[Congressional Record Volume 160, Number 25 (Tuesday, February 11, 2014)]
[House]
[Pages H1746-H1748]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
{time} 1530
SMALL CAP LIQUIDITY REFORM ACT OF 2013
Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 3448) to amend the Securities Exchange Act of 1934 to
provide for an optional pilot program allowing certain emerging growth
companies to increase the tick sizes of their stocks, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 3448
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Cap Liquidity Reform
Act of 2014''.
SEC. 2. LIQUIDITY PILOT PROGRAM FOR SECURITIES OF CERTAIN
EMERGING GROWTH COMPANIES.
(a) In General.--Section 11A(c)(6) of the Securities
Exchange Act of 1934 (15 U.S.C. 78k-1(c)(6)) is amended to
read as follows:
``(6) Liquidity Pilot Program for Securities of Certain
Emerging Growth Companies.--
``(A) Quoting increment.--Beginning on the date that is 90
days after the date of the enactment of the Small Cap
Liquidity Reform Act of 2014, the securities of a covered
emerging growth company shall be quoted using--
``(i) a minimum increment of $0.05; or
``(ii) if, not later than 60 days after such date of
enactment, the company so elects in the manner described in
subparagraph (D)--
``(I) a minimum increment of $0.10; or
``(II) the increment at which such securities would be
quoted without regard to the minimum increments established
under this paragraph.
``(B) Trading increment.--In the case of a covered emerging
growth company the securities of which are quoted at a
minimum increment of $0.05 or $0.10 under this paragraph, the
Commission shall determine the increment at which the
securities of such company are traded.
``(C) Future right to opt out or change minimum
increment.--
``(i) In general.--At any time beginning on the date that
is 90 days after the date of the enactment of the Small Cap
Liquidity Reform Act of 2014, a covered emerging growth
company the securities of which are quoted at a minimum
increment of $0.05 or $0.10 under this paragraph may elect in
the manner described in subparagraph (D)--
``(I) for the securities of such company to be quoted at
the increment at which such securities would be quoted
without regard to the minimum increments established under
this paragraph; or
``(II) to change the minimum increment at which the
securities of such company are quoted from $0.05 to $0.10 or
from $0.10 to $0.05.
``(ii) When election effective.--An election under this
subparagraph shall take effect on the date that is 30 days
after such election is made.
``(iii) Single election to change minimum increment.--A
covered emerging growth company may not make more than one
election under clause (i)(II).
``(D) Manner of election.--
``(i) In general.--An election is made in the manner
described in this subparagraph by informing the Commission of
such election.
``(ii) Notification of exchanges and other trading
venues.--Upon being informed of an election under clause (i),
the Commission shall notify each exchange or other trading
venue where the securities of the covered emerging growth
company are quoted or traded.
``(E) Issuers ceasing to be covered emerging growth
companies.--
``(i) In general.--If an issuer the securities of which are
quoted at a minimum increment of $0.05 or $0.10 under this
paragraph ceases to be a covered emerging growth company, the
securities of such issuer shall be quoted at the increment at
which such securities would be quoted without regard to the
minimum increments established under this paragraph.
``(ii) Exceptions.--The Commission may by regulation, as
the Commission considers appropriate, specify any
circumstances under which an issuer shall continue to be
considered a covered emerging growth company for purposes of
this paragraph after the issuer ceases to meet the
requirements of subparagraph (L)(i).
``(F) Securities trading below $1.--
``(i) Initial price.--
``(I) At effective date.--If the trading price of the
securities of a covered emerging growth company is below $1
at the close of the last trading day before the date that is
90 days after the date of the enactment of the Small Cap
Liquidity Reform Act of 2014, the securities of such company
shall be quoted using the increment at which such securities
would be quoted without regard to the minimum increments
established under this paragraph.
``(II) At ipo.--If a covered emerging growth company makes
an initial public offering after the day described in
subclause (I) and the first share of the securities of such
company is offered to the public at a price below $1, the
securities of such company shall be quoted using the
increment at which such securities would be quoted without
regard to the minimum increments established under this
paragraph.
``(ii) Average trading price.--If the average trading price
of the securities of a covered emerging growth company falls
below $1 for any 90-day period beginning on or after the day
before the date of the enactment of the Small Cap Liquidity
Reform Act of 2014, the securities of such company shall,
after the end of such period, be quoted using the increment
at which such securities would be quoted without regard to
the minimum increments established under this paragraph.
