Wisdom Networks
Open letter to Stock Exchanges: Equity Market 3.0 is better, faster and cheaper than mergers
An Equity Market 3.0 strategy is better, cheaper and faster than industry consolidation and could be delivered in five days and publicly available in 90. Stock exchanges are the ideal place to engineer and inspire the use of Equity Market 3.0 for national and international benefits.
This article discusses:
- the reasons driving the accelerating wave of Stock Exchange mergers or industry consolidation
- how an Equity Market 3.0 strategy achieves all the benefits of stock exchange consolidation at a fraction of the cost in a fraction of the time
- how an Equity Market 3.0 strategy simply returns the stock exchange to its roots in “Exchange Alley” as a creator of a community of companies, advisers and investors interacting one on one; and
- the potential to deliver Equity Market 3.0 network in five days for customisation by the exchange’s team and public availability within 90 days.
The reasons driving the accelerating wave of Stock Exchange mergers or industry consolidation
The Australian Securities Exchange (ASX) recently attempted to merge with the Singapore Stock Exchange (SGX), but the merger was rejected by the Australian Treasurer. The Chairman of the Australian Stock Exchange recently provided some reflections on the proposal to merge the Australian Securities Exchange with the Singapore Exchange.
In his paper, he identified the following reasons driving the accelerating wave of global mergers amongst stock exchanges:
- a merger creates the scale to sustain large technology expenses and the need to provide product and service diversification
- a merger creates a larger player of more regional relevance
- a merger expand the footprint globally and helps retain key staff
- a merger expand the range of products and services that could be offered to [local] investors
- a merger increase the visibility within the global investment community of [local] companies and give them deeper capital from a deeper pool of liquidity
- a merger creates a broad international pallette of products and services is needed to remain competitive against international competitors such as Chi-X Global
An Equity Market 3.0 strategy can achieve all the benefits of stock exchange consolidation cheaply and quickly
Equity Market 3.0 is an intersection of online social networks and financial markets. Equity Market 3.0 uses a cloud-based open source content management system to tag and link the companies, advisers and investors within the Equity Market to facilitate information distribution, collaboration and workflow to deliver quality community outcomes.
Equity Market 3.0 offers three primary benefits:
- Deepens the market by facilitating service and capital delivery beyond major companies to SME’s, new ventures and innovation. SME’s are a major contributor to growth and employment and are a priority for government policy in the first world and reducing poverty in the third world.
- Expands features and functionality beyond prices to include comprehensive information distribution, facilitate collaboration, manage workflow and execute outcomes. The network reproduces what people do everyday online allowing new features and functionality to be added by simply adding new software functionality from open source software communities. Features include market prices, content management, ratings or meritocracy, prioritisation, collaboration, applications and workflow.
- Integrate countries and markets: A transparent Web 3.0 network transcends traditional distribution channels with a single web application which simply differentiates between people and content in different countries using tags. An Equity Market 3.0 network could service a global community of companies, advisers and investors. I have registered the “EquityMarket” domain name in 20+ countries around the world including 4 of the top 5 financial markets that can provide memorable web and email addresses for Equity Market 3.0 networks. I aim to crowdcreate Equity Market 4.0 networks in 20+ countries in 365 days. Equity Market 4.0 is the integration of Equity Market 3.0 networks in each country to create a global equity market.
Equity Market 3.0 represents the next generation of financial markets and extends services to under-serviced SME’s, increase the utilisation of the available pool of expert advisers and improved capital allocation. It is not a stock exchange, although the addition of an Equity Market 3.0 collaborative hub could be added to create “Collaborative Macroexchange” for large financial centres or “Collaborative Microexchange” for small or niche financial centres. A “Collaborative Macroexchange” could become a global community of companies, advisers and investors which transcends geographic boundaries to offer a global range of products and services collaboratively created by the community. This community is likely to have greater visibility in the global investment community and offer participants deeper liquidity, accessibility and transparency in capital and services.
The presentation below provides a comprehensive overview of Equity Market 3.0:
History of stock exchanges – Equity Market 3.0 simply returns the stock exchange to its role as community creator
Past
Wikipedia offers an interesting insight into the history of stock exchanges:
- The term “bourse,” which has become synonymous with “stock market,” arose in Bruges, either from a sign outside a trading center showing one or a few purses (bursa is Latin for bag) or because merchants gathered at the house of a man named Van der Burse; nobody’s quite sure.
- London’s first stockbrokers, however, were barred from the old commercial center known as the Royal Exchange, reportedly because of their rude manners. Instead, the new trade was conducted from coffee houses along Exchange Alley. By 1698, a broker named John Castaing, operating out of Jonathan’s Coffee House, was posting regular lists of stock and commodity prices. Those lists mark the beginning of the London Stock Exchange.
Present
Wikipedia describes a stock exchange as:
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds.
To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only.
The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors that, as in all free markets, affect the price of stocks (see stock valuation).
There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities.
“The trading floors of stock exchanges have disappeared. Stock exchanges of today match buyers and sellers inside computer networks. In essence, a stock exchange is a technology service provider.
Future
Stock Exchanges are the best positioned to implement Equity Market 3.0. Equity Market 3.0 requires the stock exchange to deepen its service offering to lower tiers, expand beyond prices to collaboration and integrate with other groups and countries. In essence, Stock Exchange 3.0 is the virtual “Exchange Alley” coffee houses in which companies, advisers and investors originally met hundreds of years ago. The market is larger with more participants, but the fundamental principles of direct interaction between companies, advisers and investors remain the same. Equity Market 3.0 facilitates this interaction in a Web 3.0 network. It also adds new revenue streams from the collaborative services provided by Equity Market 3.0 including membership or subscriptions fees, the payment to publish content to a specific date and, potentially, transaction fees.
