I 113th CONGRESS 1st Session H. R. 3448 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. Short title This Act may be cited as the Small Cap Liquidity Reform Act of 2013 . 2. Liquidity pilot program for securities of certain emerging growth companies (a) In general Section 11A(c)(6) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78k–1(c)(6) ) is amended to read as follows: (6) Liquidity pilot program for securities of certain emerging growth companies (A) Quoting increment Beginning on the date that is 90 days after the date of the enactment of the Small Cap Liquidity Reform Act of 2013 , the securities of a covered emerging growth company shall be quoted using— (i) a minimum increment of $0.05; or (ii) if, not later than 60 days after such date of enactment, the board of directors of the company so elects in the manner described in subparagraph (D)— (I) a minimum increment of $0.10; or (II) the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. (B) Trading increment The securities of a covered emerging growth company that are quoted at a minimum increment of $0.05 or $0.10 under this paragraph shall be traded at— (i) such minimum increment; or (ii) such other increment as permitted by the Commission by regulation, as the Commission considers appropriate. (C) Future right to opt out or change minimum increment (i) In general At any time beginning on the date that is 90 days after the date of the enactment of the Small Cap Liquidity Reform Act of 2013 , the board of directors of a covered emerging growth company the securities of which are quoted at a minimum increment of $0.05 or $0.10 under this paragraph may elect in the manner described in subparagraph (D)— (I) for the securities of such company to be quoted at the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph; or (II) to change the minimum increment at which the securities of such company are quoted from $0.05 to $0.10 or from $0.10 to $0.05. (ii) When election effective An election under this subparagraph shall take effect on the date that is 30 days after such election is made. (iii) Single election to change minimum increment A covered emerging growth company may not make more than one election under clause (i)(II). (D) Manner of election (i) In general An election is made in the manner described in this subparagraph by informing the Commission and each exchange on which the securities of the covered emerging growth company are quoted or traded. (ii) Consultation In making an election under subparagraph (A)(ii), the board of directors shall first consult with the primary listing market and major shareholders of the covered emerging growth company and with any brokers and dealers that the board of directors considers relevant to the quality of the market for the securities of the company. (E) Issuers ceasing to be covered emerging growth companies (i) In general If an issuer the securities of which are quoted at a minimum increment of $0.05 or $0.10 under this paragraph ceases to be a covered emerging growth company, the securities of such issuer shall be quoted at the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. (ii) Exceptions The Commission may by regulation, as the Commission considers appropriate, specify any circumstances under which an issuer shall continue to be considered a covered emerging growth company for purposes of this paragraph after the issuer ceases to meet the requirements of subparagraph (L)(ii). (F) Securities trading below $1 (i) Initial price (I) At effective date If the trading price of the securities of a covered emerging growth company is below $1 at the close of the last trading day before the date that is 90 days after the date of the enactment of the Small Cap Liquidity Reform Act of 2013 , the securities of such company shall be quoted using the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. (II) At IPO If a covered emerging growth company makes an initial public offering after the day described in subclause (I) and the first share of the securities of such company is offered to the public at a price below $1, the securities of such company shall be quoted using the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. (ii) Average trading price If the average trading price of the securities of a covered emerging growth company falls below $1 for any 90-day period beginning on or after the day before the date of the enactment of the Small Cap Liquidity Reform Act of 2013 , the securities of such company shall, after the end of such period, be quoted using the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. (G) Fraud or manipulation If the Commission determines that a covered emerging growth company has violated any provision of the securities laws prohibiting fraudulent, manipulative, or deceptive acts or practices, the securities of such company shall, after the date of the determination, be quoted using the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. (H) Ineligibility for increased minimum increment permanent The securities of an issuer may not be quoted at a minimum increment of $0.05 or $0.10 under this paragraph at any time after— (i) such issuer makes an election under subparagraph (A)(ii)(II); (ii) such issuer makes an election under subparagraph (C)(i)(I), except during the period before such election takes effect; or (iii) the securities of such issuer are required by this paragraph to be quoted using the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. (I) Additional reports and disclosures The Commission shall require a covered emerging growth company the securities of which are quoted at a minimum increment of $0.05 or $0.10 under this paragraph to make such reports and disclosures as the Commission considers necessary or appropriate in the public interest or for the protection of investors. (J) Limitation of liability An issuer (or any officer, director, manager, or other agent of such issuer) shall not be liable to any person under any law or regulation of the United States, any constitution, law, or regulation of any State or political subdivision thereof, or any contract or other legally enforceable agreement (including any arbitration agreement) for any losses caused solely by the quoting of the securities of such issuer at a minimum increment of $0.05 or $0.10, by the trading of such securities at such minimum increment or such other increment as permitted by the Commission under subparagraph (B)(ii), or by both such quoting and trading, as provided in this paragraph. (K) Report to Congress Not later than 6 months after the date of the enactment of the Small Cap Liquidity Reform Act of 2013 , and every 6 months thereafter, the Commission, in coordination with each exchange on which the securities of covered emerging growth companies are quoted or traded, shall submit to Congress a report on the quoting and trading of securities in increments permitted by this paragraph and the extent to which such quoting and trading are increasing liquidity and active trading by incentivizing capital commitment, research coverage, and brokerage support, together with any legislative recommendations the Commission may have. (L) Definitions In this paragraph: (i) Board of directors The term board of directors means a board of directors or any person or persons performing similar functions. (ii) Covered emerging growth company The term covered emerging growth company means an emerging growth company, as defined in the first paragraph (80) of section 3(a), except that— (I) such paragraph shall be applied by substituting $750,000,000 for $1,000,000,000 each place it appears; and (II) subparagraphs (B), (C), and (D) of such paragraph do not apply. . (b) Sunset Effective on the date that is 5 years after the date of the enactment of this Act, section 11A(c)(6) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78k–1(c)(6) ) is repealed.