March 10, 2015

Crapo Statement At Hearing to Examine Role of Venture Exchanges

Washington, D.C.-U.S. Senator Mike Crapo (R-Idaho), Chairman of the Banking Subcommittee on Securities, Insurance and Investment, today delivered the following remarks during a subcommittee hearing to examine the role of venture exchanges in aiding capital formation and trading for small companies.

Remarks as prepared for delivery:

Today's hearing will provide insights into the challenges of trading stocks of small companies and whether a venture exchange can aid capital formation and secondary trading for smaller companies. 

 

The U.S. capital markets have, and continue to be, a vibrant ecosystem, fueling economic growth.  These markets provide financing and needed resources to a wide array of businesses, from the smallest start-ups to the largest international companies.  Smaller public companies, however, have had difficulty sustaining strong secondary market liquidity and trading. 

In 2013 the SEC Advisory Committee on Small and Emerging Companies stated: "The Committee believes that current U.S. equity markets often fail to offer a satisfactory trading venue for the securities of small and emerging companies because they fail to provide sufficient liquidity for such securities and because the listing requirements are too onerous for such companies." 

SEC Chair Mary Jo White wrote in a letter dated December 23, 2014: "The market structure for stocks of smaller companies is one area that demands attention.  I have previously emphasized that we should no longer assume that our market structure should be one-size-fits-all."

Her letter also references a 2014 SEC Small Cap Paper that finds that all metrics of market quality are significantly inferior for smaller capitalization companies compared to mid-sized companies.  

I agree with SEC Chair White's assessment.  "While these metrics of market quality can be expected to be less favorable for smaller companies as compared to larger companies, the extent of the disparity documented in the Small Cap Paper highlights the need to consider steps that might lead to improvements for smaller companies that at least narrow the gap." 

I look forward to hearing from our witnesses whether a venture exchange can help narrow the gap and their insights to the following questions:  

 

How can a venture exchange aid capital formation and secondary trading for smaller companies?

What are the key characteristics that will make venture exchanges meaningful and positive for small companies and investors? 

What are the regulatory or legislative steps that are needed to attract liquidity providers and market makers to stocks that trade less frequently? 

 

What are the trade-offs that need to be weighed to promote investment in smaller public companies? 

Thank you.