The Evolving Debate on Tick Sizes

by Jim Toes

I wish I could say that it seems like only yesterday when we wrote a letter to the Senate Committee on Banking, Housing and Urban Affairs offering our thoughts on H.R. 3606, the “Jumpstart Our Business Startups Act”, aka, the “JOBS Act”. That letter was dated March 2012.

One of the key provisions of the JOBS Act was the designation of “Emerging Growth Companies” EGCs. This designation provides these companies would certain regulatory relief making it easier and less costly for them to go public. According to Audit Analytics since the JOBS Act was passed through May 2014, 548 companies have gave gone public. Of these IPOs, 422 (77%) identified themselves as Emerging Growth Companies, EGCs.

This data makes a very strong case that young, startup companies are navigating this new IPO process and are returning to the public markets for raising capital.

Debate which we hope evolves past the logic for conducting such a pilot and instead focuses on how such a pilot can be designed and implemented with the greatest chance for achieving its intended goal of gathering empirical data. Data which will be required for a more permanent decision at a future date.

Passage of the JOBS Act also marked a pinnacle moment in the debate on the effects decimalization-with no minimum price variations-has had on the secondary markets for trading EGCs.

Next Monday, or sometime soon thereafter, the SRO’s and FINRA will file an NMS plan to implement a 12 month pilot program that will widen minimum quoting and trading increments for certain size companies. To be clear, this filing will not mark the final chapter on tick sizes. There will be a comment period and an implementation period before the pilot program goes live.

The filing however will undoubtedly cause our industry to engage in fresh debate on this topic. Debate which we hope evolves past the logic for conducting such a pilot but instead focuses on how such a pilot should be designed and implemented with the greatest chance to achieve its intended goal of gathering empirical data. Data which will be required for a more permanent decision. at a future date. Everyone has had their opinion on tick sizes heard, the question before our industry now is, “how will we do this” and not, “should we do this”.

As we enter the final days of summer, we hope you all found time to spend with your family and friends. If not, well there are still a few weeks left to do so.