The SEC needs to create some tools so that private companies could tap IPO market without their securities underpriced, according to David Weild IV, a renowned stock market expert and former vice chairman of U.S. electronic exchange Nasdaq.
Many retail brokers got out of business as the issuance of small cap stocks doesn't generate enough commissions for intermediaries due to high proficiency of electronic market, according to Weild, who now runs his own company Weild & Co.
The Silicon Valley has woken up to the fact that the economic model of Wall Street is to under-price securities so as to generate excessive returns known as alpha, Weild said recently at Block Talk Summit on Saturday at Fordham University Lincoln Center, New York City.
"We've got a system now that's increasingly pitted the interests of corporate issuers and Wall Street against each other," said Weild.
The misguided view of creating an electronic market with low commissions and saving people's transaction costs dropped the bottom out of support for small companies and destroyed the whole IPO market, Weild added.
Ultimately, the regulators and policy makers have to do something and fix the problem of lack of sales and marketing incentives for small cap companies, according to Weild.
The United States should have over 13,000 listed companies by 2015. By contrast, the number of listed companies in the United States dropped from near 9,000 in mid 1990s to less than 6,000 in 2015, according to a presentation by Weild.
Recently, there's a movement in Silicon Valley for companies to go public and raise capital directly while avoiding Wall Street, noted Weild.
Still, SEC has denied the proposal by New York Stock Exchange (NYSE) to allow companies to raise capital via the route of direct listing in December, 2019.
So far, only several companies like Spotify Technology SA and Slack Technologies Inc. resorted to direct listing to float their existing shares on stock market.
There is a need of different market structure to support for small companies in the aftermarkets, said Weild, who expects block chain technology to play a significant role in this regard.
Speaking on the sidelines of the meeting, Weild said the future of stock exchanges like Nsadaq and NYSE shall be okay as exchanges act as good chock point in vouching for customers and secure compliance and accountability.
There is no need for trading floor with stock exchanges any more as trading floors are less efficient than connecting people together by computers, Weild told Xinhua.
The trading floor of the NYSE creates a branding image but there's really not much trading going on the floor any more, said Weild.
The trading floor is central to the NYSE's business model. And the NYSE is unique among global stock exchanges in having a physical floor with traders conducting business there, said the NYSE in a recent email to Xinhua.
"The combination of human judgment and world-class technology is powerful and allows us to provide the best possible trading experience. This model performs better than all-electronic exchanges," said the NYSE.
If incentives of market structure are changed again to support smaller capitalization and there will be a bigger role for those kinds of trading floors, according to Weild.
The unique business model of the NYSE provides the most liquid, stable markets for NYSE-listed companies and their investors, said the NYSE, which considers it an important competitive strength.
The NYSE also proactively speaks with global companies considering an NYSE listing and does everything to know the companies and help them understand the value of listing on the NYSE, according to the NYSE.
Among a total of over 2,400 listed companies, the NYSE had 508 non-U.S. issuers listed on NYSE and NYSE America as of Dec. 31, 2019. The international listings now have a combined market capitalization of 9.9 trillion U.S. dollars in comparison to 28.5 trillion dollars of total market capitalization of listed companies on NYSE as of Jun. 30, 2018, according to the NYSE.
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