``(G) Fraud or manipulation.--If the Commission determines
that a covered emerging growth company has violated any
provision of the securities laws prohibiting fraudulent,
manipulative, or deceptive acts or practices, the securities
of such company shall, after the date of the determination,
be quoted using the increment at which such securities would
be quoted without regard to the minimum increments
established under this paragraph.
``(H) Ineligibility for increased minimum increment
permanent.--The securities of an issuer may not be quoted at
a minimum increment of $0.05 or $0.10 under this paragraph at
any time after--
``(i) such issuer makes an election under subparagraph
(A)(ii)(II);
``(ii) such issuer makes an election under subparagraph
(C)(i)(I), except during the period before such election
takes effect; or
``(iii) the securities of such issuer are required by this
paragraph to be quoted using the increment at which such
securities would be quoted without regard to the minimum
increments established under this paragraph.
``(I) Additional reports and disclosures.--The Commission
shall require a covered emerging growth company the
securities of which are quoted at a minimum increment of
$0.05 or $0.10 under this paragraph to make such reports and
disclosures as the Commission considers necessary or
appropriate in the public interest or for the protection of
investors.
``(J) Limitation of liability.--An issuer (or any officer,
director, manager, or other agent of such issuer) shall not
be liable to
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any person (other than such issuer) under any law or
regulation of the United States, any constitution, law, or
regulation of any State or political subdivision thereof, or
any contract or other legally enforceable agreement
(including any arbitration agreement) for any losses caused
solely by the quoting of the securities of such issuer at a
minimum increment of $0.05 or $0.10, by the trading of such
securities at the increment determined by the Commission
under subparagraph (B), or by both such quoting and trading,
as provided in this paragraph.
``(K) Report to congress.--Not later than 6 months after
the date of the enactment of the Small Cap Liquidity Reform
Act of 2014, and every 6 months thereafter, the Commission,
in coordination with each exchange on which the securities of
covered emerging growth companies are quoted or traded, shall
submit to Congress a report on the quoting and trading of
securities in increments permitted by this paragraph and the
extent to which such quoting and trading are increasing
liquidity and active trading by incentivizing capital
commitment, research coverage, and brokerage support,
together with any legislative recommendations the Commission
may have.
``(L) Definitions.--In this paragraph:
``(i) Covered emerging growth company.--The term `covered
emerging growth company' means an emerging growth company, as
defined in the first paragraph (80) of section 3(a), except
that--
``(I) such paragraph shall be applied by substituting
`$750,000,000' for `$1,000,000,000' each place it appears;
and
``(II) subparagraphs (B), (C), and (D) of such paragraph do
not apply.
``(ii) Security.--The term `security' means an equity
security.
``(M) Savings provision.--Notwithstanding any other
provision of this paragraph, the Commission may--
``(i) make such adjustments to the pilot program specified
in this paragraph as the Commission considers necessary or
appropriate to ensure that such program can provide
statistically meaningful or reliable results, including
adjustments to eliminate selection bias among participants,
expand the number of participants eligible to participate in
such program, and change the duration of such program for one
or more participants; and
``(ii) conduct any other study or pilot program, in
conjunction with or separate from the pilot program specified
in this paragraph (as such program may be adjusted pursuant
to clause (i)), to evaluate quoting or trading in various
minimum increments.''.
(b) Sunset.--Effective on the date that is 5 years after
the date of the enactment of this Act, section 11A(c)(6) of
the Securities Exchange Act of 1934 (15 U.S.C. 78k-1(c)(6))
is repealed.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New
Jersey (Mr. Garrett) and the gentleman from Delaware (Mr. Carney) each
will control 20 minutes.
The Chair recognizes the gentleman from New Jersey.
General Leave
Mr. GARRETT. Mr. Speaker, I ask unanimous consent that all Members
may have 5 legislative days within which to revise and extend their
remarks and submit extraneous materials for the Record on H.R. 3448, as
amended, currently under consideration.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from New Jersey?
There was no objection.
Mr. GARRETT. Mr. Speaker, I yield myself such time as I may consume.
I rise in support of H.R. 3448, the Small Cap Liquidity Reform Act of
2013. This bill, approved by a vote of 57-0 in the Financial Services
Committee last year, represents yet again another bipartisan and
commonsense effort by the House to promote small business capital
formation.
I want to thank the gentleman from Wisconsin (Mr. Duffy) for all of
his hard work and leadership in bringing this very important piece of
legislation to the floor. I also would like to thank Mr. Carney from
Delaware for all of his hard work and support for this legislation as
well.
What are we talking about here?
