If discretion is the better part of valor, then the Securities and Exchange Commission is being very careful before implementing its new Tick Size pilot program.
According to SEC Release No. 34-74388; File No. 4-657, published last Thursday, the regulator made the following statement:
“The Commission hereby extends the time period for Commission action on the proposed Plan from the 120th day and designates May 6, 2015, which is the 180th day for the proposed Plan, as the time period for Commission action. The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed Plan because the extension will provide the Commission with additional time to consider, and take action in light of, among other things, the comments received on the proposed Plan.”
As of February 26, the SEC received 74 comment letters.
The original pilot program was announced in June 2014. At that time the SEC announced that the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) filed a proposal to establish a national market system plan to implement a targeted 12-month pilot program that will widen minimum quoting and trading increments (tick sizes) for certain stocks with smaller capitalization. The Commission plans to use the pilot program to assess whether such changes would enhance market quality for smaller capitalization stocks for the benefit of investors and issuers.
There has been much debate over a proposed “trade at” proviso set to be included in the pilot program. According to several sources, the “trade at” proviso and debate surrounding it, as previously reported by Traders, is the main reason for the delay.
The pilot program will include stocks with a market capitalization of $5 billion or less; an average daily trading volume of one million shares or less; and a closing share price of at least $2 per share. The pilot will consist of one control group and three test groups with 400 securities in each test group selected by stratified sampling.
– Pilot securities in the control group will be quoted at the current tick size increment of $0.01 per share, and trade at the increments currently permitted. The control group would represent a baseline for analysis during the pilot period.
– Pilot securities in the first test group will be quoted in $0.05 minimum increments. Trading would continue to occur at any price increment that is permitted today.
– Pilot securities in the second test group will be quoted in $0.05 minimum increments, and traded in $0.05 minimum increments subject to certain exceptions.
– Pilot securities in the third test group will be subject to the same minimum quoting and trading increments (and the same exceptions) as the second test group, but in addition would be subject to a “trade-at” requirement. In general, a “trade-at” requirement prevents price matching by a trading center that is not displaying the best bid or offer.
