On October 3, 2016, the Financial Industry Regulatory Authority
("FINRA") and the Securities and Exchange Commission
("SEC")'s Office of Investor Education and
Advocacy issued an Investor Alert announcing a new National
Market System (NMS) Plan that will implement a Tick Size Pilot
Program (the "Pilot") that will widen the minimum quoting
and trading increment – sometimes called the "tick
size" – for some small capitalization stocks. The goal
of the Pilot is to study the effect of tick size on liquidity and
trading of small capitalization stocks.
The Pilot has been implemented pursuant to the Jumpstart Our
Business Startups Act which, among other things, directed the SEC
to conduct a study and report to Congress on how decimalization
affected the number of initial public offerings, and the liquidity
and trading of securities of smaller capitalization companies.
Under the Pilot, the tick size will be widened from a penny
($0.01) to a nickel ($0.05) for specified securities listed on
national securities exchanges ("Pilot Securities"). For
some Pilot Securities, only quoting will need to occur in $0.05
increments, while for others, both quoting and trading generally
will need to occur in increments of a nickel.
The Pilot will include a specified subset of the exchange-listed
stocks of companies that have $3 billion or less in market
capitalization, an average daily trading volume of one million
shares or less and a volume-weighted average price of at least
$2.00 for every trading day. There will be a control group of
approximately 1,400 securities and three test groups, each with
approximately 400 securities selected by a stratified sampling.
The Plot will run for a two-year period that will commence on
October 3, 2016.
The data collected from the Pilot will be used by the SEC,
national securities exchanges and FINRA to assess whether wider
tick sizes enhance the market quality of these stocks for the
benefit of issuers and investors—such as less volatility and
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