NEW YORK May 14 The Securities and Exchange Commission must decide soon whether to ask U.S. stock exchanges to enact a pilot program to try to boost trading in illiquid stocks or let the exchanges put forward a plan first, an SEC commissioner said on Wednesday.
Commissioner Michael Piwowar said a groundswell is building in Congress to enact a pilot program that would look at the "tick size," or the spread between the bid and ask price for quotations for small- and micro-cap stocks.
Proponents for such a program have said widening the bid-ask spread would provide brokerages more money to pay for research and drive greater interest in illiquid stocks.
The SEC can either ask the exchanges to come forward with a plan to develop a pilot program or the SEC can issue an order telling the exchanges to do so, Piwowar said at a conference sponsored by the Securities Industry and Financial Markets Association.
An order would allow the SEC to better control the process, which Piwowar said he preferred, but either way the SEC has ultimate say in approving the program, he said.
Congress will mandate the SEC to enact a pilot program, so it would be preferable that the SEC act before politicians decide how such a program is structured, said Piwowar, a Republican.
Congress ordered the SEC to study a pilot program when it passed the JOBS act in 2012.
A number of issues about the pilot need to be decided, such as whether to include stocks based on their market capitalization or volume of trade, and how many "buckets" to create so as better study likely outcomes, Piwowar said.
A control sample where no change occurs also must be created to compare with the stocks being tested, he said.
Stephen Luparello, recently appointed director of the SEC's division that oversees markets and brokerages, said a program would likely be announced in the next few weeks.
Whether a "trade at" rule is included in the pilot program still has not been decided, Luparello said. The rule could limit how much trading occurs inside brokerages and in alternative trading venues known as dark pools.
(Reporting by Herbert Lash; Editing by Nick Zieminski and Andrew Hay)
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