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.

stocks trading

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.