On July 20, 2012, the SEC delivered to Congress the report
required by Section 106 of the JOBS Act, which directed the SEC to
examine the impact of decimalization on IPOs and the impact of this
decade-old change on liquidity for small- and mid-cap securities.
Section 106 goes on to say that if the SEC determines that
securities of emerging growth companies should be quoted or traded
using a minimum increment higher than $0.01, then the SEC may, by
rule, not later than 180 days following enactment of the JOBS Act,
designate a higher minimum increment between $0.01 and $0.10.
It doesn't look like any such change is coming down the pike
based on the Staff's conclusions and recommendations in the
The study notes the observations of the
IPO Task Force regarding the changing market structure and
economics arising from the shift to decimal stock quotes, which
point toward a negative impact on the economic sustainability of
sell-side research and the greater emphasis placed on liquid, very
large capitalization stocks at the expense of smaller
capitalization stocks. The SEC's study takes a
three-pronged approach to examining the issues: (i) reviewing
empirical studies regarding tick size and decimalization; (ii)
participation in, and review of materials prepare in connection
with, discussions concerning the impact of market structure on
small and middle capitalization companies and on IPOs as part of
the SEC Advisory Committee on Small and Emerging Companies; and
(iii) a survey of tick-size conventions in foreign markets.
Not surprisingly, the Staff concluded that decimalization may
have been one of a number of factors that have influenced the IPO
market, and that the existing literature did not isolate the effect
of decimalization from the many other factors. The Staff also noted
that markets have evolved significantly since decimalization was
implemented over a decade ago, and that other countries have
utilized multiple tick sizes rather than the "one size fits
all" approach implemented in theUnited States. Based on
the observations reported in the study, the Staff recommends that
the Commission should not proceed with specific rulemaking to
increase tick sizes, but should rather consider additional steps
that may be needed to determine whether rulemaking should be
undertaken, which might include soliciting the views of investors,
companies, market professionals, academics and others on the broad
topic of decimalization and the impact on IPOs and the
markets. In particular, the study notes the possibility of a
roundtable where these issues can be addressed.
While the study does a nice job framing the debate regarding
decimalization and its impact on the markets, it doesn't move
the ball forward appreciably in terms of potential for rule changes
responding to the debate. We'll have to wait to see how
this all unfolds.
Because of the generality of this update, the information
provided herein may not be applicable in all situations and should
not be acted upon without specific legal advice based on particular
A senior SEC lawyer has recently encouraged the private equity and hedge fund communities to consider whether certain practices of private fund managers could subject these firms to SEC registration as broker-dealers.
In November 2012, the U.S. District Court for the Eastern District of New York preliminarily approved a settlement agreement in the In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.