InsidersTradesSigma
Instruments & Market Microstructure
An SEC-authorized experimental program that tested wider minimum price increments (larger tick sizes) for a randomized sample of small-cap stocks to assess market liquidity, trading costs, and quant signal degradation under reduced precision constraints.
The Tick Size Pilot, conducted from October 2012 to September 2015, required approximately 400 small-cap stocks (market cap below USD 3 billion) to trade in either 5-cent or 10-cent increments instead of the standard 1-cent tick. The pilot provided empirical evidence on whether reduced tick granularity narrows spreads, decreases order cancellation rates, or conversely reduces quote informativeness for algorithmic traders and quant models relying on precise microstructure signals.
For insider-trading and quant-scoring platforms, the Tick Size Pilot outcomes are critical because wider ticks degrade the precision of short-term alpha signals, increase systematic bid-ask noise, and alter the information content embedded in order-book geometry. Practitioners must account for regimes where historical training data operates under 1-cent ticks while out-of-sample deployment may occur in wider-tick environments, introducing distributional shift.