This post first appeared on FloatingPath

Thanks to an industry-suggested pilot program and legislation passing through the House of Representatives, some small-sized companies may soon have their stocks trading in 5 and 10 cent spreads.

Push For Widening Stock Spreads In Final Stages

According to Bloomberg, conference calls among exchanges, brokers, mutual funds, and regulators took place yesterday to discuss the plan. Although a representative of Rosenblatt Securities declined to comment on yesterday’s discussion specifically, he did discuss the overall push for widening spreads.

“There are a couple of groups that are really driving this and want it to happen, and it seems like everybody else may not be convinced it’ll make a huge difference but feels it should be tried because it probably won’t hurt anything.”

Thanks to a provision of the JOBS Act, the SEC has been required to study the effects of penny pricing and subsequently mandate bid/ask spreads of up to 10 cents for smaller companies if it felt compelled to do so.

As we discussed prior, the intentions of such a program are inherently benevolent, but the specific suggestions put forth by Citigroup Inc (NYSE:C) in October seem to be a bad plan for creating liquidity.

In doing this, the proposal would allow a broker’s internalizers to execute trades inside displayed quotes. This is essentially the “price improvement” and “liquidity provisions” that HFT firms continue to falsely claim they provide.