SEC Orders Tick Size Pilot Program

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The SEC has announced that it ordered the national securities exchanges and the FINRA to develop and file a plan to implement a targeted 12 month pilot program that will widen tick sizes for specified small-cap stocks. The plan is due to the SEC by August 25, 2014. The SEC will use the pilot program to assess whether the changes to tick sizes would enhance market quality to the benefit of U.S. investors, issuers, and other market participants.

The pilot will include stocks with: (1) a market capitalization of $5 billion or less; (2) an average daily trading volume of one million shares or less; and (3) a share price of $2 per share or more.  The pilot will consist of one control group and three test groups, with 300 securities in each test group selected by stratified sampling.

Under the SEC’s order, the exchanges and FINRA will collect data for the SEC and make that data available to the public. After the pilot ends, the exchanges and FINRA will assess the results and submit that assessment to the SEC.

Title I of the JOBS Act mandated that a study be conducted on the impact of decimalization on the markets, particularly with respect to small-cap stocks. The SEC delivered this study to Congress in July 2012. The SEC subsequently held a roundtable on decimalization in February 2013. More recently, legislation to address tick sizes has been proposed, but nothing has yet been adopted.

The SEC’s announcement is available at: http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542172819#.U6wBAtfD-HQ

Topics:  FINRA, Market Participants, SEC, Securities

Published In: Business Organization Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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