Today, many small, publicly traded companies are finding it more and
more difficult to attract investor demand and trading liquidity for
their stocks. As a result, these companies may have trouble obtaining
the investor capital they need for their companies to grow and create
jobs.
H.R. 3448 would begin to address this liquidity crunch by testing,
through a pilot program, whether increasing the minimum trading
increment, also called the ``tick'' size, for certain emerging growth
company stocks, or EGCs, from a penny to 5 cents or 10 cents would
promote liquidity by incentivizing market makers and others investors
to trade these stocks, and by concentrating this trading interest
around fewer price points.
All of this may sound like a lot of Wall Street and stock market
jargon, but at its core this bill is a simple bill aimed at helping
small American companies obtain the capital that they need from
investors so that they can grow their businesses.
What the bill does is leave most of the details of designing and
administering the tick size pilot program to the experts at the SEC. As
a result, the SEC should have the discretion it needs to devise a pilot
program that reflects the views of all market participants and
interested parties, and that generates the maximum amount of deep and
useful data on how different tick sizes impact trading liquidity in
small-cap stocks.
By first establishing a temporary pilot program, this bill will
ensure that any potential and permanent changes to tick sizes that may
be done sometime in the future will be done only in a thoughtful,
incremental, and data-driven manner.
The data generated from this pilot program may also be useful into
how other aspects of the stock market work, but on this point, let me
be clear. This bill is focused on improving small business capital
formation. This is not a bill to reform the fundamental structure of
U.S. equity markets, nor is it intended to be a substitute for a more
detailed, holistic review by the SEC of how these markets work.
Ultimately, there are no guarantees that a tick size pilot program
will achieve the desired results and that the benefits of any future
action on tick sizes will outweigh the cost, but we should all be
agreed that this commonsense approach will help small businesses grow.
It is worth trying, and we need many more like it.
Again, I will conclude by saying that this bill was approved by the
Financial Services Committee 57-0. In addition, many market
participants, as well as SEC Chair White; at least two of her
colleagues, Commissioners Gallagher and Piwowar; and the SEC's Advisory
Committee on Small and Emerging Companies, have all vocally supported
the concept of a tick size pilot program.
So I hope that this legislation will serve as a final push forward
getting this tick size program forward and moving off the ground. I
urge my colleagues to, again, promote small business capital formation
by passing H.R. 3448, and I urge my friends over in the Senate to take
up this bill immediately as well.
With that, I reserve the balance of my time.
Mr. CARNEY. Mr. Speaker, I yield myself such time as I may consume.
I rise in support of H.R. 3448. I would like to thank Mr. Garrett,
chairman of the Capital Markets Subcommittee. Particularly, I would
like to thank the gentleman from Wisconsin (Mr. Duffy) for his good
work on this piece of legislation. I certainly enjoyed working with him
on it.
I particularly want to applaud Mr. Duffy for his willingness to
address concerns raised by stakeholders, members of the committee, and
those we heard from during the hearing on this bill. I appreciate his
commitment to working in a bipartisan way in developing good and
workable policy in this legislation.
As has been already said, the purpose of our bill is really pretty
simple. We know that small businesses are the engine of job creation in
this country. We want to encourage investors to take a closer look at
small businesses and invest in them so that they can continue to grow
and create jobs once they have gone public.
In my home State of Delaware, as a corporate center, we have a lot of
people who spend a lot of time paying attention to corporate formation
and corporate governance. In a former life as the State secretary of
finance and as Lieutenant Governor, I worked with a lot of these
people. They have been following the trends over the past 10 years, and
they have seen and observed the decline in IPOs and the changes in the
growth of emerging growth companies after going public.
That is why last year I worked with my colleague, Mr. Fincher from
Tennessee, on a provision in the JOBS Act that created an onramp for
companies to go public. The bill has already been credited with helping
fuel the recent uptick we have seen in the initial public offerings,
which is very good for job
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growth in this economy. H.R. 3448 builds on that work by helping
companies grow after their IPO.
Our hope, as has been described, is that increasing the increments
that stocks trade in will draw more attention to these small emerging
growth companies. We hope that brokers will spend more time and
resources researching these companies and, ultimately, encourage
greater investment in them. This increased coverage from brokers and
analysts will help small companies grow and create jobs.
We have heard concerns about some unintended consequences that
increased tick size could have, which is why this bill instructs the
SEC to conduct a pilot program to better examine the effects and
effectiveness of larger spreads. Additionally, this bill gives the SEC
the flexibility to implement a pilot program in a way that will produce
the best information on how to proceed afterwards.
