In the past year, several new stock exchanges have sprouted up. A group of Silicon Valley tycoons has announced plans to set up the Long-Term Stock Exchange, which will reward investors with more votes the longer they hold shares, with the aim of countering short-termism in business. In this country, the crowd-funding company Seedrs launched a secondary market, allowing investors to buy and sell shares in the businesses that have raised capital on the platform.
Such initiatives are needed. The main global exchanges have been around a long time. The London market traces its origins back to Tudor times, and the New York one to the 1790s. There is plenty of evidence they are no longer fit for purpose. The number of listed companies has plummeted. From a peak of over 8,000 listed companies, the US's exchanges now have fewer than 4,500. Ten years ago there were more than 3,000 quoted in London on the main and junior markets. By this year it had dropped to only slightly more than 2,000.
This, along with lacklustre performance in recent years, explains why private investors have largely drifted away. In the 1960s, individuals owned more than half the London market. By the middle of this decade that had dropped to 10%. The sellers have largely gone, and so too have the buyers. The traditional bourses have been dying of boredom.
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You can debate the reasons for that. It might be because the regulations have become too burdensome and too costly governance codes have been piled on top of each other until hardly anyone can follow them. It might be because better alternatives have been developed, such as private equity. It might be because no one saves the way they used to, and so they don't have any money to invest. What you can't deny is that it is happening.
That surely matters. A healthy economy needs some form of mechanism for bringing together people with capital to deploy and people with good ideas for investing it. That is how new businesses get started, and innovative ideas get the money they need to flourish and it was why stockmarkets were created in the first place. Over the past few decades, the main stockmarkets have lost touch with that original purpose. But that doesn't mean we don't still need them.
The new stockmarkets may or may not work. And you can certainly argue about whether short-termism is really the problem it is cracked up to be. Perhaps it won't make much difference whether people are hustled into holding equities for longer or not. The crowd-funding platforms may not have the expertise or systems to evolve fully functioning secondary markets, and they may never have the liquidity to create a properly priced exchange. We will see as they are established and developed.
But at least they are trying something different. There is one thing that has always been true of a free market. It is very good at replacing business models that don't work anymore. In the last few years that has happened in dozens of industries, from newspapers, to music, to travel, and right now it is happening to television and banking. It might be about to happen to stockmarkets as well and that would be good news for everyone.
Google or Facebook could easily launch something that looked a lot like an equity market. So could Bloomberg. We all have a stake in their succeeding, for the simple reason that the old markets aren't working for anyone. And who knows, maybe some of the new platforms will also be a good investment in their own right if you can find somewhere to buy shares in them.
