A Securities and Exchange Commission pilot designed to encourage trading in the shares of smaller companies has cost investors more than $300 million over its two years run, according to analysis from Pragma Securities.
Born out of the Jobs Act, the SEC’s two-year tick-size pilot programme began in October 2016 to see whether widening the minimum quoting and trading increments - or tick sizes - for stocks of smaller capitalisation companies would improve the market quality of these stocks - for the benefit of issuers and investors.
With the trial coming to an end, Pragma has crunched some numbers and concluded that for securities priced under $40 - more than 70% of the test group - "there is a significant degradation in execution quality".
The firm says that ordinary investors trading in test group securities since January 2017 have incurred shortfall costs of over $300 million.
David Mechner, CEO, Pragma, says: “While the SEC’s Tick-Size Pilot was launched with the intent of helping investors and issuers, the outcome has been very different. Concerns around execution quality and costs for investors were raised early on, and proved to be well-founded. Given our findings, we strongly recommend that the Tick Size Pilot be unwound at the end of the Pilot period."
Pragma's findings chime with a Greenwich Associates report from last October which found that institutional investors considered the pilot a failure.
Read the full Pragma paper:Download the document now 143.9 kb (Chrome HTML Document)