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Small Cap Liquidity Reform Act
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The Small Cap Liquidity Reform Act (SCLRA) of 2014 (H. R. 3448) would amend the Securities Exchange Act of 1934 to establish a pilot liquidity program for equity securities of emerging growth companies (EGCs) with total annual gross revenues of less than $750 million, under which those securities shall be quoted using either: (1) a minimum increment of $0.05 or $0.10, or (2) the increment at which the securities would be quoted without regard to such minimum increments. This bill passed the House of Representatives overwhelmingly in February 2014.

Specifically, the SCLRA would:
  • Repeals the requirement for an SEC study examining the transition to trading and quoting securities in one penny increments, known as decimalization.
  • Directs the Securities and Exchange Commission (SEC) to determine, in the case of an EGC whose securities are quoted at a minimum increment of either $0.05 or $0.10, the increment at which such securities are traded.
  • Requires EGC securities quoted at a minimum increment of $0.05 or $0.10 to be traded at either such minimum increment or at one permitted by SEC regulations.
  • Permits an EGC to opt out or change such minimum increment upon notifying the SEC 90 days after enactment of this Act. Limits any EGC to a single change of minimum increment (thus prohibiting any increases in the minimum).
  • Requires the SEC, upon notification of an EGC election, to inform each trading venue where the EGC securities are quoted or traded.
  • Requires that securities of issuers that cease to be EGCs be quoted at the increment at which such securities would be quoted without regard to the minimum increments established under this Act.
  • Prescribes pricing and trading procedures governing securities trading below $1.00.
  • Directs the SEC to require an EGC under this Act to submit additional reports and disclosures.
  • Shields an issuer from liability for losses caused solely by the quoting or trading of its securities at a minimum increment of $0.05 or $0.10, another SEC-authorized increment, or by both such quoting and trading.
  • Directs the SEC to report biannually to Congress on: (1) the quoting and trading of securities in increments permitted by this Act, and (2) the extent to which such quoting and trading increases liquidity and active trading by incentivizing capital commitment, research coverage, and brokerage support.
  • Authorizes the SEC to: (1) make adjustments to the pilot program to ensure that it can provide statistically meaningful or reliable results, and (2) conduct any other study or pilot
    program to evaluate quoting or trading in various minimum increments.
MichBio supports enactment of H.R. 3448, the Small Cap Liquidity Reform Act as it will increase the liquidity and capital availability needed for emerging bioscience companies.

Related Resources

Change the Way Stock Prices are Quoted - NYT Feb 2014
BIO Praises Passage of Small Cap Liquidity Reform Act
Small Cap Liquidity Reform Act (H. R. 3448) (pdf)
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