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Exchanges, FINRA Propose an Experiment With Stock Tick Sizes

Joe Mont | August 26, 2014

National securities exchanges and the Financial Industry Regulatory Authority plan to experiment with tick size alternatives, allow some stocks to trade in five-cent increments, and see whether that trading structure increases their liquidity and should be made permanent.

The proposal, announced by the Securities and Exchange Commission on Tuesday,  will create a 12-month pilot program for widening minimum quoting and trading increments for a sampling of companies with market cap of $5 billion or less. The SEC plans to use the results of the pilot program to assess whether the changes benefit of investors and issuers.

The SEC ended the practice of trading stocks in fractional dollar values (down to one-sixteenth of a dollar) in the 2000s, in favor of trading in one-cent increments. Critics of that move say it actually reduced the liquidity of certain types of stocks—particularly small-...

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