Changes for Small Caps, HFT, Dark Pools, and More at the Upcoming STA Conference

by John Daley

The proposed tick pilot, potentially changing how small cap stocks will trade will be just one of several market structure issues that more than 500 industry practitioners will be discussing over 3 days at the annual Security Traders Association (STA) National market structure conference which will be held in Washington D.C. October 1-3, 2014.

In June 2014, the SEC charged the national securities exchanges and FINRA with filing a plan to implement a targeted 12 month pilot program that will widen minimum quoting and trading increments (tick sizes) for certain stocks with smaller capitalization. The commission plans to use data gathered from the pilot program to assess whether such changes  enhance market quality for the benefit of investors and issuers.  In August 2014, the exchanges and FINRA announced the plan.  It applies to companies of market caps under $5Bln, with average daily volume of less than 1 million shares, and a share price above $2.  It will be divided up into a control group and 3 test groups, each having 400 securities.  The first group will be quote only in 5 cent increments but you can trade at any price.  The second group will be quote & trading only at 5 cents with exceptions at the midpoint, for retail orders that are price improved, and negotiated trades.  The third group is the same as the second group with quote & trade subject to a trade at requirement and with a block size exception.

“Overall, STA believes that incremental changes are best, having comment periods, and running pilot programs..”

With so many moving parts to this pilot, I hope that it is not forgotten that the most important goal is increasing liquidity and improving the overall capital formation process. This will be one of the most complex and significant pilots to effect trading in a long time, so get informed, involved, and prepared.  Overall, STA believes that incremental changes are best, having comment periods, and running pilot programs.

You can learn more at the conference which is titled “Together, Building Tomorrow’s Markets Today.” The event will feature the following speakers: TIAA-CREF’s EVP & Chief Legal Officer Brandon Becker, SEC Commissioner Dan Gallagher, NASDAQ’s CEO Robert Greifeld, NYSE Group’s President Tom Farley, FINRA’s Chairman Richard Ketchum, and more.  There will also be panels on topics of Dark pools, social media, High Frequency Trading, changes for the Buy side trader, retail perspectives, Exchanges, tick pilot, and options.  I promise that you will walk away much more informed if you attend.

This past year has seen a lot of discussions around issues in our equity market structure. The future will bring many changes and new regulations.  I encourage you to be a part of the process and let’s all work together to improve the markets with the least amount of unintended consequences while increasing investor confidence.  I hope to see you in D.C. next week.