On August 26, the Securities and Exchange Commission announced that the Financial Industry Regulatory Authority, Inc. and national securities exchanges proposed a 12-month pilot program to widen minimum quoting and trading increments (tick sizes) for smaller capitalization stocks. In June, the SEC had ordered FINRA and national securities exchanges to propose a tick size pilot program. Under the proposal, the pilot program will include National Market System common stocks with (i) a market capitalization of $5 billion or less, (ii) an average daily trading volume of one million shares or less, and (iii) a closing share price of at least $2 per share. The pilot program will have one control group at the current tick size increment of $0.01 per share and three test groups with 400 stocks in each test group.  

The first test group will quote at tick size increments of $0.05 per share and trade at the increments currently permitted.  The second test group will also be quoted in $0.05 increments and be traded in $0.05 increments, subject to certain exceptions.  The third test group will have the same tick sizes as the second test group, with an added “trade-at” requirement to prevent price matching by trading centers that do not display the best bid or offer. The proposal defines “trade-at” as “the execution by a trading center of a sell order for a [p]ilot [s]ecurity at the price of a protected bid or the execution of a buy order for a [p]ilot [s]ecurity at the price of a protected offer.”

FINRA and the exchanges will collect and transmit statistics on the pilot securities, which will be made publicly available, to the SEC and provide an assessment at the end of the pilot period. The proposal will be subject to SEC approval after a 21-day public comment period. 

Click here to read the proposal.