SIFMA Submits Comments to SEC on Proposed NMS Plan to Implement Tick Size Pilot (with Lofchie Comment)

SIFMA submitted comments to the SEC regarding the proposed national market system ("NMS") plan to implement a tick size pilot, filed with the SEC by U.S. equity securities exchanges and FINRA.

SIFMA stated that while it supported a pilot program exploring how a wider tick size might benefit small cap issuers, it expressed concern regarding a pilot that would prohibit trading between the wider quoting increments. Additionally, according to SIFMA, for a pilot program to be successful it must establish clearly stated metrics for use in evaluating the results of the pilot and determining whether it is a success.

Furthermore, SIFMA opposes structuring the pilot as an NMS plan. Such a significant change in the regulations governing equity market structure should be proposed and adopted by the SEC rather than exchanges who, in SIFMA's view, should be treated as regulated entities, not as regulators of broker-dealers.

Additionally, SIFMA opposes including a "trade at" requirement in the pilot, since this requirement is "so complex that it would introduce unnecessary operational risk into the market, cause market participants to incur very significant costs, and ultimately would take more time to implement than the length of the Pilot itself."

Lofchie Comment: The SEC should develop a long-range plan for testing a number of variations as to the working of the NMS system. The proposal on the table, to test a significantly expanded tick size (a proposal that faces a lot of buy-side skepticism) in combination with a trade-at proposal should be taken off the table. (The trade-at proposal should be tested independently of tick size.) An alternative approach might be for the SEC to request comment (from issuers, sell-side, buy-side, markets and academics) on a series of tests of various market structure rules.

See: SIFMA Comment Letter; SIFMA Comment Announcement. Related news: MFA Submits Comments to SEC Regarding Tick Size Pilot Program (with Lofchie Comment) (September 23, 2014); SEC Announces Pilot Plan to Assess Stock Market Tick Size Impact for Smaller Companies (with Lofchie Comment) (August 26, 2014); SEC Issues Order Directing FINRA and Exchanges to Develop Tick Size Pilot Program (with Delta Strategy Group Summary and Lofchie Comment) (June 25, 2014).