NEW KCG MARKET STRUCTURE ANALYSIS INDICATES SEC's TICK SIZE PILOT HAS IMPLICATIONS BEYOND SPREADS
July 14 2014 - 8:00AM
NEW KCG
MARKET STRUCTURE ANALYSIS INDICATES SEC's TICK SIZE PILOT HAS
IMPLICATIONS BEYOND SPREADS
JERSEY CITY, N.J. - July 14, 2014 - KCG Holdings,
Inc. (NYSE: KCG) today announced that it has published market
commentary, "Who Gets the Short End of the 'Tick?" by Phil
Mackintosh, Head of Trading Strategy and Analysis. The data-driven
report includes the following findings regarding the potential
impact of the Security & Exchange Commission's pilot program to
widen tick sizes.
- While the pilot program was originally designed
to spur trading and research in small-cap stocks, the proposal, if
implemented across all stocks that meet the ADV and market cap
thresholds, could ultimately impact a wide number of companies,
including some S&P 500 names. The market capitalization of
companies in the pilot could be as high as $5 billion, trading up
to one million shares per day. Full market-wide implementation of
the proposal would require more than 66% of all stocks to trade in
five-cent increments.
- Less-liquid stocks will become easier to trade.
Wider tick sizes should make the top of book deeper and less
volatile. In fact, a new, wider National Best Bid and Offer (NBBO)
should at least triple the depth of book in impacted names.
- Trading costs will likely go up. Wider spreads
make it more expensive for investors to trade.
- Dark trading will likely increase. Dark trades
allow investors to mitigate higher execution costs. Although
off-exchange trading is specifically limited for a certain sub-set
of stocks in the pilot, traders will still look for ways to hide
their intention from other traders in lit venues.
- Implementation of wider tick sizes will add
complexity to the marketplace. Wider tick size parameters will
challenge order routing and limit order trading market-wide. This
goes against an overarching concern of many participants that the
market already is too complex.
"The breadth of securities covered by the proposed
pilot, if implemented market wide, is significant. With well over
half of all stocks potentially meeting the thresholds and possibly
subject to five-cent increments, this proposal could become a major
market structure development," Mr. Mackintosh said. "At the same
time, trade-at rules will be tested without also testing the impact
of inter-related market structure issues, such as exchange fee
structures and locked market rules. To be sure, the pilot should
deepen liquidity at the NBBO to great benefit. But there remain
concerns that widening spreads will have negative consequences for
the U.S. markets by eroding our global lead in many market quality
measures including trading costs, liquidity, and robust derivatives
and ETFs trading."
On June 25, 2014, the SEC announced its order to
the national exchanges and the Financial Industry Regulatory
Authority (FINRA) to develop a 12-month pilot program to widen
minimum quoting and trading increments, or tick sizes, for certain
small-cap stocks. The SEC seeks data to assess if wider tick sizes
will enhance market quality. The pilot includes stocks with a
market capitalization of $5 billion or less; an average daily
trading volume of one million shares or less; and a share price of
$2 per share or more. The exchanges and FINRA must submit a plan
detailing the pilot program by August 25, 2014, after which it will
be published for public comment.
KCG's Market Commentary Report is available at
https://www.kcg.com/our-views
About KCG
KCG is a leading independent securities firm offering investors a
range of services designed to address trading needs across asset
classes, product types and time zones. The firm combines advanced
technology with exceptional client service across market making,
agency execution and venues. KCG has multiple access points to
trade global equities, fixed income, currencies and commodities via
voice or automated execution. www.kcg.com
CONTACT
Sophie
Sohn |
Communications & Marketing |
312-931-2299 |
media@kcg.com |
This
announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: KCG Holdings, Inc. via Globenewswire
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