I 

113TH CONGRESS 

1ST SESSION 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. 

IN THE HOUSE OF REPRESENTATIVES 

NOVEMBER 12, 2013 

Mr. DUFFY (for himself and Mr. CARNEY) introduced the following bill; which 

was referred to the Committee on Financial Services 

A BILL 

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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Small Cap Liquidity 

5 Reform Act of 2013’’. 


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1 SEC. 2. LIQUIDITY PILOT PROGRAM FOR SECURITIES OF 

2 CERTAIN EMERGING GROWTH COMPANIES. 

3 (a) IN GENERAL.—Section 11A(c)(6) of the Securi4 ties Exchange Act of 1934 (15 U.S.C. 78k–1(c)(6)) is 

5 amended to read as follows: 

6 ‘‘(6) LIQUIDITY PILOT PROGRAM FOR SECURITIES

7 OF CERTAIN EMERGING GROWTH COMPANIES.— 

8 ‘‘(A) QUOTING INCREMENT.—Beginning on the 

9 date that is 90 days after the date of the enactment 

10 of the Small Cap Liquidity Reform Act of 2013, the 

11 securities of a covered emerging growth company 

12 shall be quoted using— 

13 ‘‘(i) a minimum increment of $0.05; or 

14 ‘‘(ii) if, not later than 60 days after such 

15 date of enactment, the board of directors of the 

16 company so elects in the manner described in 

17 subparagraph (D)— 

18 ‘‘(I) a minimum increment of $0.10; 

19 or 

20 ‘‘(II) the increment at which such se21 curities would be quoted without regard to 

22 the minimum increments established under 

23 this paragraph. 

24 ‘‘(B) TRADING INCREMENT.—The securities of 

25 a covered emerging growth company that are quoted 


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1 at a minimum increment of $0.05 or $0.10 under 

2 this paragraph shall be traded at— 

3 ‘‘(i) such minimum increment; or 

4 ‘‘(ii) such other increment as permitted by 

5 the Commission by regulation, as the Commis6 sion considers appropriate. 

7 ‘‘(C) FUTURE RIGHT TO OPT OUT OR CHANGE

8 MINIMUM INCREMENT.— 

9 ‘‘(i) IN GENERAL.—At any time beginning 

10 on the date that is 90 days after the date of the 

11 enactment of the Small Cap Liquidity Reform 

12 Act of 2013, the board of directors of a covered 

13 emerging growth company the securities of 

14 which are quoted at a minimum increment of 

15 $0.05 or $0.10 under this paragraph may elect 

16 in the manner described in subparagraph (D)— 

17 ‘‘(I) for the securities of such com18 pany to be quoted at the increment at 

19 which such securities would be quoted 

20 without regard to the minimum increments 

21 established under this paragraph; or 

22 ‘‘(II) to change the minimum incre23 ment at which the securities of such com24 pany are quoted from $0.05 to $0.10 or 

25 from $0.10 to $0.05. 


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1 ‘‘(ii) WHEN ELECTION EFFECTIVE.—An 

2 election under this subparagraph shall take ef3 fect on the date that is 30 days after such elec4 tion is made. 

5 ‘‘(iii) SINGLE ELECTION TO CHANGE MIN6 IMUM INCREMENT.—A covered emerging growth 

7 company may not make more than one election 

8 under clause (i)(II). 

9 ‘‘(D) MANNER OF ELECTION.— 

10 ‘‘(i) IN GENERAL.—An election is made in 

11 the manner described in this subparagraph by 

12 informing the Commission and each exchange 

13 on which the securities of the covered emerging 

14 growth company are quoted or traded. 

15 ‘‘(ii) CONSULTATION.—In making an elec16 tion under subparagraph (A)(ii), the board of 

17 directors shall first consult with the primary 

18 listing market and major shareholders of the 

19 covered emerging growth company and with any 

20 brokers and dealers that the board of directors 

21 considers relevant to the quality of the market 

22 for the securities of the company. 

23 ‘‘(E) ISSUERS CEASING TO BE COVERED

24 EMERGING GROWTH COMPANIES.— 


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1 ‘‘(i) IN GENERAL.—If an issuer the securi2 ties of which are quoted at a minimum incre3 ment of $0.05 or $0.10 under this paragraph 

4 ceases to be a covered emerging growth com5 pany, the securities of such issuer shall be 

6 quoted at the increment at which such securi7 ties would be quoted without regard to the min8 imum increments established under this para9 graph. 

10 ‘‘(ii) EXCEPTIONS.—The Commission may 

11 by regulation, as the Commission considers ap12 propriate, specify any circumstances under 

13 which an issuer shall continue to be considered 

14 a covered emerging growth company for pur15 poses of this paragraph after the issuer ceases 

16 to meet the requirements of subparagraph 

17 (L)(ii). 

18 ‘‘(F) SECURITIES TRADING BELOW $1.— 

19 ‘‘(i) INITIAL PRICE.— 

20 ‘‘(I) AT EFFECTIVE DATE.—If the 

21 trading price of the securities of a covered 

22 emerging growth company is below $1 at 

23 the close of the last trading day before the 

24 date that is 90 days after the date of the 

25 enactment of the Small Cap Liquidity ReVerDate Mar 15 2010 20:12 Nov 13, 2013 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H3448.IH H3448

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1 form Act of 2013, the securities of such 

2 company shall be quoted using the incre3 ment at which such securities would be 

4 quoted without regard to the minimum in5 crements established under this paragraph. 

6 ‘‘(II) AT IPO.—If a covered emerging 

7 growth company makes an initial public of8 fering after the day described in subclause 

9 (I) and the first share of the securities of 

10 such company is offered to the public at a 

11 price below $1, the securities of such com12 pany shall be quoted using the increment 

13 at which such securities would be quoted 

14 without regard to the minimum increments 

15 established under this paragraph. 

16 ‘‘(ii) AVERAGE TRADING PRICE.—If the av17 erage trading price of the securities of a cov18 ered emerging growth company falls below $1 

19 for any 90-day period beginning on or after the 

20 day before the date of the enactment of the 

21 Small Cap Liquidity Reform Act of 2013, the 

22 securities of such company shall, after the end 

23 of such period, be quoted using the increment 

24 at which such securities would be quoted withVerDate Mar 15 2010 20:12 Nov 13, 2013 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H3448.IH H3448

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1 out regard to the minimum increments estab2 lished under this paragraph. 

3 ‘‘(G) FRAUD OR MANIPULATION.—If the Com4 mission determines that a covered emerging growth 

5 company has violated any provision of the securities 

6 laws prohibiting fraudulent, manipulative, or decep7 tive acts or practices, the securities of such company 

8 shall, after the date of the determination, be quoted 

9 using the increment at which such securities would 

10 be quoted without regard to the minimum incre11 ments established under this paragraph. 

12 ‘‘(H) INELIGIBILITY FOR INCREASED MINIMUM

13 INCREMENT PERMANENT.—The securities of an 

14 issuer may not be quoted at a minimum increment 

15 of $0.05 or $0.10 under this paragraph at any time 

16 after— 

17 ‘‘(i) such issuer makes an election under 

18 subparagraph (A)(ii)(II); 

19 ‘‘(ii) such issuer makes an election under 

20 subparagraph (C)(i)(I), except during the pe21 riod before such election takes effect; or 

22 ‘‘(iii) the securities of such issuer are re23 quired by this paragraph to be quoted using the 

24 increment at which such securities would be 


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1 quoted without regard to the minimum incre2 ments established under this paragraph. 

3 ‘‘(I) ADDITIONAL REPORTS AND DISCLO4 SURES.—The Commission shall require a covered 

5 emerging growth company the securities of which 

6 are quoted at a minimum increment of $0.05 or 

7 $0.10 under this paragraph to make such reports 

8 and disclosures as the Commission considers nec9 essary or appropriate in the public interest or for 

10 the protection of investors. 

11 ‘‘(J) LIMITATION OF LIABILITY.—An issuer (or 

12 any officer, director, manager, or other agent of 

13 such issuer) shall not be liable to any person under 

14 any law or regulation of the United States, any con15 stitution, law, or regulation of any State or political 

16 subdivision thereof, or any contract or other legally 

17 enforceable agreement (including any arbitration 

18 agreement) for any losses caused solely by the 

19 quoting of the securities of such issuer at a min20 imum increment of $0.05 or $0.10, by the trading 

21 of such securities at such minimum increment or 

22 such other increment as permitted by the Commis23 sion under subparagraph (B)(ii), or by both such 

24 quoting and trading, as provided in this paragraph. 


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1 ‘‘(K) REPORT TO CONGRESS.—Not later than 6 

2 months after the date of the enactment of the Small 

3 Cap Liquidity Reform Act of 2013, and every 6 

4 months thereafter, the Commission, in coordination 

5 with each exchange on which the securities of cov6 ered emerging growth companies are quoted or trad7 ed, shall submit to Congress a report on the quoting 

8 and trading of securities in increments permitted by 

9 this paragraph and the extent to which such quoting 

10 and trading are increasing liquidity and active trad11 ing by incentivizing capital commitment, research 

12 coverage, and brokerage support, together with any 

13 legislative recommendations the Commission may 

14 have. 

15 ‘‘(L) DEFINITIONS.—In this paragraph: 

16 ‘‘(i) BOARD OF DIRECTORS.—The term 

17 ‘board of directors’ means a board of directors 

18 or any person or persons performing similar 

19 functions. 

20 ‘‘(ii) COVERED EMERGING GROWTH COM21 PANY.—The term ‘covered emerging growth 

22 company’ means an emerging growth company, 

23 as defined in the first paragraph (80) of section 

24 3(a), except that— 


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1 ‘‘(I) such paragraph shall be applied 

2 by substituting ‘$750,000,000’ for 

3 ‘$1,000,000,000’ each place it appears; 

4 and 

5 ‘‘(II) subparagraphs (B), (C), and (D) 

6 of such paragraph do not apply.’’. 

7 (b) SUNSET.—Effective on the date that is 5 years 

8 after the date of the enactment of this Act, section 

9 11A(c)(6) of the Securities Exchange Act of 1934 (15 

10 U.S.C. 78k–1(c)(6)) is repealed. 

Æ 


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