MAY 22, 2013
WASHINGTON, D.C. – Congressman David Schweikert (R-AZ), a primary author of the ‘JOBS’ Act, recently introduced the Spread Pricing Liquidity Act as a follow-up to his amendment to the ‘JOBS’ Act of 2012.
The bill gives small companies with limited market capitalization greater access to public equity. Nearly 80 percent of all publically listed companies are considered small-cap.
This bill is in response to overwhelming evidence that wider ticks for small-cap companies will stimulate liquidity, encourage capital formation, and grow jobs. The SEC has been inactive on this issue.
“I introduced this tick size bill today with the goals of increasing capital for small companies, stimulating economic growth, and creating jobs.
“Since the introduction of decimalization, the number of publically traded companies has decreased by over a third.
“Current market structure is designed for mid and large-cap companies while small-cap companies are being starved of capital. This bill is a necessity as it increases their visibility and trading velocity.
“It is my hope that we will see swift implementation of this bill in the market for the sake of small companies and job creators in desperate need of certainty and opportunity,” said Rep. Schweikert.
The introduction of decimalization a decade ago changed all stock quotes to a penny. This penny quoting is widely believed to be the direct cause of the erosion of the economic infrastructure required to support small-cap stocks. Such narrow spreads create a disincentive to provide liquidity at the best price, which results in smaller quoted sizes and thinner markets. In addition, narrow tick sizes also create inefficiencies and detrimentally affect the price discovery process.
Wider tick sizes will increase investor confidence by reducing the number of price points at which stocks are traded and by limiting computer trading behaviors. Wider ticks favor long-term investors and stock pickers over short-term traders. In addition, they will lead to investment in the securities ecosystem necessary to provide visibility to companies going public and support them in the aftermarket.
The Spread Pricing Liquidity Act allows companies with public float of less than $500 million and average daily trading volume under 500,000 shares to select to have their securities quoted at increments of either 5 or 10 cents, while maintaining trading between the quoted ticks.
The bill includes a multi-tiered phase-in, with the change occurring for companies with public float of less than $100 million and average daily trading volume under 100,000 shares at inception. After three months, that threshold will rise to include companies with public float of less than $250 million and average daily trading volume under 250,000 shares. After a further three months, the threshold will rise again to the stated public float of less than $500 million and average daily trading volume under 500,000 shares.
The Act includes an opt-out for companies after six months, and a re-opt in a full year later, and provides a three month grace period for companies cresting through either the float or volume thresholds before they revert to trading at traditional increments.
The bill disallows exchanges from charging maker/taker fees, and requires the SEC to report to Congress on the effectiveness of wider ticks for small-cap companies nine months after implementation.