Today, October 3, shares in ten smaller public companies start trading in $0.05 increments rather than $0.01 increments, and approximately 1,200 additional smaller companies will begin trading with these wider trading increments by the end of October, as we discussed in this Blog in our posts from February 23 and May 6, 2016.
The SEC’s Tick Size Pilot Program has been in the works since the 2012 JOBS Act required the SEC to study the impact of trading in $0.01 increments on small capitalization (small-cap) companies. The SEC in 2014 directed U.S. stock exchanges to draft the rules for the pilot program, which were approved by the SEC last year.
The shares of the approximately 1,200 issuers chosen for the pilot program are listed on Nasdaq, the NYSE and the NYSE MKT, and broken into three test groups (plus a control group) with various trading conditions to produce targeted data on the program’s effectiveness.
Supporters of the pilot program have maintained that trading small-cap stocks at $0.05 increments will make it more profitable for investment banks to make markets in such securities, leading them to pursue more research coverage about small companies, which could generate interest in the companies’ shares. The ultimate hope for the program is that widening tick sizes will boost trading volume and liquidity and reduce volatility.
The pilot program runs for two years. We will be following the results.
PartnerArmed with more than three decades of capital market experience, Spencer represents smaller publicly traded companies, and often underwriters and investment funds, in public and private securities offerings. He focuses ...