Effective October 3, 2016, securities exchanges registered with the SEC will operate a Tick Size Pilot Program ("Pilot") intended to determine what impact, if any, widening of the minimum price change (i.e., tick size) will have on the trading, liquidity, and market quality of small cap stocks. The Pilot will last for 2 years and it will include approximately 1,200 securities having a market capitalization of $3 billion or less, average daily trading volume of 1 million shares or less, and a volume weighted average price of at least $2.00.
For purposes of the Pilot, these securities will be organized into groups that will determine a minimum tick size for both quote display and trading purposes. For example, Test Group 1 will consist of securities to be quoted in $0.05 increments and traded in $0.01 increments and Test Group 2 will include securities both quoted and traded in $0.05 increments. Test Group 3 will include also include securities both quoted and traded in $0.05 increments, but subject to Trade-at rules (more fully explained in the Rule). In addition, there will be a Control Group of securities that will continue to be quoted and traded in increments of $0.01. Details as to the Pilot and securities groupings are available on the FINRA website.
Impact to IB Account Holders
In order to comply with the SEC Rules associated with this Pilot, IB will change the way that it accepts orders in stocks included in the Pilot. Specifically, starting October 3, 2016 and in accordance with the phase-in schedule, IB will reject the following orders associated with Pilot Securities assigned to Test Groups:
Clients submitting orders via the trading platform that are subject to rejection will receive the following pop-up message:
The following order types will continue to be accepted for Pilot Program Securities:
- Test Group 2 and 3 in .005
Other Items of Note
Please note that the contents of this article are subject to revision as further regulatory guidance or changes to the Pilot Program are issued.