(So insane! In the name of boosting liquidity, they are favoring some at the expense of the market. They want to lure market makers with larger profits but do they think of the common investor who stands to lose? In stead of paying say $4.01 for a stock, you will be forced to pay now $4.05!! The lobbyist and rich in this crooked economy are again acting against the interest of common people!)
Market makers may be driven away from the 1,200 stocks covered by the program because of increased risk, said Scott Kurland, managing director at the Investment Technology Group Inc. -- an outcome that could undermine the program’s purpose.
There’s broad agreement that it’s too hard to trade small stocks. The SEC created the tick-size pilot after Congress demanded action in 2012. The pilot will study the potential upside of abandoning the one-tick-size-fits-all approach, which “currently infects our national market system,” said Jim Angel, a finance professor at Georgetown University in Washington.
Exchanges have complained that liquidity has dried up. NYSE Group and Nasdaq, which along with Bats make up the three big owners of U.S. stock exchanges, support the pilot’s broader strokes. The current U.S. markets aren’t built to help small businesses grow, Nasdaq Global Head of Equities Tom Wittman wrote in a 2015 letter to the SEC.
Several Wall Street executives expect some turbulence when U.S. markets flip the switch on a program aimed at spurring more volume in small stocks.
Starting Oct. 3, about 1,200 small-cap stocks will have a wider “tick size” -- in other words, their prices will be quoted in five-cent increments instead of one cent. The hope is that this two-year test will boost profits for market makers, stimulating volume by luring more middlemen who facilitate trades.
There are signs the industry isn’t ready to comply. Although exchanges have spent years getting ready, tweaking their trading software to accommodate the shift, some investors have been caught off guard, according to an executive from Instinet LLC. That’s a problem because if a money manager’s orders don’t comply with the new rules, they will be immediately rejected.
“A lot of them are not going to be ready for the Oct. 3 launch,” said Anthony Fortunato, a managing director at Instinet, a broker owned by Nomura Holdings Inc.
There’s also concern the cure is worse than the disease. Vanguard Group Inc. Chief Investment Officer Tim Buckley wrote in a 2014 letter that the “unnecessarily complex” pilot doesn’t pass “the most basic cost-benefit analysis.” The firm’s stance hasn’t changed, Vanguard spokeswoman Katie Hirt said.
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