioned by national securities exchanges that could compete with alternate trading venues and market makers.
In its comments, co-authored by Jamie Selway, the firm also said the tick pilot should not include a trade-at component because it is anticompetitive, introduces unnecessary complexity, and could skew the empirical results of the study on minimum quoting/trading increments.
ITG operates the POSIT dark pool in the U.S. It also operates dark pools in 33 other countries globally.
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The “trade-at” rule has long been sought after by public exchanges as a way to win back market share against off-exchange competitors such as dark pools or other alternative trading systems. Currently, about 40 percent of all U.S. stocks trade in dark pools and other non-public venues. The exchanges who have lost market share to the dark pools over the last several years, want to grab some of this order flow back.
Wed remove it, Jamie Selway, ITGs head of electronic brokerage said of the inclusion of any type of trade at in the small tick pilot. At end of day, trade-at doesnt have that much to do with small cap stocks. We see no linkage between poor market quality in small cap stocks and high levels of dark liquidity or internalization. Trade-at, in our opinion, would be more of a large cap story and this pilot is about small cap liquidity and its provision.
Currently, SEC rules require trades to be executed at the best available bid or offer, whether it be on a public exchange or in a dark pool or other unlit venue. Dark pools don’t publicly disclose bids or offers.
Trade at has lots of questions and a huge potential for unintended consequences, Selway added, noting trade at might be worthy of its own separate pilot program.
A trade-at rule would force brokerages, many of whom operate dark pools or internalize trades, and independent dark pools to route trades to public exchanges, unless they can execute the trades at a meaningfully better price than available in a public market.
Furthermore, and tick pilot, ITG wrote, should permit broker-dealers to price improve limit orders to make them compliant with the sub-nickel quoting increment. For example, if a broker-dealer receives a buy order priced at 10.04, then the broker-dealer should be allowed to price improve the order to 10.00 instead of rejecting it.
Selway also told Traders that ITG is committed to the pilot process and would actively participate in the discussion surrounding small cap stocks and liquidity provision for them.
ITG’s full comment letter is available HERE:
