The Securities and Exchange Commission will be discussing increasing the minimum tick size for small exchange-listed companies at a meeting of its Advisory Committee on Small and Emerging Companies this Friday.
The Committee will also consider the feasibility of creating a separate U.S. equity market limited to sophisticated investors for small and emerging companies and disclosure rules for smaller reporting companies.
The meeting comes amid concern in Congress that rules governing the minimum tick, have are harmful to trading in smaller stocks. In 2000 and 2001, exchanges passed rules slashed the minimum trading increment to a penny. Quoted spreads declined with the changeover. That’s why, as part of the Jumpstart Our Business Startups Act, passed last April, Congress ordered the Securities and Exchange Commission to study the issue and consider increasing the minimum tick to some amount between 2 and 9 cents.
Under the JOBS Act, the SEC was required to study the effect of decimalization, or the switch to penny ticks, on capital formation.
Some argue that decimalization was to blame for the sharp decline in initial public offerings during the past decade, especially for smaller companies. Some argued that small-capitalization stocks suffer from investor neglect because brokerage houses can’t make money trading them. The argument for changing the minimum trading increment is that any increase would stimulate research and trading in these fledging companies and their stock.
On the other side of the fence, those against widening the minimum trading increment said this equates to giving a subsidy to Wall Street, which may not be politically feasible in today’s environment.
The SEC reported to Congress last July there was insufficient evidence that decimalization had impaired liquidity in small-cap stocks to warrant a rollback of the tick rules. The issue needed more study, the SEC said at the time, and added an industry roundtable as well as a pilot program could be in the offing.
The meeting will begin at 9:30 a.m. at the Commission’s Washington D.C. headquarters. The roundtable event will be webcast live on the SEC website.
Panel attendees include: SEC Chairman Elisse Walter, Advisory Committee Co-Chairs M. Christine Jacobs and Stephen M. Graham and Lona Nallengara, Acting Director of SEC Division of Corporation Finance. No list of panelists has been made available yet.
