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SEC Orders Start of Tick Size Program for Stock Exchanges

Answering feedback from various small companies, brokerage firms and venture capitalists, the U.S. Securities and Exchange Commission (“SEC”) has ordered stock exchanges and the Financial Industry Regulatory Authority (“FINRA”) to start a pilot program for trading stocks from 900 small businesses. Announced in Release No. 34-72460, Order Directing the Exchanges and the Financial Industry Regulatory Authority to Submit a Tick Size Pilot Plan, the test is in response to requests for higher stock price increments. Supporters say increased stock price increments would boost trading volume and investor interest in small cap stocks. Hoping to run the program for a year, the SEC’s Chair Mary Jo White stated that the tick size pilot will help the agency gain information for reviewing the influence of wider tick sizes on smaller issuers’ securities.

Featured in the program are stocks with market values of under $5 billion, trading at $2 or more per share, and a day-to-day trading volume of under 1 million shares. Additionally, stocks will be divided into four groups. The first group will have stocks continue trading in the current $0.01 increments, and be used to assess trading in the three other groups. With 300 stocks each, the three remaining groups are as follows:

  • Second group stocks will be estimated at $0.05 increments, but can remain to trade at any price increment.
  • Third group stocks will be estimated at and trade at $0.05 increments.
  • Fourth group stocks will also be estimated and traded at $0.05 increments, but are bound by an additional “trade-at” restriction. The restriction asks trading centers not to perform a trade unless they can match the best price quote available.

Stock markets and FINRA have been given an August 25th deadline to submit their proposal to the SEC. After submission, the SEC will ask for comments before approving the proposal.

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