What is it?
The Tick Size Pilot Program is a national market system (NMS) plan designed to allow the Commission, market participants, and the public to study and assess the impact of wider minimum quoting and trading increments – or tick sizes – on the liquidity and trading of the common stocks of certain small-capitalization companies. The Tick Size Pilot began in October 2016 and will be in effect for two years.
What is included in the study?
Securities that are included in the Tick Size Pilot are NMS common stocks that have a market capitalization of $3.0 billion or less, a closing price of at least $2.00, and a consolidated average daily volume of one million shares or less (“Pilot Securities”). The lists of Pilot Securities are available on the websites of the listing exchanges and FINRA.
The Pilot Securities have been divided into one control group and three test groups. Each test group contains approximately 400 Pilot Securities and the remaining Pilot Securities are in the control group. The groups are defined as follows:
- The Pilot Securities assigned to Test Group One (“TG1”) are quoting in $0.05 per share increments but continue to trade at the current price increments, subject to limited exceptions.
- The Pilot Securities assigned to Test Group Two (“TG2”) are quoting in $0.05 per share increments like those in TG1, but are trading in $0.05 per share increments, subject to certain exceptions, including exceptions that permit executions that are the (1) midpoint between the national or protected best bid and the national or best protected offer, (2) retail investor orders with price improvement of at least $0.005 per share, and (3) negotiated trades.
- The Pilot Securities assigned to Test Group Three (“TG3”) are quoting in $0.05 per share increments and trading in $0.05 per share increments consistent with TG2. TG3 Pilot Securities are also subject to a Trade-at Prohibition, which generally prevents price matching by a trading center that is not displaying the best price unless an exception applies. The Trade-at Prohibition has exceptions that are similar to those provided in Rule 611 of Regulation NMS.
- Pilot Securities in the control group continue to quote and trade at the current tick size increment of $0.01 per share.
Why is this important?
The Tick Size Pilot provides for the collection of a variety of data, including market quality metrics with respect to the Pilot Securities as well as profitability data for market makers. Tick Size Pilot data is being provided to the Commission and will be made public by the exchanges and FINRA during the Pilot Period. The public data is available on the exchanges’ and FINRA’s websites.
The exchanges and FINRA will conduct a joint assessment of the Tick Size Pilot’s impact based on the first year’s data and will provide the assessment to the Commission and make it publicly available no later than April 2018.