Co-authored by Jonathan D. Weiner.
On February 5, the Securities and Exchange Commission hosted a roundtable discussion regarding the impact that decimal-based pricing increments (i.e., decimalization), which replaced fraction-based tick sizes in 2001, has had on US securities markets, investors, issuers and market professionals. Some have argued that decimalization is one of the principal reasons for the dramatic decrease in smaller initial public offerings. Participants in the roundtable included academics, representatives of securities exchanges, institutional investors, venture capital firms, market makers, retail brokerage firms and other market professionals.
Panelists discussed whether the current decimalization regime could be enhanced to promote capital formation and, in particular, revitalize the market for initial public offerings in the United States. The roundtable focused on the impact of decimalization on small- and mid-cap companies (generally, companies with market capitalizations below $1 billion), and the potential advantages and disadvantages of larger tick sizes in terms of liquidity, the availability of analyst research for small- and mid-cap companies, price discovery and transaction costs. Panelists also discussed the potential merits and design of a potential SEC pilot program intended to establish an empirical basis for action, if any, that the SEC may take with respect to tick sizes. While SEC staff members indicated that no final decision had been made to move forward with a pilot program, participants in the roundtable generally favored the concept of such a program.
The roundtable represents part of the SEC’s response to Section 106(b) of the Jumpstart Our Business Startups Act, which required the SEC to study and report on the impact that decimalization has had on the number of initial public offerings since its implementation, as well as the impact decimalization has had on liquidity for small- and mid-cap company securities. In the SEC’s July 2012 Report to Congress on Decimalization delivered pursuant to the JOBS Act, the SEC staff recommended that the SEC “solicit the views of investors, companies, market professionals, academics and other interested parties on the broad topic of decimalization,” including how to best study its effects. The staff also recommended that the SEC not then proceed with any specific rulemaking to increase tick sizes.
To view a webcast of the roundtable, click here.