On June 25, 2014, the Securities and Exchange Commission (the “SEC”) announced that it had ordered the national securities exchanges and the Financial Industry Regulatory Authority, Inc. (“FINRA”) to act jointly to develop and file with the SEC a national market system plan to implement a targeted 12 month pilot program that will widen minimum quoting and trading increments (“tick sizes”) for certain smaller capitalization stocks. The SEC indicated that it plans to use the pilot program to assess whether these tick size changes would enhance market quality to the benefit of U.S. investors, issuers and other market participants. More specifically, the pilot program should facilitate studies of the effect of tick size on liquidity, execution quality for investors, volatility, market maker profitability, competition, transparency and institutional ownership. The SEC order requires the national securities exchanges and FINRA to submit a national market system plan detailing the pilot program by August 25, 2014.

The pilot program, which will be designed so as to not cause excessive disruption to the market and to limit increases in transaction costs, will last for one year and include stocks with: (1) a market capitalization of $5 billion or less; (2) an average daily trading volume of one million shares or less; and (3) a share price of $2 per share or more. The pilot program will consist of one control group and three test groups with 300 securities in each test group selected by stratified sampling. Pilot securities in the control group will be quoted at the current tick size increment of $0.01 per share, and trade at the increments currently permitted. Pilot securities in the first test group will be quoted in $0.05 minimum increments. Pilot securities in the second test group will be quoted in $0.05 minimum increments, and traded in $0.05 minimum increments subject to certain exceptions. Pilot securities in the third test group will be subject to the same minimum quoting and trading increments (and the same exceptions) as the second test group, but would also be subject to a “trade-at” requirement.

For more information, see Press Release, “SEC Announces Order for Tick Size Pilot Plan – Pilot to Assess Impact of Tick Size on Market Quality for Small Cap Companies” (June 25, 2014), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542172819#.U62K7ovD-9I, and SEC Release No. 34-72460 (June 24, 2014), available at http://www.sec.gov/rules/other/2014/34-72460.pdf