The Security Traders Association (STA) has urged the U.S. Securities and Exchange Commission (SEC) to initiate a pilot program to determine if Minimum Price Variations (MPVs) will add liquidity to the market for emerging growth companies.
The STA comment letter follows passage in March of the Jumpstart Our Business Startups, or JOBS Act, which is meant to make it easier for smaller companies to raise public and private capital in the U.S. financial markets. The Act requires the SEC to write rules and issue studies on capital formation. The SEC is soliciting input from leading trade and industry associations to better craft future financial guidelines for these companies that both facilitate capital formation and promote investor protection.
"Minimum price variations of more than one penny can create benefits to the capital formation process by reducing the costs of maintaining a trading operation, improving overall liquidity, both displayed and enhanced, in previously less liquid securities, and improving investor confidence in market structure," said Jim Toes, STA president and chief executive officer. "With respect to emerging growth companies, investors benefit from the presence of market makers and block traders who can dampen market volatility by providing enhanced liquidity. This in turn improves investor confidence and investment in these types of companies.
"We urge the Commission to initiate a pilot program to study whether widening the MPVs for quoting emerging growth companies will result in benefits to investors and the capital formation process," Toes added. "Capital formation is the cornerstone of our economy and a vital function our markets perform. Improving this process will benefit investors and issuers, who have the potential to generate incremental job growth."
"All investors need strong, liquid secondary markets," said Jennifer G. Setzenfand, STA Chairman. "For institutions, liquidity often impacts a decision to, or not to, invest in a particular issue. Enhanced liquidity will be attractive to potential investors."
The STA will include discussion of The JOBS Act at its 79th Annual Market Structure Conference in Washington, DC, September 19-22.