Thanks to members and staff on both sides of the aisle working
closely together, we were able to come up with a bill that makes sense
and that addresses the concerns that we heard from other members, from
stakeholders, and from the Financial Services Committee hearing that we
had.
The four amendments accepted in the committee were all consistent
with our original objective. Each improved the bill based on input that
we received from members and stakeholders.
This bill is truly a bipartisan effort. As Mr. Garrett pointed out,
it passed out of the committee on a 57-0 vote. As with any piece of
legislation, once we got into the weeds, it turned out to be a little
bit more complicated than we initially thought, but the end result is a
good product that Members on both sides of the aisle can support.
I want to close by again thanking Mr. Duffy and his staff for their
hard work and for working together with us and involving us in the
discussions about the particulars of this bill.
I urge Members on both sides of the aisle to support H.R. 3448, the
Small Cap Liquidity Reform Act of 2013.
I yield back the balance of my time.
Mr. GARRETT. Mr. Speaker, I yield such time as he may consume to the
gentleman from Wisconsin (Mr. Duffy), the prime sponsor of this
legislation and the gentleman who has been the driving force behind
this idea.
Mr. DUFFY. Thank you, Mr. Chairman, for yielding time.
As both you and the gentleman from Delaware mentioned, it is pretty
remarkable that on the Financial Services Committee, a committee which
comes together and doesn't always agree on the particulars of every
debate that we have, that this bill came out with a vote of 57-0,
moving it forward, which I think underscores the fact that there was a
lot of work put in on the front end, making sure we were working out
the kinks and the concerns.
I am very appreciative of Mr. Carney from Delaware and all the effort
and help he put in, and for Mr. Garrett's help in making sure that we
could put a package together that we can get a lot of folks to buy
into.
We all realize that job creation, especially in a slower moving
economy, is incredibly important. Job creation at the higher levels
comes from our small businesses, our emerging growth companies. As Mr.
Carney earlier referenced, that is why Financial Services came together
and passed a bill out of the House, along with the Senate moving it,
and the President signing, the JOBS Act, which helped emerging growth
companies actually get on the onramp and go public, accessing more and
better capital.
What we have seen, though, are a few concerns from those small
emerging growth companies that are going public that they are not as
easily accessing capital as I thought they may. That is why we have
come together to start a pilot program to see if we can enhance the
interest and the capital and liquidity of these emerging growth
companies.
It really is not very complicated, as Mr. Garrett indicated. This is
a 5-year pilot program. So if things don't go as expected, the program
will end. If it goes as well as we think it may, we can continue this
on permanently.
We are truly looking at small emerging growth companies--those that
have revenue of less than $750 million a year. Again, the small, fast-
growing companies. It is a small space of the market. It is only 2
percent of trading on and off exchanges.
There has been a lot of debate as we have done this about what is an
appropriate model to use when we increase the tick size. Do we do a
trade-at, a quote-at, midpoint matches? A lot of people came to us with
a lot of different ideas. All of us realized there is a larger debate
going on right now that involves our ``dark pools'' and our exchanges.
To be very clear, no one here who worked on this legislation wants to
impact that debate in this field. The intent of this bill is not to
influence that debate at all. It is really very specifically and
narrowly tailored to help small businesses as they look for additional
capital to grow and create more jobs.
That is why we have given the SEC the ability to set up different
baskets or different segments. One can be a trade-at, one can have
price improvement of a different variation, but allowing us to get good
quality data that will help us make decisions as we move forward.
One other thing: companies that may not want to participate will have
the option to opt out if they don't feel like this kind of a program
would work for them.
I just want to say I very much appreciate the gentleman from Delaware
and the chairman from New Jersey for all the effort they have put into
this bill. I hope that our colleagues, after seeing the great support
that we had in the committee, will support this bill today.
{time} 1545
Mr. GARRETT. Mr. Speaker, I believe the gentleman from Delaware has
already yielded back. So, at this point, I would just like to again
thank the gentleman from Delaware for his work, the gentleman from
Wisconsin for his leadership on this issue.
And, also on his page, I saw written in a large number was the magic
number 57-0. I hope that does send a resounding message over to the
other body, to the Senate, to do as they have not been doing for the
last 14 months, which is to take up some of these good job-creation
bills, a bill that helps promote jobs and small businesses in this
country.
Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from New Jersey (Mr. Garrett) that the House suspend the
rules and pass the bill, H.R. 3448, as amended.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds
being in the affirmative, the ayes have it.
Mr. CARNEY. Mr. Speaker, on that I demand the yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further
proceedings on this motion will be postponed.
____________________