August 26, 2014 / 10:17 PM / in 3 years

U.S. regulators to test wider trading increments for small caps

NEW YORK, Aug 26 (Reuters) - U.S. security regulators filed a proposal on Tuesday to create a 12-month test period that will widen the minimum quote and trading increments for small-cap stocks that trade infrequently to see whether it will increase trading.

The program will include stocks with a price of at least $2 per share, have a market capitalization of $5 billion or less and average daily trading volume of one million shares or less, the Securities and Exchange Commission said in a statement.

The SEC in June ordered the U.S. stock exchanges and the Financial Industry Regulatory Authority, a self-funded brokerage industry watchdog, to develop what it calls a “tick size” pilot program.

The proposal, which aims to enhance the market quality for illiquid small-cap stocks, will be submitted for approval after a 21-day public comment period, the SEC said.

SEC Commissioner Michael Piwowar said the pilot will help the analysis of how to enhance the equity market’s structure.

“Regardless of the findings, this pilot continues our efforts to explore ways to increase capital formation for smaller issuers,” Piwowar said in a statement.

The pilot will consist of one control group and three test groups with 400 securities in each test group.

Securities in the first test group will be quoted in 5 cent minimum increments, but trading would continue at any price increment now permitted by regulation.

Securities in the second test group will be quoted and trade at in 5 cent minimum increments, with certain exceptions.

Securities in the third test group will be subject to the same minimum quote and trading increments, and the same exceptions, as the second test group. But this group will also be subject to a so-called “trade-at” requirement.

In general, a “trade-at” requirement helps to keep trading on exchanges that allow access to all investors. (Additional reporting by Emily Stephenson in Washington. Reporting by Herbert Lash and Andre Grenon)

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