SEC Seeks Comments on Tick Test Pilot Program

The SEC issued and requested public comment on a tick test pilot program, as proposed by FINRA and the exchanges.

The details of the pilot program include:

  • a one-year pilot period;
  • three test groups and one control group, with 400 pilot securities in each group (for a total of 1600 pilot securities):
    • control group pilot securities will be quoted and traded at any price increment that is permitted;
    • Test Group One pilot securities will be quoted in $0.05 minimum increments but may continue to trade at any permitted price increment;
    • Test Group Two pilot securities will be quoted and may only be traded in $0.05 minimum increments; and
    • Test Group Three pilot securities will have the same quoting and trading requirements as Test Group Two, but also will be subject to a trade-at prohibition; and
  • pilot securities will be divided into 27 categories, including price, market capitalization and trading volume, and each category will be subdivided further into low, medium and high subcategories.

The SEC seeks comments on a number of questions about the pilot program, including its structure, potential harm to investors and risks, as well as the proposed selection process for pilot securities. Comments will be due 45 days after the publication of the proposed pilot program in the Federal Register, which is expected shortly.

Lofchie Comment: The SEC should be applauded for testing what works in the equity markets and for seeking comments on these tests. Of the proposed tests – the minimum increment and the trade-at test seems more significant by far; however, conducting it in conjunction with the expanded minimum increment test may dilute its value.

YouTube Selection: Tick Song.”

See: Text of Proposed Pilot Program.