Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, October 28, 2012

Bring Back Fractional Pricing? Everything Old is New Again

Should the SEC bring back fractional pricing of securities so that securities firms can make greater profits at the expense of investors?  The SEC  is seriously considering a pilot program to explore this, according to Wall St. Journal, SEC Weighs Bringing Back Fractions in Stock Prices

If this sounds strange to you, you're not alone.  Decimal pricing of stocks came about eleven years in order to lower investors' costs, and the research shows that it has done so.  But some smaller companies complain that investment banks aren't interested in selling their stocks because they won't make enough money.  The JOBS Act, which gives us crowdfunding, also required the SEC to study decimal pricing.  In July the SEC released its study that concluded:

As discussed above, though there is literature on the types of benefits that lower spreads bring to the market, there is less available information related to how lower spreads may have negatively impacted capital formation, especially with respect to the complex, competitive dynamics and economic incentives of market intermediaries who provide liquidity. More so, as discussed among participants at the Advisory Committee meeting, there are a number of other factors that have influenced the IPO market in addition to decimalization.
( Download Decimalization-072012)

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Wow -- if ever there was a slanted way to introduce an issue!

I don't find it strange at all -- if, in fact, smaller companies are being ignored as a result of the smaller spreads, why shouldn't the SEC try a pilot program? If investors feel like they're being treated unfairly, there's a very simple solution -- just don't trade those stocks that are in the pilot program. Simple.

What's your opposition?

Posted by: aeli | Oct 30, 2012 3:40:13 PM

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