Subject: File No. JOBS Act Title I

October 6, 2014

What causes small stocks to go dark?

The penny tick size?

or Sarbox?

Let's discuss the ugly birth of the larger tick size study idea.

In September 2012 the accounting and consulting firm Grant Thornton published a 72 page white paper titled "The Troubles With Small Tick Sizes". companies and capital markets/Trouble_Small_Ticks.pdf

The authors perhaps sarcastically borrowed their title from a classic 1972 book on dastardly investment banks: "The Trouble with Wall Street". It's really funny because two of the three authors work in Grant Thornton's investment banking advisory practice.

The Grant Thornton paper hammered penny tick sizes every which way, blaming them for almost every economic ill up to and including, I am not making this up, impoverished children. Helpfully, draft legislation against penny ticks was provided for lawmakers to cut and past into legislation at their convenience. Pushed by extensive lobbying, Congress did just that, adding a provision in the misnamed "Jobs Act" to study larger tick sizes with small stocks. In addition, lobbyists got a bill passed to compel the SEC go forward with the study.

Why would Grant Thornton trouble itself so much fighting penny ticks? The paper extensively documents a terrible trend of small stocks going dark, fleeing public markets.

Are small stocks going dark due to penny ticks?

Or Sarbox?

Sarbox is Sarbanes-Oxley, a passel of costly regulations for public company compliance. It is a huge cash cow for Grant Thornton and the entire accounting industry. Unfortunately, small companies simply can't afford the expense. Some lawmakers would like to dial back Sarbox.

To deflect blame away from its beloved Sarbox for troubles with small stocks, Grant Thornton concocted the canard of the evil penny. Rube Goldberg would be proud of the logic Grant Thornton uses to explain how larger tick sizes increase trading profits for small stock market makers and thereby encourages market maker participation and thereby small companies will have more sell side analyst coverage and thereby attract more investors and thereby revive the IPO and capital markets for small stocks and thereby have growing small companies creating middle class jobs and thereby feeding impoverished children. Note: If any one link in Grant Thornton's convoluted logical chain breaks, the whole argument fails.

Ultimately Reps. John Carney (D., Del.) and Sean Duffy (R., Wis.) and all but four other congress persons sold out to Grant Thornton's lobbyists and voted for the bill to experiment with larger tick sizes. This bill has nothing to do with better access to capital and is all about deflecting blame to preserve Sarbox.

Like the infamous Nazi doctor Dr. Josef Mengle's test subjects, hapless investors in the unfortunate companies selected for special treatment in this experiment will suffer higher transaction costs and reduced liquidity from bindingly high tick sizes until this bad idea is stopped.