On February 1, 2013, the SEC Advisory Committee on Small and Emerging Companies issued a series of recommendations to the Commission. Over the next few posts, we’ll examine all of these recommendations. Although all are important, we believe some will be of much more significant benefit to the types of clients we represent and we will note to you these recommendations.
We will review all of the recommendations in the order they were released. The first released was: Recommendations Regarding Trading Spreads for Smaller Exchange-Listed Companies.
The Committee noted that Section 106(b) of the Jumpstart Our Business Startups Act (JOBS Act), enacted on April 5, 2012, directed the U.S. Securities and Exchange Commission (Commission) to conduct a study examining the impact of the transition to trading and quoting securities on U.S. securities exchanges in one penny increments, called “decimalization,” on the number of initial public offerings (IPOs ), the impact of decimalization on liquidity for securities of small and middle capitalization companies, and whether there is sufficient economic incentive to support trading operations in these securities in one penny increments.
However, in July 2012, the Commission delivered to Congress the report of the staff of the Commission in which the staff recommended that the Commission not proceed with a specific rulemaking to increase tick sizes at this time, as provided for in Section 106(b) of the JOBS Act, but recommended that the Commission should consider the additional steps that may be needed to determine whether such rulemaking should be undertaken in the future.
The Committee disagreed, concluding that a change in the method for determining tick sizes for equity securities of smaller exchange-listed companies is the type of economic incentive market participants may require to provide the trading support for the equity securities of small and middle capitalization companies that is necessary to increase their liquidity and facilitate IPOs and capital formation, that a permanent change to the method for determining tick sizes, not a temporary or pilot program, would be the most effective way to encourage market participants to make the required commitments and to invest in the necessary infrastructure.
Specifically the Committee recommended that the Commission adopt rules to increase tick size for smaller exchange-listed companies in the United States that will allow such companies, on a voluntary basis, to choose their own tick size within a limited range designated by the Commission.