This is a guest blog by David Weild IV, Head of Capital Markets at Grant Thornton and Founder, Chairman and CEO of Capital Markets Advisory Partners.
Our prior studies served as a call to action that helped focus attention on the plight of capital formation that paved the way for the JOBS Act. We hope that our (my co-authors are Ed Kim and Lisa Newport) new study, "The trouble with small tick sizes: Larger tick sizes will bring back capital formation, jobs and investor confidence," will do more to fix stock markets to better support entrepreneurs, innovation, economic growth, access to capital and job creation.
While many intuitively knew that stock markets were no longer supporting entrepreneurs at they once had, it wasn't enough to know it, we had to prove it. So, we set out, with the gracious support of Grant Thornton, the Global Six Audit Tax and Advisory firm, to identify specifically what was causing so the harm to issuers, their access to capital, and in turn, job formation and the U.S. economy.
Our earlier studies (Why are IPOs in the ICU?; Market structure is causing the IPO crisis – and more; and A wake up call for America) (signed into law by President Obama on April 5, 2012) were the first to show:
- The catastrophic drop in small IPOs (sub $50 million in proceeds) that occurred in 1998. This is significant because it was BEFORE Decimalization (2001) and BEFORE Sarbanes-Oxley.
- That the United States listed (NYSE, AMEX and NASDAQ) stock markets have lost listed companies, EVERY single year since the peak in 1997.
- That we have lost over 43.5% of all listed companies from the US stock markets.
"The trouble with small tick sizes" ("tick sizes" are the smallest increment in which a stock may be quoted – 1 penny in today's market):
- Demonstrates that Regulation ATS (Alternative trading systems) in 1998 caused a loss of over 75% of the economic incentive to support small public companies.
- Calls for The JOBS Act, Part 2 – an increase in tick sizes to better support public companies and to the IPO market.
- Calls for an "Issuer Bill of Rights" (We believe public company managements deserve better representation, better support for their stocks and better transparency into who is trading their stocks)
- Reviews the academic literature and the recent SEC Report to Congress on Decimalization, and
- Documents the many market experts that are joining us in our call for increases in tick sizes – from Academics, to Stock Exchanges and including the Mutual Fund Industry.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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