NEW YORK (The Deal) -- A top Securities and Exchange Commission official said Friday that a pilot program to use a wider tick increment than the current one-penny spread to price securities may be short-lived, perhaps six months, and will focus on boosting liquidity, a move that will upset proponents who are seeking a long-term effort that they believe is necessary to encourage more initial public offerings.
"Most serious observers realize that any pilot of this type is not going to have any discernible impact on the number of IPOs or the amount of [analyst] research that is produced," John Ramsay, the outgoing director of the SEC's division of markets and trading, told reporters on the sidelines of the annual "SEC Speaks" conference. "That is not what we would be looking at. We would be looking at liquidity characteristics: Does that mean there are more firms willing to participate and create liquidity and does that mean that there is a better market for more small company shares. That we think is a legitimate thing to look at."
Proponents say widening trading increments - to 5 cents or 10 cents - would increase the visibility of small publicly traded companies by giving small boutique investment banks the incentive to trade them more. All of this, they said, would kick some life into illiquid small capitalization companies and the generally lackluster IPO market for small-cap stocks. However, backers of a pilot program are expected to be disappointed by a shorter duration because they contend that it would not provide an incentive for boutique investment banks to hire more research analysts and invest in technology that they believe would shine a spotlight on small illiquid companies, a move that they believe would be a major driver in encouraging IPOs. Ramsay added that he thought that "in a six-month time-frame" the SEC could "draw some kind of reasonable inferences as to what the impact" would be.