The SEC Tuesday announced a one-year pilot program to widen minimum tick sizes for small-cap stocks.
The program, filed by the Financial Industry Regulatory Authority and national securities exchanges like the New York Stock Exchange, will divide stocks of firms with market capitalizations of $5 billion or less into a control group and three test groups. The control group will use the current tick size of 1 cent per share, while the test groups will all quote small-cap shares at 5-cent minimum increments, according to a news release from the Securities and Exchange Commission.
“This is an important step for a valuable initiative that could have meaningful implications for market quality,” said SEC Chair Mary Jo White, in the news release.
In one test group, trading would continue to occur at any price increment that is permitted today; in the second, trading would be done in 5-cent increments; and in the third group, securities would be subject to a “trade-at” requirement, which prevents price matching by a trading center that is not displaying the best bid or offer.
The SEC in June ordered the exchanges and the Financial Industry Regulatory Authority to develop and file a proposal for a tick size program. The commission wants to determine whether such changes would enhance market quality for smaller capitalization stocks.
The SEC will vote on implementing the plan following a 21-day public comment period.
After one year, the proposal will be subject to commission approval following a 21-day public comment period.
Rick Baert is a reporter at sister publication Pensions & Investments.