The NASPP Blog

Today’s blog features guest author Emily Cervino of Fidelity Stock Plan Services, who gave us a heads-up on the SEC’s big “Tick Size” pilot that just kicked off.

Tick Tock: Time for the SEC’s Tick Size Pilot

By Emily Cervino, Fidelity Stock Plan Services

Are you ready?  On October 3, 2016, the evaluation of whether or not to widen the tick size from $.01 to $.05 began.

News to you?

At Fidelity, we’ve been ticking off our Tick Size Pilot to-dos, but, if this is news to you, don’t worry… I’ve got you covered with a handy synopsis.

In May 2015, the SEC approved the two-year Tick Size Pilot, sponsored by the Financial Industry Regulatory Authority (FINRA), as a mandatory program for a select group of publicly traded equity securities. The pilot will evaluate whether or not widening the tick size, from $0.01 to $0.05, for securities of smaller capitalization companies would impact trading, liquidity, and market quality of those securities and consists of one control group and three test groups, each consisting of approximately 400 securities.

If your company is one of the 1200 that have been identified to participate in the test groups, your stock price will only move in nickel increments, rather than penny increments.  To find out if your company is included in the pilot, check the pilot program test group assignment sections on the NYSE or Nasdaq websites. Note that Control Group = C, Test Group = G1, G2 or G3 and the Rollout Date is the date that security joins the pilot.

From a stock plan perspective, this will directly impact option exercises, long share sales, and Rule 10b5-1 contracts and sales, and indirectly impact pretty much anything else that relies on your FMV, such as grant pricing and ESPP purchases. Most immediately, it will have an impact on outstanding limit orders.

If your company’s security is involved in the pilot, i.e. is assigned to a test group, you’ll want to be sure your participants know what’s in store. They may see a change in quoted spreads when buying or selling a security and they’ll need to submit limit orders in five-cent increments.

What to do now?

Check with your service provider to find out:

• What tools and resources exist to help you understand the pilot and communicate to your participants
• How customer services  associates are trained on the pilot
• What messaging participants will see regarding nickel increments
• How outstanding orders (both buy and sell orders) will be adjusted prior to the pilot effective date to conform to the pilot rules

For more information and future status as the pilot continues, check out FINRA’s Tick Size Pilot Program page or the SEC’s Tick Size Pilot Program page.

With that, you should be able to tick this off your list.

Emily Cervino is a Vice President at Fidelity Stock Plan Services.  She has been an active participant in the equity compensation industry since 1998, and now focuses on strategic marketing initiatives, thought leadership, and building Fidelity’s strong industry presence.

Emily is a frequent speaker at equity compensation events, past president of the Silicon Valley Chapter of the NASPP,  a member of NASPP, GEO, and NCEO, and a 2015 recipient of the NASPP’s Individual Achievement Award. Emily is a Certified Equity Professional (CEP) and she holds Series 7 and 63 securities registrations.

Views expressed are as of the date indicated and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the author, and not necessarily those of Fidelity Investments.

Links to third-party websites may be shared on this page. Those sites are unaffiliated with Fidelity. Fidelity has not been involved in the preparation of the content supplied at the unaffiliated site and does not guarantee or assume any responsibility for its content.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917. 775451.1.0