We are happy to see that progress is being made on the tick size pilot program. Two months after the SEC instructed the exchanges and FINRA to submit a plan for the one-year wide tick pilot program, the exchanges and FINRA have complied. However, the plan does provide some new exceptions that do worry us (more on those later).
Just to refresh your memory, here is what the SEC proposed:
“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.”