This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

[video] Battle Rages Over Pilot Program For Wider 'Tick Spreads'

NEW YORK (The Deal) -- A Securities and Exchange Commission investor advisory panel is expected to urge the agency not to move forward with a pilot program to experiment with widening the one-penny increment currently used to price securities, according to three people familiar with the situation.

Already two subcommittees of the SEC's investor advisory panel, whose suggestions are not binding with the SEC but nevertheless carry significant weight with the agency's commissioners, have voted against the program. The vote of the full panel, set for Jan. 31, would contradict one made an SEC advisory committee on small and emerging companies in March. The small business panel joined other groups in urging the agency to widen trading increments - at 5 cents or 10 cents - a move that they believe would help increase the visibility of small publicly traded companies by giving small boutique investment banks the incentive to trade them more and invest in hiring stock salesmen and analysts who would shine a spotlight on otherwise ignored and illiquid small public companies. A tick is the minimum pricing increment that can be used to trade securities.

All of this would kick some life into illiquid small capitalization companies and the generally lackluster IPO market for small-cap stocks, they contend.

However, the two investor advisory subcommittees opposed a pilot program, arguing that they "see little evidence" that an increase in tick size would increase research and market making activities. The investor subcommittees added that if tick sizes are increased "additional profits will simply be retained by trading centers or shared with firms that send them order flow, rather than being directed into increased research or other activities to benefit capital formation."

Indicating that they believe the SEC may launch a pilot program anyway, the subcommittees also issued a separate recommendation suggesting that if the commission goes forward with such a pilot program that it be "designed with a tight timeframe" and a guaranteed sunset unless benefits are proven to outweigh the costs. This suggestion is also expected to be approved by the committee, people familiar with the panel said.

The recommendations come as a wider tick pilot program has gained momentum. SEC Chairman Mary Jo White has said recently that the agency is considering a wider tick spread pilot program but has yet to announce the details of its length or how it would look. Also, the House Financial Services Committee in November unanimously, by an unusual bipartisan vote of 57-0, approved a wider-tick spread pilot program bill introduced by Rep. Sean Duffy, R-Wis.

The recommendations issued by the subcommittees also raised serious concerns with a small business group known as the Equity Capital Formation Task Force, which worries that a pilot program with a 'tight timeframe" would discourage boutique investment banks from spending money on new technology or the hiring of sales people that would inject liquidity in these securities because they would worry that the program would shut down too soon. The ECFTF, which is made up of officials who work for boutique investment banks, exchanges, trading firms and lobbying shops, sent a letter Wednesday to the advisory panel arguing that opposing any pilot program is a "do nothing approach" that is not a viable alternative to solve the core problem, which includes a "substantial decline in small company IPOs over the past decade and a half." This group has led the way in advocating for an SEC pilot program that would widen tick increments.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,461.32 -153.49 -0.92%
S&P 500 1,927.11 -14.17 -0.73%
NASDAQ 4,382.8470 -36.6310 -0.83%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs