IB 

Union Calendar No. 252 

113TH CONGRESS 

2D SESSION H. R. 3448 

[Report No. 113–342] 

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 

FEBRUARY 5, 2014 

Additional sponsor: Mr. FINCHER

FEBRUARY 5, 2014 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on November 12, 2013] 


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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. 


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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’’. 

6 SEC. 2. LIQUIDITY PILOT PROGRAM FOR SECURITIES OF 

7 CERTAIN EMERGING GROWTH COMPANIES. 

8 (a) IN GENERAL.—Section 11A(c)(6) of the Securities 

9 Exchange Act of 1934 (15 U.S.C. 78k–1(c)(6)) is amended 

10 to read as follows: 

11 ‘‘(6) LIQUIDITY PILOT PROGRAM FOR SECURITIES OF

12 CERTAIN EMERGING GROWTH COMPANIES.— 

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

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

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

16 securities of a covered emerging growth company shall 

17 be quoted using— 

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

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

20 date of enactment, the company so elects in the 

21 manner described in subparagraph (D)— 

22 ‘‘(I) a minimum increment of $0.10; or 

23 ‘‘(II) the increment at which such secu24 rities would be quoted without regard to the 


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1 minimum increments established under this 

2 paragraph. 

3 ‘‘(B) TRADING INCREMENT.—In the case of a 

4 covered emerging growth company the securities of 

5 which are quoted at a minimum increment of $0.05 

6 or $0.10 under this paragraph, the Commission shall 

7 determine the increment at which the securities of 

8 such company are traded. 

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

10 MINIMUM INCREMENT.— 

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

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

13 enactment of the Small Cap Liquidity Reform 

14 Act of 2013, a covered emerging growth company 

15 the securities of which are quoted at a minimum 

16 increment of $0.05 or $0.10 under this para17 graph may elect in the manner described in sub18 paragraph (D)— 

19 ‘‘(I) for the securities of such company 

20 to be quoted at the increment at which such 

21 securities would be quoted without regard to 

22 the minimum increments established under 

23 this paragraph; or 

24 ‘‘(II) to change the minimum incre25 ment at which the securities of such comVerDate Mar 15 2010 23:04 Feb 05, 2014 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6203 E:\BILLS\H3448.RH H3448

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1 pany are quoted from $0.05 to $0.10 or 

2 from $0.10 to $0.05. 

3 ‘‘(ii) WHEN ELECTION EFFECTIVE.—An 

4 election under this subparagraph shall take effect 

5 on the date that is 30 days after such election is 

6 made. 

7 ‘‘(iii) SINGLE ELECTION TO CHANGE MIN8 IMUM INCREMENT.—A covered emerging growth 

9 company may not make more than one election 

10 under clause (i)(II). 

11 ‘‘(D) MANNER OF ELECTION.— 

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

13 the manner described in this subparagraph by 

14 informing the Commission of such election. 

15 ‘‘(ii) NOTIFICATION OF EXCHANGES AND

16 OTHER TRADING VENUES.—Upon being informed 

17 of an election under clause (i), the Commission 

18 shall notify each exchange or other trading venue 

19 where the securities of the covered emerging 

20 growth company are quoted or traded. 

21 ‘‘(E) ISSUERS CEASING TO BE COVERED EMERG22 ING GROWTH COMPANIES.— 

23 ‘‘(i) IN GENERAL.—If an issuer the securi24 ties of which are quoted at a minimum incre25 ment of $0.05 or $0.10 under this paragraph 


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1 ceases to be a covered emerging growth company, 

2 the securities of such issuer shall be quoted at the 

3 increment at which such securities would be 

4 quoted without regard to the minimum incre5 ments established under this paragraph. 

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

7 by regulation, as the Commission considers ap8 propriate, specify any circumstances under 

9 which an issuer shall continue to be considered 

10 a covered emerging growth company for purposes 

11 of this paragraph after the issuer ceases to meet 

12 the requirements of subparagraph (L)(i). 

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

14 ‘‘(i) INITIAL PRICE.— 

15 ‘‘(I) AT EFFECTIVE DATE.—If the trad16 ing price of the securities of a covered 

17 emerging growth company is below $1 at 

18 the close of the last trading day before the 

19 date that is 90 days after the date of the en20 actment of the Small Cap Liquidity Reform 

21 Act of 2013, the securities of such company 

22 shall be quoted using the increment at 

23 which such securities would be quoted with24 out regard to the minimum increments es25 tablished under this paragraph. 


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

2 growth company makes an initial public of3 fering after the day described in subclause 

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

5 such company is offered to the public at a 

6 price below $1, the securities of such com7 pany shall be quoted using the increment at 

8 which such securities would be quoted with9 out regard to the minimum increments es10 tablished under this paragraph. 

11 ‘‘(ii) AVERAGE TRADING PRICE.—If the av12 erage trading price of the securities of a covered 

13 emerging growth company falls below $1 for any 

14 90-day period beginning on or after the day be15 fore the date of the enactment of the Small Cap 

16 Liquidity Reform Act of 2013, the securities of 

17 such company shall, after the end of such period, 

18 be quoted using the increment at which such se19 curities would be quoted without regard to the 

20 minimum increments established under this 

21 paragraph. 

22 ‘‘(G) FRAUD OR MANIPULATION.—If the Commis23 sion determines that a covered emerging growth com24 pany has violated any provision of the securities laws 

25 prohibiting fraudulent, manipulative, or deceptive 


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1 acts or practices, the securities of such company shall, 

2 after the date of the determination, be quoted using 

3 the increment at which such securities would be 

4 quoted without regard to the minimum increments es5 tablished under this paragraph. 

6 ‘‘(H) INELIGIBILITY FOR INCREASED MINIMUM

7 INCREMENT PERMANENT.—The securities of an issuer 

8 may not be quoted at a minimum increment of $0.05 

9 or $0.10 under this paragraph at any time after— 

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

11 subparagraph (A)(ii)(II); 

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

13 subparagraph (C)(i)(I), except during the period 

14 before such election takes effect; or 

15 ‘‘(iii) the securities of such issuer are re16 quired by this paragraph to be quoted using the 

17 increment at which such securities would be 

18 quoted without regard to the minimum incre19 ments established under this paragraph. 

20 ‘‘(I) ADDITIONAL REPORTS AND DISCLOSURES.— 

21 The Commission shall require a covered emerging 

22 growth company the securities of which are quoted at 

23 a minimum increment of $0.05 or $0.10 under this 

24 paragraph to make such reports and disclosures as the 


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1 Commission considers necessary or appropriate in the 

2 public interest or for the protection of investors. 

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

4 any officer, director, manager, or other agent of such 

5 issuer) shall not be liable to any person (other than 

6 such issuer) under any law or regulation of the 

7 United States, any constitution, law, or regulation of 

8 any State or political subdivision thereof, or any con9 tract or other legally enforceable agreement (including 

10 any arbitration agreement) for any losses caused sole11 ly by the quoting of the securities of such issuer at a 

12 minimum increment of $0.05 or $0.10, by the trading 

13 of such securities at the increment determined by the 

14 Commission under subparagraph (B), or by both such 

15 quoting and trading, as provided in this paragraph. 

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

17 months after the date of the enactment of the Small 

18 Cap Liquidity Reform Act of 2013, and every 6 

19 months thereafter, the Commission, in coordination 

20 with each exchange on which the securities of covered 

21 emerging growth companies are quoted or traded, 

22 shall submit to Congress a report on the quoting and 

23 trading of securities in increments permitted by this 

24 paragraph and the extent to which such quoting and 

25 trading are increasing liquidity and active trading 


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1 by incentivizing capital commitment, research cov2 erage, and brokerage support, together with any legis3 lative recommendations the Commission may have. 

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

5 ‘‘(i) COVERED EMERGING GROWTH COM6 PANY.—The term ‘covered emerging growth com7 pany’ means an emerging growth company, as 

8 defined in the first paragraph (80) of section 

9 3(a), except that— 

10 ‘‘(I) such paragraph shall be applied 

11 by substituting ‘$750,000,000’ for 

12 ‘$1,000,000,000’ each place it appears; and 

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

14 of such paragraph do not apply. 

15 ‘‘(ii) SECURITY.—The term ‘security’ means 

16 an equity security. 

17 ‘‘(M) SAVINGS PROVISION.—Notwithstanding 

18 any other provision of this paragraph, the Commis19 sion may— 

20 ‘‘(i) make such adjustments to the pilot pro21 gram specified in this paragraph as the Commis22 sion considers necessary or appropriate to ensure 

23 that such program can provide statistically 

24 meaningful or reliable results, including adjust25 ments to eliminate selection bias among particiVerDate Mar 15 2010 23:04 Feb 05, 2014 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6203 E:\BILLS\H3448.RH H3448

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1 pants, expand the number of participants eligi2 ble to participate in such program, and change 

3 the duration of such program for one or more 

4 participants; and 

5 ‘‘(ii) conduct any other study or pilot pro6 gram, in conjunction with or separate from the 

7 pilot program specified in this paragraph (as 

8 such program may be adjusted pursuant to 

9 clause (i)), to evaluate quoting or trading in 

10 various minimum increments.’’. 

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

12 after the date of the enactment of this Act, section 11A(c)(6) 

13 of the Securities Exchange Act of 1934 (15 U.S.C. 78k– 

14 1(c)(6)) is repealed. 


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Union Calendar No. 252 

113TH CONGRESS 

2D SESSION H. R. 3448 

[Report No. 113–342] 

A BILL 

To amend the Securities Exchange Act of 1934 to 

the tick sizes of their stocks. certain emerging growth companies to increase provide for an optional pilot program allowing 

FEBRUARY 5, 2014 

Reported with an amendment, committed to the Comand ordered to be printed mittee of the Whole House on the State of the Union, 


tkelley on DSK3SPTVN1PROD with BILLS