On October 3, 2016, a National Market System (NMS) Plan to implement a Tick Size Pilot Program commenced. The program was introduced by an Order of the Securities and Exchange Commission (SEC) on May 6, 2015, as “an objective, data-driven test that is designed to evaluate how a wider tick size would impact trading, liquidity, and market quality of securities of smaller capitalization companies.” Since 2001, stocks have been quoted and traded at penny increments. AG Deal Diary has previously covered the program, including the rationale behind its implementation, here, here and here.
The program, which will last until October 3, 2018, will cover specified exchange-listed securities of companies that have (i) $3 billion or less in market capitalization, (ii) an average daily trading volume of one million shares or less, and (iii) a volume-weighted average price of at least $2 for every trading day. The stocks will be divided into a control group of approximately 1,400 securities, which will continue to trade at $0.01 increments, and three test groups, each with approximately 400 securities:
- The first test group will quote at $0.05 increments, but will continue to trade at $0.01 increments.
- The second test group will quote and trade at $0.05 increments, subject to certain exemptions, including midpoint executions, retail investor executions and negotiated trades.
- The third test group will quote and trade at $0.05 increments, but will be subject to a “trade-at” requirement that generally forbids price matching by a trading center that was not already quoting at that price, subject to certain exceptions, such as for block size orders.
The control and test group assignments were published by the listing exchanges in September. The Financial Industry Regulatory Authority (FINRA) consolidated the test group assignments into a single file, which will be updated regularly and can be accessed here. Note that this file is for informational purposes only.
The national securities exchanges and FINRA will be required to submit their initial assessments of the program by April 2, 2018, based on data generated during the first 12 months.