article: SECTION 1. SHORT TITLE. This Act may be cited as the ``Small Cap Liquidity Reform Act of 2014''. SEC. 2. LIQUIDITY PILOT PROGRAM FOR SECURITIES OF CERTAIN EMERGING GROWTH COMPANIES. (a) In General.--Section 11A(c)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 78k-1(c)(6)) is amended to read as follows: ``(6) Liquidity Pilot Program for Securities of Certain Emerging Growth Companies.-- ``(A) Quoting increment.--Beginning on the date that is 90 days after the date of the enactment of the Small Cap Liquidity Reform Act of 2014, the securities of a covered emerging growth company shall be quoted using-- ``(i) a minimum increment of $0.05; or ``(ii) if, not later than 60 days after such date of enactment, the company so elects in the manner described in subparagraph (D)-- ``(I) a minimum increment of $0.10; or ``(II) the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. ``(B) Trading increment.--In the case of a covered emerging growth company the securities of which are quoted at a minimum increment of $0.05 or $0.10 under this paragraph, the Commission shall determine the increment at which the securities of such company are traded. ``(C) Future right to opt out or change minimum increment.-- ``(i) In general.--At any time beginning on the date that is 90 days after the date of the enactment of the Small Cap Liquidity Reform Act of 2014, a covered emerging growth company the securities of which are quoted at a minimum increment of $0.05 or $0.10 under this paragraph may elect in the manner described in subparagraph (D)-- ``(I) for the securities of such company to be quoted at the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph; or ``(II) to change the minimum increment at which the securities of such company are quoted from $0.05 to $0.10 or from $0.10 to $0.05. ``(ii) When election effective.--An election under this subparagraph shall take effect on the date that is 30 days after such election is made. ``(iii) Single election to change minimum increment.--A covered emerging growth company may not make more than one election under clause (i)(II). ``(D) Manner of election.-- ``(i) In general.--An election is made in the manner described in this subparagraph by informing the Commission of such election. ``(ii) Notification of exchanges and other trading venues.--Upon being informed of an election under clause (i), the Commission shall notify each exchange or other trading venue where the securities of the covered emerging growth company are quoted or traded. ``(E) Issuers ceasing to be covered emerging growth companies.-- ``(i) In general.--If an issuer the securities of which are quoted at a minimum increment of $0.05 or $0.10 under this paragraph ceases to be a covered emerging growth company, the securities of such issuer shall be quoted at the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. ``(ii) Exceptions.--The Commission may by regulation, as the Commission considers appropriate, specify any circumstances under which an issuer shall continue to be considered a covered emerging growth company for purposes of this paragraph after the issuer ceases to meet the requirements of subparagraph (L)(i). ``(F) Securities trading below $1.-- ``(i) Initial price.-- ``(I) At effective date.--If the trading price of the securities of a covered emerging growth company is below $1 at the close of the last trading day before the date that is 90 days after the date of the enactment of the Small Cap Liquidity Reform Act of 2014, the securities of such company shall be quoted using the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. ``(II) At ipo.--If a covered emerging growth company makes an initial public offering after the day described in subclause (I) and the first share of the securities of such company is offered to the public at a price below $1, the securities of such company shall be quoted using the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. ``(ii) Average trading price.--If the average trading price of the securities of a covered emerging growth company falls below $1 for any 90-day period beginning on or after the day before the date of the enactment of the Small Cap Liquidity Reform Act of 2014, the securities of such company shall, after the end of such period, be quoted using the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. ``(G) Fraud or manipulation.--If the Commission determines that a covered emerging growth company has violated any provision of the securities laws prohibiting fraudulent, manipulative, or deceptive acts or practices, the securities of such company shall, after the date of the determination, be quoted using the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. ``(H) Ineligibility for increased minimum increment permanent.--The securities of an issuer may not be quoted at a minimum increment of $0.05 or $0.10 under this paragraph at any time after-- ``(i) such issuer makes an election under subparagraph (A)(ii)(II); ``(ii) such issuer makes an election under subparagraph (C)(i)(I), except during the period before such election takes effect; or ``(iii) the securities of such issuer are required by this paragraph to be quoted using the increment at which such securities would be quoted without regard to the minimum increments established under this paragraph. ``(I) Additional reports and disclosures.--The Commission shall require a covered emerging growth company the securities of which are quoted at a minimum increment of $0.05 or $0.10 under this paragraph to make such reports and disclosures as the Commission considers necessary or appropriate in the public interest or for the protection of investors. ``(J) Limitation of liability.