Exchanges to Get Tick-Size Pilot Within Weeks, SEC Official Says

The U.S. Securities and Exchange Commission plans to tell stock exchanges in the next few weeks to implement a program that will test ways of boosting trading in smaller stocks, an agency official said today.

The trading experiment could be used to test other market-structure changes, SEC Trading and Markets Director Stephen Luparello said at a Securities Industry and Financial Markets Association conference in New York. The agency will issue an order to stock exchanges that outlines how the program should work, he said.

“You want to take advantage of what you can learn from that pilot,” Luparello said. “One of the ways to do that is to create a little variety in different buckets that allows you to study multiple things at once.”

The pilot program is meant to test whether widening the minimum price increment, or tick, at which shares are quoted improves the market for less liquid stocks. The SEC has been considering the experiment for more than a year as some lawmakers in Congress have pushed legislation to force a change.

The agency is still weighing whether to include a “trade-at” component in the program, which would let off-exchange venues execute trades only if they offered better prices than are available on exchanges, Luparello said. The alternative venues, which include dark pools, currently can trade at the best prices exchanges provide.

Stock exchanges have lobbied the SEC for more than a year to test a trade-at rule that could stem the share of trading that has migrated away from exchanges. The volume of trading that occurred away from exchanges in April was 35.8 percent, according to data compiled by Bloomberg.

The tick-size experiment should last a year and should have clear goals for success, SEC Commissioner Mike Piwowar said in remarks at the same conference.

“I am skeptical as to whether it’s going to have the results that some of the proponents say it’s going to have, but I still think it’s a good idea,” Piwowar told the conference.

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