SEC to End Five-Cent Spreads on Small-Company Stocks

Back in May 2015, the Securities and Exchange Commission (SEC) approved a two-year pilot program to test wider spreads on smaller stocks. The purpose of the program was to determine whether wider spreads  will attract more market makers and make trading better for small stocks. Many national exchanges and the Financial Regulatory Authority (FINRA) had requested it.

The SEC has announced that the pilot program will be terminated next week. This move is appreciated by the market as the program did not achieve what it set out to do.

Unfortunately, the results of the pilot were disappointing, according to the Wall Street Journal: trading volumes for the impacted stocks haven’t increased. One year into the program, a study from the Centre for Economic Policy Research found that stocks impacted by the program actually experienced a reduction in liquidity and no meaningful change in liquidity risk.

Many retail brokers also complained that their client lost money because of the program.

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