And the preliminary verdict is in – the nascent Tick Pilot program has indeed affected the equity market structure – but in only a few ways.
In an open call conference call to the membership of the Security Traders Association last week, Phil Mackintosh, Head of Trading Strategy and Analysis at KCG Holdings, said that the SEC’s Tick Pilot program, which has been in full effect for all three test groups only a few weeks has produced some interesting results in its infancy.
July 2012 STA advocated that the SEC should study pricing and its effects on small cap stocks.
Phil Mackintosh, KCG Holdings
In looking at the data, Mackintosh, said Tick Piot has additional data that will be caputured such as average spreads – institutional orders will be reported by venue and order size. Some people are worried about reverse engineering of trading strategies. The industry needs to collect this data. The data, is very granular.
Recapping the Pilot, he looked at the data across the three test groups as distinct separate pilots.
For retail trading and wholesalers, Mackintosh noted that nothing new has developed because of the Pilot. He reviewed that for retail trades:
-Broker-Dealers that service Retail clients send “held” orders to Wholesalers
-Wholesalers usually fill held orders within milliseconds at prices inside the NBBO
-Average fill prices are well inside NBBO
-Print trades at sub-decimal prices via the TRF
Now that the Pilot has been in effect for all three test groups, he said institutional volumes have been unchanged, spreads are wider and there is more dark trading. Costs, Mackintosh added, haven’t risen – yet.
“Stocks that were less than 5 cents wide are wider and deeper,” Mackintosh said in his presentation. “And stocks that were more than 5 cents wide are deeper too and there is less pennying. There is more half-pennying and fragmentation.”
Looking ahead, Mackintosh said on the call that he expects costs to rise due to the wider spreads and that volume might fall thus. Also, trading at venues that employ an inverted pricing schema could see more trading as investors are compensated via rebate paid.
“Inverted is not always the optimal venue to be in,” he said, “and some NBBO’s will be half-dark.”