H.R. 3448: Small Cap Liquidity Reform Act of 2013

H.R. 3448

Small Cap Liquidity Reform Act of 2013

Rep. Sean Duffy

February 11, 2014 (113th Congress, 2nd Session)

Staff Contact

Floor Situation

On Tuesday, February 11, 2014, the House will consider H.R. 3448, the Small Cap Liquidity Reform Act of 2013,under a suspension of the rules.  The bill was introduced on November 12, 2013 by Rep. Sean Duffy (R-WI) and referred to the House Committee on Financial Services, which ordered the bill reported, as amended, by a vote of 57-0.

Bill Summary

H.R. 3448 amends section 11A(c)(6) of the Securities Exchange Act of 1934 to establish a five-year pilot program administered by the Securities and Exchange Commission (SEC) to permit Emerging Growth Companies (EGCs) to increase the minimum price variation, or “tick size,” at which their securities would be quoted to increments of five or ten cents.[1]  Currently, all stocks listed on U.S. securities exchanges carry a “tick size” of one cent.  Moreover, the SEC would determine, in its discretion, the maximum tick size at which a participating EGC’s stock would be traded.

[1] Emergency Growth Companies are defined as companies with total gross revenue of less than $750 million. 


“In 2000, the SEC ordered U.S. securities exchanges to change their quotations in equity securities and options from fractions to decimals.”[1]  In 2005, the SEC adopted Rule 612 of Regulation National Market System (Reg. NMS), which is known as the Sub-Penny Rule, to establish a minimum tick size of one penny for all stocks listed on U.S. securities exchanges.[2]  Some have argued that decimal pricing and penny tick sizes has reduced liquidity in and impaired the market quality of publicly traded small-cap stocks.  This, in turn, has limited the growth potential of these companies, preventing them from creating jobs[3] and discourages initial public offerings.   H.R. 3448 would establish a pilot program to allow Emerging Growth Companies (EGCs), and other companies selected by the SEC, with a stock price over $1.00 to increase the tick size at which their stocks would be quoted from one cent to five cents (or ten cents, if the EGC elects to do so).  This change should enhance liquidity and market quality for small publicly traded companies, promote job creation at smaller companies, and improve and encourage capital formation.

[1] See House Report 113-342, p. 3.

[2] Id. at 3.

[3] Id. at 4.


CBO estimates that implementing H.R. 3448 would have “an insignificant effect on gross spending by the Securities and Exchange Commission (SEC).”[1]  This legislation would also not affect direct spending or revenues.

Additional Information

For questions or further information contact the GOP Conference at 5-5107.