In a move to boost demand for the stock of some smaller companies, the Securities and Exchange Commission green lit a pilot program to modify the purchase and sale of stock Wednesday approving stocks to trade in 5 cent increments.
The long awaited and anticipated pilot program is slated to run for two years beginning in mid 2016. It had originally been planned for one year, but was extented to two, likely to get a better feel for how the pilot program works over time. The program will be aimed at more than 1,000 of the smaller companies on the exchanges and is hoped to determine if trading stocks of smaller companies in larger tick sizes will boost interest in the stocks. Many have waited for this test program and believe it will boost the interest of smaller stocks AND the markets in general.
According to reports, the five member commission supported the initiative and approved it by unanimous vote. They appear very committed to the new market structure initiative and believe it will work as planned. Commission Chairman Mary Jo White is quoted as saying, “data generated by this important market structure initiative will deepen our understanding of the impact of tick sizes on market quality and help us consider new policy initiatives that can improve trading in securities of smaller cap issuers”. White has been under pressure for some time to move forward with the program.
Trading in pennies (tick size of one cent) is the standard in the stock markets and has been for many years, but many advocates believe the larger tick size (increment gap) will draw more traders to the smaller stocks because of the potential for larger gains. There are some who oppose the move saying it will make some shares more expensive for investors to buy (and harming smaller investors unproportionately).
Many are waiting out the launch of the pilot program in a “wait and see” mode. One thing is sure, the SEC approving stocks to trade in 5 cent increments will be closely scrutinized by many.