United States SEC Calls Out for Innovations in Proposals for Thinly Traded Securities

The SEC has requested participants in markets and exchanges to submit innovative proposals, with the objective of making changes to the secondary market structure of equity securities listed in exchanges, which are traded in lesser volumes, also known as thinly traded securities.

The SEC has stated that it was seeking the proposal of thinly traded securities which are primarily addressing issues where exemptive measures of relief such as NMS Regulation and other laws under the Securities Exchange Act, could create scope of improvements for liquidity and trading.

Availability of Information on Issuers is Key Problem

Even as the SEC has been pushing to bolster the willingness of the public to invest in smaller businesses, the businesses would benefit better, if the SEC were to focus more on easy availability of information on these securities issuers, instead of increasing their attention on how securities are traded. Fields such as investment research can be important for this reason.

Actions involving enforcement over broker dealers in the early 2000s had resulted in the production of research reports, which were largely tainted by conflict of interest issues, which resulted in the adoption of rules which raised the costs of producing such research reports substantially. The moves also took away major potential benefits from producing such research.

It is important for the SEC to first take up a study on whether the investment firms find it profitable to generate research accounting for small scale securities issuers. In the case that such an activity is not found to be profitable, the SEC can alternatively research profitability methods, and allow for select parameters for conflict of interest to exist.

Businesses are unlikely to generate research, unless the activity is likely to generate money. If government bodies such as the SEC push to kill profits to stop conflict of interest, the government is also likely to stop the business of investment research. Consequently, the lack of research are expected to make investors reluctant to fund enterprises regardless of innovations in the market, which will impact smaller companies the most.

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