A failed experiment to help small-company stocks will be buried at September’s end, the Securities and Exchange Commission said on Monday. The Tick Size Pilot Program was supposed to revitalize trading liquidity, stock offerings, and job creation for small-cap public companies–by quoting and trading their stocks in increments of a nickel, rather than the usual penny. But instead of the promised benefits, the wider increments–or “ticks”–stunted trading volumes in the nearly 1,200 stocks subjected to the two-year experiment, while also bloating investors’ trading costs by as much as $900 million, to judge from data in a study by the exchanges that ran the pilot. The study has not been previously reported.
Those hundreds of millions in added costs came mainly from the pockets of individual investors and went right into the pockets of Wall Street market makers. Ironically, most big market makers had opposed the pilot, warning that it could backfire and hurt demand for small-cap stocks.
The tick pilot’s authors now seem reluctant to talk about it. Barron’s made repeated attempts to discuss the outcome with the sponsors of a bipartisan bill that passed by a near-unanimous vote of the House of Representatives in 2014, directing a reluctant SEC and investment industry to do the experiment. The House sponsors were Delaware Democrat John Carney, now the state’s governor, and Wisconsin Republican Sean Duffy, who predicted at the start of the pilot in October 2016 that it would “help America’s newest jobs creators to maximize their trading liquidity, grow their businesses, and create much needed American jobs.”