--An issuer (or any officer, director, manager, or other agent of such issuer) shall not be liable to any person (other than such issuer) under any law or regulation of the United States, any constitution, law, or regulation of any State or political subdivision thereof, or any contract or other legally enforceable agreement (including any arbitration agreement) for any losses caused solely by the quoting of the securities of such issuer at a minimum increment of $0.05 or $0.10, by the trading of such securities at the increment determined by the Commission under subparagraph (B), or by both such quoting and trading, as provided in this paragraph. ``(K) Report to congress.--Not later than 6 months after the date of the enactment of the Small Cap Liquidity Reform Act of 2014, and every 6 months thereafter, the Commission, in coordination with each exchange on which the securities of covered emerging growth companies are quoted or traded, shall submit to Congress a report on the quoting and trading of securities in increments permitted by this paragraph and the extent to which such quoting and trading are increasing liquidity and active trading by incentivizing capital commitment, research coverage, and brokerage support, together with any legislative recommendations the Commission may have. ``(L) Definitions.--In this paragraph: ``(i) Covered emerging growth company.--The term `covered emerging growth company' means an emerging growth company, as defined in the first paragraph (80) of section 3(a), except that-- ``(I) such paragraph shall be applied by substituting `$750,000,000' for `$1,000,000,000' each place it appears; and ``(II) subparagraphs (B), (C), and (D) of such paragraph do not apply. ``(ii) Security.--The term `security' means an equity security. ``(M) Savings provision.--Notwithstanding any other provision of this paragraph, the Commission may-- ``(i) make such adjustments to the pilot program specified in this paragraph as the Commission considers necessary or appropriate to ensure that such program can provide statistically meaningful or reliable results, including adjustments to eliminate selection bias among participants, expand the number of participants eligible to participate in such program, and change the duration of such program for one or more participants; and ``(ii) conduct any other study or pilot program, in conjunction with or separate from the pilot program specified in this paragraph (as such program may be adjusted pursuant to clause (i)), to evaluate quoting or trading in various minimum increments.''. (b) Sunset.--Effective on the date that is 5 years after the date of the enactment of this Act, section 11A(c)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 78k-1(c)(6)) is repealed. Passed the House of Representatives February 11, 2014. Attest: KAREN L. HAAS, Clerk.
summary: Small Cap Liquidity Reform Act of 2014 - Amends the Securities Exchange Act of 1934 to establish a pilot liquidity program for equity securities of emerging growth companies (EGCs) with total annual gross revenues of less than $750 million, under which those securities shall be quoted using either: (1) a minimum increment of $0.05 or $0.10, or (2) the increment at which the securities would be quoted without regard to such minimum increments. Repeals the requirement for an SEC study examining the transition to trading and quoting securities in one penny increments, known as decimalization. Directs the Securities and Exchange Commission (SEC) to determine, in the case of an EGC whose securities are quoted at a minimum increment of either $0.05 or $0.10, the increment at which such securities are traded. Requires EGC securities quoted at a minimum increment of $0.05 or $0.10 to be traded at either such minimum increment or at one permitted by SEC regulations. Permits an EGC to opt out or change such minimum increment upon notifying the SEC 90 days after enactment of this Act. Limits any EGC to a single change of minimum increment (thus prohibiting any increases in the minimum). Requires the SEC, upon notification of an EGC election, to inform each trading venue where the EGC securities are quoted or traded. Requires that securities of issuers that cease to be EGCs be quoted at the increment at which such securities would be quoted without regard to the minimum increments established under this Act. Prescribes pricing and trading procedures governing securities trading below $1.00. Directs the SEC to require an EGC under this Act to submit additional reports and disclosures. Shields an issuer from liability for losses caused solely by the quoting or trading of its securities at a minimum increment of $0.05 or $0.10, another SEC-authorized increment, or by both such quoting and trading. Directs the SEC to report biannually to Congress on: (1) the quoting and trading of securities in increments permitted by this Act, and (2) the extent to which such quoting and trading increases liquidity and active trading by incentivizing capital commitment, research coverage, and brokerage support. Authorizes the SEC to: (1) make adjustments to the pilot program to ensure that it can provide statistically meaningful or reliable results, and (2) conduct any other study or pilot program to evaluate quoting or trading in various minimum increments. Sunsets the pilot program five years after enactment of this Act.