Former Vice Chairman of NASDAQ, David Weild IV, guest blogs about the importance of tick sizes. David is Head of Capital Markets at Grant Thornton and Founder, Chairman and CEO of Capital Markets Advisory Partners.
Back in September 2011, at a dinner in NY for a US Congressman attended by a number of Wall Street notables (stock exchange veterans included), I floated an idea to increase tick sizes (the smallest increment that stocks are traded – now one cent) to a nickel or a dime (or more) as a mechanism to drive interest and support for small-cap stocks. No more, “One size fits all stock markets.” I expected to get hit with mudpies but instead heard a chorus of “Can it really be that simple?” and “Wow, current regulations like Reg. NMS could stay in place.” The idea was a hit with those in attendance and that Congressman, David Schweikert, dropped the first bill on the subject. And so, the current movement to fix “one-size-fits-all stock markets” was born.
We subsequently published a tome called, “The trouble with small tick sizes” (through Grant Thornton) and then looked at the world’s 26 largest IPO markets to see how “tick sizes as a percent of stock price” impact the numbers of small IPOs (the two are highly correlated because there must be enough incentive to provide aftermarket support to keep IPO windows open) in a study published by the OECD entitled, “Making stock markets work to support economic growth.”
Recently, we are seeing rapidly growing interest and endorsement of this and other ideas to improve capital formation:
On February 5 the SEC held its Roundtable on Decimalization (I participated).
On October 23 I testified in the House Financial Services Subcommittee on Capital Markets in support of Congressman Duffy’s bill to increase tick sizes in small cap stocks. We also called for Reg. A+ transactions to be exempted from State “Blue Sky.”
On November 11, a Task Force (similar to the one that created much of Title 1 of the JOBS Act and the new category called “Emerging Growth Company”) issued a report to the U.S. Treasury calling for an increase in tick sizes to support small cap companies (and also to exempt Reg. A transactions from State Blue Sky Regulations).
Whether in fact or substance, we believe that between Congress, the Treasury (including the White House which was very support of the JOBS Act) and the SEC, that we are headed in the direction of a “JOBS Act 2” that will continue to improve the ability of small businesses to access capital.
- David Weild