09.14.2016

The Tick Size Pilot – Building Blocks for Success (by Eric Noll, Convergex)

09.14.2016

Eric Noll observed that the upcoming Tick Size Pilot (TSP) Program may be the most significant change to the U.S. financial market structure in over 10 years. Convergex recently conducted an analysis regarding the Tick Size Pilot Program and the results were somewhat surprising. 

 

Some key findings in the attach include:

 

  • Convergex looked at the data from the possible universe of stocks to be included in TSP and we found that the median bid-ask spread is currently 6.2 cents, or even wider than the “new” 5 cent spread envisioned by the TSP.

 

  • We also found that the 61% of all equities eligible for inclusion in the TSP trade for average spreads of $0.05 to $1.00.  Moreover, these wider spreads are not due to high stock prices; the average price here is $27/share.

 

  • This data casts a new light on the Tick Size Pilot, since moving to nickel spreads for the securities chosen to participate in those buckets will not necessarily increase their actual bid-ask spread. It may, in the case of the median names with a 6 cent spread, actually decrease it if market makers round down rather than up to a dime.  The same, of course, holds true for stocks with a current average spread of 11 cents, 16 cents, and so forth.

For the full Convergex report, please click here

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