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SEC Approves Pilot to Assess Tick Size Impact for Smaller Companies

SEC Press Release on 5/6/2015

The Securities and Exchange Commission today approved a proposal by the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) for a two-year pilot program that would widen the minimum quoting and trading increments–or tick sizes–for stocks of some smaller companies.

The SEC plans to use the pilot program to assess whether wider tick sizes enhance the market quality of these stocks for the benefit of issuers and investors.

“The data generated by this important market structure initiative will deepen our understanding of the impact of tick sizes on market quality and help us consider new policy initiatives that can improve trading in the securities of smaller-cap issuers,” said SEC Chair Mary Jo White.

The SEC modified several provisions of the proposal submitted by the exchanges and FINRA that take into account input from commenters. For example, the SEC extended the pilot to two years rather than one, removed the venue limitation from the trade-at prohibition that would have required price matching executions to occur where the person’s quotation was displayed, and reduced the size of block transactions eligible for the exception to better reflect trading in smaller-cap stocks. The SEC also modified the market capitalization threshold for securities included in the tick size pilot and revised certain data elements concerning market maker profitability to make the collection less burdensome and assure the protection of confidential business information.

The tick size pilot will begin by May 6, 2016. It will include stocks of companies with $3 billion or less in market capitalization, an average daily trading volume of one million shares or less, and a volume weighted average price of at least $2.00 for every trading day.

For more information on the pilot program, please click here.

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