SEC Delays Tick-Size Pilot

Terry Flanagan

The U.S. Securities and Exchange Commission has extended the time period for action on the proposed tick-size pilot 60 days, until May 6, 2015. The extension will provide the Commission with additional time to consider the comments received on the proposed plan, the SEC said in a release.

The one-year pilot program would widen the quoting and trading increments for certain small capitalization securities to allow the SEC to further study and assess decimalization’s impact on the liquidity and trading of these securities.

Since publishing the proposed plan on Nov. 7, 2014, the SEC has received 74 comment letters.

The proposed program will include stocks with a market cap of $5 billion or less, average daily trading volume of one million shares or less, and a share price north of $2. The pilot will consist of one control group and three test groups, each with 400 securities.

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. Pilot securities in the first test group will be quoted in $0.05 minimum increments, with trading at any price increment permitted today. Pilot securities in the second and third test groups will be quoted and traded in $0.05 minimum increments; securities in the third test group would be subject to a ‘trade-at’ rule preventing price matching by another venue that doesn’t display the best bid or offer.

Scott Goebel, senior vice president and general counsel at Fidelity Management & Research, said in a comment letter that the “trade-at” test group should be eliminated from the pilot because it is not necessary to achieve the pilot’s goals, adds operational risk, and is not the right forum in which to test trade-at.

“We suggest that a review of “trade-at” should contemplate many different variables, such as access fees, maker-taker fees, and internalization, which are properly not part of the proposed pilot,” he wrote. “Most importantly, the Commission doesn’t need trade-at for the market structure experiment that the Proposed Pilot is designed to test, as we do not believe that there is a connection between tick sizes and the migration of trading volume away from lit markets.”

Featured image by WPPilot. Licensed under CC BY 4.0 via Wikimedia Commons

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