SEC Finalizes ‘Tick Size’ Pilot for Smaller-Company Stock http://www.wsj.com/articles/sec-finalizes-tick-size-pilot-for-smaller-company-stock-1430949237 WASHINGTON—The stock prices of more than 1,000 small U.S. companies will trade in increments of five cents under a long-awaited plan the Securities and Exchange Commission finalized late Wednesday. The SEC voted to finalize the highly-anticipated test program that will run for two years beginning next May. It’s designed to determine whether trading the stocks of smaller companies in wider “tick sizes,” or the difference between what traders bid and offer for the shares, will boost interest in the stocks. The move is a shift from more than a decade of requiring trading in pennies. Wider increments, advocates of the plan say, will allow traders to reap higher rewards, giving them more of an incentive to trade the stocks and lessen volatility. Critics say its goals are aspirational and will accomplish little other than to make trading in certain shares more expensive for investors. The program will apply to firms with $3 billion or less in market capitalization, down from the $5 billion initially expected. . .
wall street is up to its old tricks of screwing the public. the advocates of the new rule are wall street insiders. it is a cave in to wall street interests, the market makers. another cave in will be the resumption of the uptick rule with an exemption for market makers etc.
For penny stocks, a 5 cent increment is gargantuan. Trade a hypothetically liquid $1 stock, losing 5% going in and another 5% going out results in an instantaneous 10% loss on a daytrade. Do that 5 times and you've lost 50%.
For many of the stocks I buy, I am guessing it will be useful. I think it is about the many thinly traded on-exchange companies in the 100m to 3B range, not liquid penny stock day trader favorites that trade with penny spreads.
I don't think it will be useful at all. Artificially wide spreads just lead to lower volumes. If the SEC is mandating a 5-cent spread, and the ruling is 'useful' then why stop there? Why not make it 10 cents or 20 cents? Obviously a 20 cent spread on a $1 stock will barely trade at all. One of the main advantages of being a publicly listed company is that there is liquidity for the equity. But that liquidity starts to disappear if the SEC mandates a spread that is 4 or more cents wider than it should be. .
This type of semi-retarded reductio ad absurdum is why these boards are mostly not worth contributing to.
Read again. The 5 cent increment simply means that the minimum spread is 5 cents. When you trade you only pay the spread once not twice. Imagin you buy and immediately sell...you cross the spread and,for example lift the offer at 1.05 and hit the bid at 1.00 hence pay the spread only once not twice. Please think before you post and especially before you trade...
I'm sure that increasing the tick increment will improve the size of the best/bid offer a bit -- at some cost in increased spread, mind you. But I'd say that the biggest cause of the relative lack of obvious liquidity in microcap equities is the fragmentation and the payment-for-order-flow system, especially the flow that's diverted to "wholesalers" in exchange for payments to the brokers. This is a clear potential conflict of interest, and if orders were more centralized or all payment-for-order-flow systems simply banned, I'm convinced you'd see far more size at the bid and offer, regardless of any increase in tick increment.