(Bloomberg) — A program meant to test ways to boost trading in smaller companies should be conducted virtually rather than in the real world, according to Robert Greifeld, chief executive officer of Nasdaq OMX Group Inc.
The Securities and Exchange Commissions pilot is designed to measure the impact of rolling back pricing smaller companies in penny increments, with the goal of increasing volume. Under the rules, shares of lightly traded companies with market values below $5 billion would only be quoted in five-cent increments, known as a tick. Speaking at an industry event in Washington, Greifeld said a test conducted within computer systems would be cheaper and faster.
With the advent of Big Data and analytical tools, and with the commission and industry having the necessary data and knowledge, we can build impact models of what would happen under different rule scenarios in the marketplace, Greifeld said in an interview. That has the ability to be better than an actual pilot, and the pilot is incredibly expensive and incredibly time-consuming to do.
Supporters of the tick-size test, which will last a year, say it will encourage market makers that facilitate trading to buy and sell more shares and create conditions that would persuade more companies to go public. Opponents of the change, including Fidelity Investments, say it will cause investors to pay more when they buy the shares of small-cap companies.
While Nasdaq supports the pilot, a virtual test is certainly a heck of a lot more legitimate than every other way rule-setting has been done, he said.
One element of the test will prevent trading outside the exchanges unless a competing venue or broker offers a significantly better price or size lot to investors, according to an order posted on the SECs website.
Exchange operators including Nasdaq and Intercontinental Exchange Inc.s NYSE Group Inc. have seen their share of trading fall as private platforms such as dark pools have taken about 37 percent of share volume, according to data compiled by Bloomberg.