The U.S. Securities and Exchange Commission shouldn’t encourage the creation of a separate stock exchange for small public companies, the head of NYSE Euronext told an SEC advisory committee today.
NYSE Chief Executive Officer Duncan L. Niederauer, in a presentation to the panel, underscored an effort by three large U.S. exchanges to limit the dispersion of trading beyond their venues. The CEOs of NYSE, Nasdaq OMX Group Inc. and Bats Global Markets Inc. met with SEC officials last month about policy changes that would restrict off-exchange trading in venues such as dark pools.
“We believe we’ve presented data that would suggest the more opaque the markets get, the wider the spread gets,” Niederauer told the SEC’s Advisory Committee on Small and Emerging Companies. “We think that it’s particularly an issue for these more thinly traded stocks.”
The SEC advisory committee recommended on Feb. 1 the creation of a separate exchange to promote trading in shares of public companies with market values of less than $250 million. The exchange would loosen regulations and encourage more businesses to go public, the committee recommended. Participation could be restricted to accredited investors, who have annual income greater than $200,000 and net worth higher than $1 million excluding home value.
The advisory committee is pushing the plan amid concern that computerized trading and regulations approved over the past decade have discouraged smaller companies from going public.
The number of initial public offerings by small U.S. businesses has fallen to 54 in 2012, or 31% of all IPOs, from 110 in 2004, or 37%, according to data Niederauer presented today. The country needs more emerging-company IPOs to improve job growth, Niederauer said.
Data presented today by William R. Hambrecht showed the number of IPOs that raised less than $25 million dropped from 9 in 2001 to 1 in 2012.
Nasdaq CEO Robert Greifeld told the committee that its goals could be addressed by allowing companies to provide incentive payments to market makers and to restrict trading in the stock to the exchange where they are listed.
The fragmented nature of U.S. equity markets, where stocks trade on 14 exchanges and about 40 dark pools, inhibits trading in small stocks, Greifeld said.
“There should be a market-maker support pilot program,” Greifeld said. “They could provide economic support for more aggressive trading and quoting in their stocks.”