A Handful of Small Cap Stocks Have Been Chosen to Trade in $0.05 (Nickel) Increments:
To many small-cap traders’ dismay, the SEC 5-Cent Tick Program was launched in October, 2016. Instead of the typical $0.01 (penny) increments for the bid and ask, a handful of stocks will now only trade in $0.05 (nickel) increments. All stocks included in the test program have a market cap below $3 billion and average trading volume less than $1 million shares. This program will run for two years in order to collect data on the volatility and liquidity of the test group.
The interesting thing about this program is that the SEC created it with the intention of boosting liquidity in thinly traded stocks. The reality, however, may be quite the opposite. It seems like such a change will drive retail traders away from the impacted tickers as their primary goal is to capitalize on volatility. Without volatility, their desire to trade them will fall. Why day or swing trade a stock if it only moves at a snail’s pace? As a result, liquidity may suffer as retail traders avoid them. But maybe the decrease in liquidity will increase institutional investments. Only time will tell.
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