19 Nov Tick Size Bill Passes House Committee

The House Financial Services Committee has been busy for sure! Last week they unanimously (57-0) approved and sent to the full House HR 3448, known as The Small Cap Liquidity Act of 2013. The key sponsor: Rep. Sean Duffy (R-WI). The bill is seen by many as another part of what may turn into the 2.0 version of the Jumpstart Our Business Startups (JOBS) Act.

The bill would address an issue some feel has dramatically hurt the IPO market over the years: the decimalization of spreads between “bid” and “ask” in stock trading. When spreads had to be larger before 2001, analysts, brokers and market makers shared in the spread and had more interest in smaller stocks. Now spreads can be as low as one cent, with less to go around. Arguably better for investors, but it had a negative impact on the smallcap IPO market and after market trading.

In general, the bill would create a five year pilot program in which there will be a minimum $0.05 spread for smaller companies (under $750 million in revenues) who can also elect to increase the spread to $0.10. This only applies to companies whose shares are trading above $1.00 a share. Companies will have the choice to opt out of the program and go back to penny spreads. The SEC and exchanges have to report to Congress on the progress every six months. We are impressed by the bipartisanship and are following this good stuff!!