June 25 The U.S. Securities and Exchange
Commission unveiled a one-year "tick size" pilot program to let
some stocks trade in five-cent increments instead of one-penny
In an order late on Tuesday, the SEC directed U.S. stock
exchanges and the Financial Industry Regulatory Authority
(FINRA) to work together to submit a plan in the next 60 days to
implement the pilot program. (1.usa.gov/UHwT6q)
A "tick size" is the minimum pricing increment that can be
used to trade securities.
The practice known as "decimalization," in which the SEC
required all listed stocks to be traded and quoted in one-penny
increments instead of fractional increments such as
one-sixteenth of a dollar, was introduced in 2001.
Stock exchanges and financial industry executives have long
urged U.S. securities regulators to back a program to test a
change in the way shares are priced, in a bid to generate more
investor interest in small and mid-sized companies.
Proponents of 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.
"Such a pilot should facilitate studies of the effect of
tick size on liquidity, execution quality for investors,
volatility, market-maker profitability, competition,
transparency and institutional ownership," according to the SEC
The pilot will consist of a control group and three test
groups. The test groups will have 300 stocks each and will
include stocks of companies that have a market capitalization of
below $5 billion, an average daily trading volume of one million
shares and a share price of at least $2.
The first group will have a minimum five-cent trading
increment, with no exceptions. The second test group will allow
certain exceptions to the five-cent spread, such as mid-point
The third test group will have similar requirements as the
second group but also be subject to a "trade at" rule, which
could limit how much trading occurs inside brokerages and in
alternative trading venues known as dark pools.
The stocks in the control group will be quoted at the
current tick size increment of 1 cent per share and trade at the
increments currently permitted.
(Reporting by Supriya Kurane in Bangalore; Editing by Gopakumar