Based on the results of its Tick Size Pilot Program (the "Pilot"), the SEC found that increasing the tick size for certain small capitalization stocks did not affect stock prices. The Pilot was created by the SEC to study the effect of tick size on the liquidity and trading by widening the minimum quoting and trading increment (i.e., "tick size") from $0.01 to $0.05 for certain small capitalization stocks.

According to the white paper written by SEC staff members, the announcement that certain stocks would be designated to the control or test group did not "abnormal[ly]" affect the stocks of either group. The SEC found that changing the tick size did not (i) harm the control companies by lowering investor demand or stock prices or (ii) benefit the test group companies through higher investor demand or stock prices.

Commentary / Steven Lofchie

It is great that the SEC is conducting empirical studies on the way that changes in regulations affect the markets. Unfortunately, there is really not any great reason for the SEC to have conducted this particular study. See, e.g., SEC Launches Tick Size Pilot Program. Congress might have directed the SEC to seek broader public comment on studies that might be informative. One worth looking at would be on the "trade at" rule; i.e., that a broker-dealer cannot execute a trade internally if it merely trades at the public market quoted price; it has to beat that price.

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