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From Securities Regulation Daily, May 6, 2015

SEC okays tick size pilot for small company stocks

By Mark S. Nelson, J.D.

The SEC late this afternoon said it had approved a proposed plan by national securities exchanges and the Financial Industry Regulatory Authority (FINRA) to conduct a pilot that will gather data on the use of wider tick sizes for smaller companies. Today’s release comes after the Commission decided to take extra time to think about the proposal, and at a time when Congress is once again focused on making further enhancements to laws impacting capital formation.

The pilot, which includes modifications the SEC made to the proposal, will start one year from today and will focus on companies with $3 billion or less in market capitalization, average daily trading volume of one million shares or less, and a volume weighted average price of at least $2.00 per trading day. The pilot is set to last two years and requires FINRA and the exchanges to submit initial assessments of the pilot’s impact on tick sizes based on data gathered during the first 12 months of the pilot within 18 months of the pilot’s start.

SEC Chair Mary Jo White said in a press release announcing the program that the data collected may help to inform future Commission action. “The data generated by this important market structure initiative will deepen our understanding of the impact of tick sizes on market quality and help us consider new policy initiatives that can improve trading in the securities of smaller-cap issuers.”

According to the SEC, tick size has been of special concern to small and middle capitalization companies since the change from fractional to decimal tick sizes took place in 2001. In the more than 14 years since then, several studies had questioned whether decimalization’s lower spreads discouraged public offerings in smaller companies.

In 2012, Congress passed The Jumpstart Our Business Startups (JOBS) Act to help spur capital formation, especially for smaller companies. That law also required the SEC to report to Congress on changes in the number of initial public offerings (IPOs) and on the liquidity of smaller companies under the decimalization regime.

The SEC’s study noted that the impact of wider tick sizes for smaller companies would be “uncertain” due to the many other factors that influence IPOs beyond tick size, including market fragmentation and high-speed trading. But the study ultimately recommended against specific rulemaking aimed at widening tick sizes, while pressing the Commission to take other steps short of rulemaking that would give market participants a chance to express their views on tick size.

The NYSE Group, Inc., on behalf of 10 other exchanges and the FINRA, filed the proposed national market system plan for the tick size pilot program approved today with the SEC last August. The Commission extended the time for it to approve the proposal earlier this year after having received 77 comment letters.

The release is No. 34-74892.

Companies: NYSE Group, Inc.; BATS Exchange, Inc.; BATS Y-Exchange, Inc.; Chicago Stock Exchange, Inc.; EDGA Exchange, Inc.; EDGX Exchange, Inc.; NASDAQ OMX BX, Inc.; NASDAQ OMX PHLX LLC; The Nasdaq Stock Market LLC; New York Stock Exchange LLC; NYSE MKT LLC; NYSE Arca, Inc.; Financial Industry Regulatory Authority, Inc.

MainStory: TopStory BrokerDealers ExchangesMarketRegulation FINRANews IPOs JOBSAct SecuritiesOfferings

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