[co-author: Chase H. Mechanick - Law Clerk]

On November 6, 2015, the Securities and Exchange Commission (SEC) issued an Order delaying implementation of its Tick Size Pilot Program. The pilot program will now begin on October 3, 2016. The pilot program is being delayed to give participants additional time to file requisite rule proposals with the SEC related to the pilot program’s quoting and trading requirements, and to develop and test applicable trading and compliance systems.

In June 2014, pursuant to Section 11A(a)(3)(B) of the Securities Exchange Act of 1934, the SEC ordered self-regulatory organizations to submit a pilot program to study the feasibility of increasing minimum tick sizes—the increment at which stocks are quoted and traded—for small capitalization stocks. This order noted that, while small tick sizes may reduce spreads, they can also make it unprofitable for underwriters and market-makers to participate in small-cap offerings. Under Regulation NMS, the minimum tick size is currently $0.01 per share for stocks trading at $1 or more. However, a July 2012 report by the SEC to Congress noted that many countries have significantly larger tick sizes relative to the average sizes of their small-cap initial public offerings.

The pilot program was approved on May 6, 2015, and was originally scheduled to take effect on May 6, 2016. The pilot program will separate certain small-cap stocks into a control group and three test groups. Securities in the test groups will, at varying levels, be subject to quoting and trading increments larger than the status quo of $0.01 per share. Deal Diary previously covered the pilot program and described its mechanics here and here.