fbpx

What will you do when your money works for you? | Call 1-800-584-3652 | Account

A Plan to Put the Brakes on the “Flash Boys”

A Plan to Put the Brakes on the “Flash Boys”

The SEC rolls out a test program. How much impact will it have?

Provided by Kim Gaxiola

The Securities & Exchange Commission wants to address the pricing inefficiencies linked with high-speed trading. With that goal in mind, it has ordered the Financial Industry Regulatory Authority (FINRA) and national securities exchanges to implement a trial program that may end up boosting the trading volume of small-cap shares.1

That could heighten the market quality for those stocks. While analysts generally applaud the initiative, critics wonder how significant it will be.

A yearlong experiment is poised to start.

Assuming the proposal emerges from a 21-day public comment period unscathed, the SEC will oversee the application of slightly different trading standards to three groups of small-cap stocks during a 12-month window. Each of the three groups will include shares from 400 firms with market caps of $5 billion or less. Each group will be compared against a control group of the same size and composition.1,2

 

 

If tick sizes change, will that change trading?

Small-cap shares are lightly traded with prices moving a penny at a time. High-frequency traders benefit from these conditions. If the share prices are quoted in nickel increments, will that slow the “flash boys” down?3

That’s what the SEC wants to learn. So as part of the experiment, it will adjust the “tick size” from one cent to five cents for some of these small-cap stocks. In the control group, the tick size will remain at a penny per share. In test group #1, trading would occur at any permissible price increment. Within test group #2, securities will be quoted at and trade in nickel increments (with some exceptions). The tick size would also be widened to a nickel in test group #3, but transactions would also be bound by a “trade-at” requirement, which thwarts price matching by a trading center that doesn’t present the best bid or offer. (That is, it helps to steer trading toward public exchanges.)1,2

A nickel-tick environment might reduce market distortions and the profits that high-speed traders could subtly skim off the small caps.

 

 

What flaws may emerge in this pilot program?

Some analysts think this experiment could be more stringently conducted. For example, there are a baker’s dozen worth of exceptions in the “trade-at” test group that permit pilot shares to be exchanged outside the five-cent tick size. The SEC has driven the program forward without fielding any input from public corporations. Additionally, some analysts think that publicly stating the length of the pilot program is a mistake; they contend that this will offer creative traders unintended opportunities.3

 

 

A small step forward is better than none.

Securities regulators have heard the public outcry in the wake of the best-selling Flash Boys: A Wall Street Revolt and are responding. In a year, data will bear out whether altering the tick size will improve this segment of the market.

Disclosure:

TechGirl Financial is a part of Gaxiola Financial Group. Registered representative, securities offered through Cambridge Investment Research, Inc., broker-dealer, member FINRA/SIPC. Investment advisor representative, Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cambridge and Gaxiola Financial Group are not affiliated.

Gaxiola Financial Group | San Jose address 111 N. Market St. Suite 300 San Jose, CA 95113.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

 

Tech Girl Financial is a part of Discover Financial Happiness. Registered representative, securities offered through Cambridge Investment Research, Inc., Broker-dealer, member FINRA/SIPC. Investment advisor representative, Cambridge Investment Research, Inc., a registered investment advisor. Cambridge and Discover Financial Happiness are not affiliated.
Discover Financial Happiness | 111 North Market Street suit 300| San Jose, CA 95113
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.
– reuters.com/article/2014/08/26/sec-pilotprogram-idUSL1N0QW2IG20140826 [8/26/14]

2 – tinyurl.com/nkfputs [8/27/14]

3 – tinyurl.com/qdaobd9 [8/27/14]

2 – kiplinger.com/article/investing/T052-C008-S002-how-to-survive-a-stock-market-correction.html [8/14]

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Lean In To Retirement

Check out TechGirl Financial's Article Series on how to "Lean In To Retirement".

About the Founder

Kim will put you at ease with your financial planning and help you to create a clear picture of your financial future!

Check the background of this investment professional on FINRA's BrokerCheck

Contact Us

Northern California
111 N. Market Street, Suite 300
San Jose, CA 95113
Toll-Free:  800-584-3652
Contact Us

Stay Informed

Get the latest financial news & more!

Disclosure

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisors Services through Cambridge Investment Research Advisors, a Registered Investment Advisor.

Tech Girl Financial is not affiliated with Cambridge. Check the background of this investment professional on FINRA's BrokerCheck.
This communication is strictly intended for individuals residing in the states of AZ, CA, CO, FL, ID, IL, IN, KY, MI, MT, NC, NH, NJ, NV, OR, SC, SD, VA, WI. No offers may be made or accepted from any resident outside the specific states referenced.

© 2018 Tech Girl Financial, All Rights Reserved

Close

Sign Up for Free Updates!

Receive free updates directly to your inbox.