SEC Report to Congress on Decimalization

As required by Section 106 of the JOBS Act, the SEC has completed a study on the impact of decimalization on IPO activity in small and mid-cap securities.

The study begins with a review of the regulatory history of decimalization and explores the existing literature on the effect of decimalization on small and middle capitalization companies. It then offers a summary of the views expressed at the Advisory Committee on Small and Emerging Companies' meeting and compares the U.S. equity market tick size policies to equity market tick size policies in other countries. The study then outlines the preliminary conclusions that can be drawn from the information reviewed and concludes with SEC Staff recommendations for potential next steps. Ultimately, the study concludes that the effects of decimalization are not fully understood and the issue should be further studied, but that no immediate rule making should be undertaken.

[SL Comment: The study essentially seems to take as its starting point the admission that the IPO market in the United States has been significantly damaged. It then asks whether this damage is the result of the deprivation of incentives to broker-dealers because of their inability to make money trading small company securities as a result of decimalization and the research rules (as opposed to, for example, the "oft-criticied provisions from the Sarbanes Oxley Act of 2002"). Ultimately, the study seems skeptical of the view that decimalization is directly tied to the damage to the IPO market (though perhaps more open to the notion that decimalization may be linked to a loss of market depth). That said, if decimalization is not the cause of the IPO drought, then perhaps this implicitly suggests that Sarbanes is a cause (though this is not an issue taken up by the study).]

View study in full here (links externally to SEC website).Additional information on decimalization available in Lofchie's Broker-Dealer Guide, Trading Chapter.