Tick Size Pilot Program was initiated as part of the JOBS (Jumpstart Our Business Startups) Act, passed by Congress and signed into law in 2012, which is intended to jumpstart capital-raising for small and emerging companies.
On May 6, 2015, the SEC issued an order approving a plan under the National Market System (NMS) for the National Securities Exchanges and FINRA to implement a Tick Size Pilot Program, which is a data-driven test to evaluate whether or not widening the tick size for securities of smaller capitalization companies would positively impact trading, liquidity, and market quality of those securities. The Pilot is scheduled to last for two years.
The Tick Size Pilot will include stocks of companies with $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.
The pilot will consist of a control group and three test groups, with each test group having approximately 400 securities.
- The control group will be quoted and traded at their current tick size increment.
- The first test group will be quoted in nickel increments, but will continue to trade at their current price increment.
- The second test group will be both quoted and traded in nickel increments, but would allow certain exemptions for midpoint executions, retail investor executions, and negotiated trades.
- The third test group, in addition to the requirements of the second test group, will also be subject to a "trade-at" requirement (which is similar to a trade-through requirement, but more complicated). There’s also an exemption for block size orders.
The impact of the changes and differences in quoting and trading requirements on the securities in each test group included in the Pilot will be measured against data collected during a Pre-Pilot Data Collection period, which began on April 4, 2016. The Pilot itself started on October 3, 2016. For the six-month period from April 4th to October 3rd, all trading centers and market makers collected and submmited certain data to their DEA. FINRA is facilitating data collection and reporting for trading centers with additional fields required for OATS reporting and market makers’ participation statistics and profitability calculations with a new daily transaction file. The data collected will be analyzed by FINRA and the SROs to measure market quality, market maker participation and profitability. The SROs must submit their initial tick pilot assessment to the SEC eighteen months after the plan begins, based on data generated during the first twelve months of operation.
The Plan calls for the listing exchanges to publish the securities involved in the Tick Size Pilot on their websites; however, FINRA will provide a consolidated list and a file of daily changes. The securities that were included in the Pre-Pilot data collection and reporting phase were published after the close of the market on March 4, 2016, and the official list of Pilot securities were published September 3, 2016, 30 days prior to the start of the Pilot.
To obtain technical specs, FAQs, and other information regarding the Tick Size Pilot, please see FINRA’s website http://www.finra.org/industry/tick-size-pilot-program.
All FIF members are welcome to join the FIF Tick Size Working Group, which meets every Thursday at 1PM (ET). For more information contact email@example.com.