SEC Orders Exchanges, FINRA To Develop “Tick Size” Pilot Plan

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SEC Orders Exchanges, FINRA To Develop “Tick Size” Pilot Plan

Last week, the SEC issued an order requiring particular national security exchanges and FINRA to jointly develop and file with the SEC a national market system plan to install a 12-month pilot program directed at expanding minimum quoting and trading increments (i.e., tick sizes) for particular small capitalization stocks. The pilot program will target stocks with a market capitalization of $5 billion or less, a mean daily trading volume of one million shares or fewer, and a share price of $2 per share or more.

A control group and three test groups, each consisting of 300 securities, will be included in the program. Control group securities will be tested at the current tick size increment of $0.01 per share, trading exclusively at increments presently allowed. Securities in two of the test groups will be quoted in $0.05 minimum increments, but the increments in which the applicable securities trade will vary. The final test group will be subject to a “trade-at” requirement, designed to stop price matching by a trading center that does not show the best bid or offer. The SEC will use the third group’s trade-at requirement to ascertain if quoting and trading at expanded increments without a trade-at requirement will cause trading volume to move to “dark venues,” which do not provide public pre-trade price transparency.

The SEC’s order will require that all data collected be transferred to the SEC and made publicly available. The SEC will provide a plan with the details of the pilot program by August 25. At that time, the SEC will publish the plan for public comment and determine whether to approve it.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies.

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