The ever- shrinking spreads and tougher listing requirements in the over-the-counter markets are welcome reforms for big companies and institutional investors. But the outlook is bleaker for the small-fry companies of the world that--often lingering in bulletin board hell--are finding the new rules working against them. Decimalization, for example, with its anticipated tiny bid-ask spreads, may chase away market makers that already find small issues with light trading volume hardly worth their while.
And it's becoming harder to get a listing in the first place, says Kenneth Kamen, co-founder of Princeton Securities Corp. and chairman of the Regional Investment Bankers Association, a group whose niche is initial public offerings of $20 million or less. In the past five years, the number of its offerings under $20 million has shrunk by 90 percent, from $2.3 billion in 1994 to $228 million last year. "It's cutting out the opportunity for small companies to become $400 million companies," says Kamen. Not only are good, solid businesses being denied public capital, he says, but microcaps that have gone public are finding it increasingly hard to do follow-on offerings.
Although 6,600 companies trade on the bulletin board or pink sheets, Nasdaq has distanced itself with tougher listing requirements as it prepares to go public itself, says Kamen, and the trading technology has not reached the smallest of public companies. "Clearly, the smaller end of the market has to get a viable place where investors are not worried they're making an investment in an inefficient marketplace," says Kamen, who presented testimony to Congress on the subject in May. Regarding the president of a company on the bulletin board, Kamen says, "Instead of feeling proud that he's public, he's a leper. The bulletin board is the only incubator the nation has. It's not the trash heap."