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SEC Ends Tick Size Pilot Program, Study Assails Cost, Effectiveness

The SEC announced the scheduled expiration of a two-year pilot program that would widen the minimum quoting and trading increments – or tick sizes – for stocks of certain smaller companies. The National Market System Plan to Implement a Tick Size Pilot Program commenced operations on October 3, 2016.  The SEC said it received several requests to terminate the program on September 28 before the scheduled October 2 end date to address potential operational and other concerns raised by a mid-week shift in the quoting and trading increments of a large number of NMS stocks. The SEC issued an exemption to stock exchanges and FINRA to allow the quoting and trading requirements to terminate at the end of trading on Friday, Sept. 28, 2018. Securities in the program will be subject to the quoting and trading requirements that are otherwise applicable to NMS stocks as of October 1, 2018. The data collection and reporting requirements will continue as required under the Tick Size Pilot for six months after the end of the Pilot Period, the SEC said. The Wall Street Journal recently reported that the program has cost investors $300 million and has not benefited the small and midsize companies it intended to help. The report cited a study by Pragma Securities which stated: “Since the Tick Size Pilot Program went into effect, market quality has significantly degraded for the Test Group securities in the ways critics of the pilot predicted prior to its initiation, and resulted in significant additional trading costs incurred by our clients, who represent pension funds, mutual funds, and other long-term investors.”

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