Security markets began with NASDAQ.
Rebecca Cline
Security markets began with NASDAQ. These security markets began with a physical location, but developed as technology developed. Once the Electronic Communications Network (ECN) was created it opened the door for other security markets to move to an electronic platform. “ECNs are electronic trading systems that use computers to automatically match buy and sell orders” (Block et al., 2019, p 463). NASDAQ and NYSE both adopted ECN in order for transactions to be electronic and no longer need a physical location (Block et al., 2019). With the increase in international business, international companies based in the United States may choose to trade on international markets such as Frankfurt stock exchange. There are also international companies that trade on the U.S. stock exchanges (Block et al., 2019).
The efficient market hypothesis states that shares are priced in a manner to reflect all information. This hypothesis states that stocks are always traded at their fair value on the exchanges (Downey, 2021). Security markets play a role in the efficient allocation of capital among issuers and investors due to the fact that stocks are traded at a fair value. Although with the increase in technology making it easier to get information, which is requiring more information to be disclosed in relation to corporate data.
Dark pools are not accessible to the general public. These pools allow companied to be able to hide transactions from other investors. Dark pools can also provide lower costs for transactions (Block et al., 2019). Due to the seclusion of the dark pools, one thing that I noticed is a lack of transparency. Although this lack of transparency has not caused new laws or regulations to be created, it seems as though the dark pools reduced capital market efficiency. Since the dark pool limits the number of people who are able to participate in the transaction, it does not seem that the transactions would be as effective and would not be generating as much income for the company than if the transaction was to be completed on the general exchange.
One company that raised capital in 2020 was Figgy. Figgy is a company that manufactures children’s play couches. Figgy launched on Kickstarter in November of 2020 and the funding period ran from November 19 through December 22. 2020. The method that was used to raise capital was rewards based. When an individual pledged funds to the company, they were promised a reward. The reward was based on amount of the pledge. During the 33 day funding period, the company raised $203,466 from 566 backers (The figgy by shenanigan kid, 2021).
Resources:
Block, S. B., Hirt, G. A., & Danielsen, B. R. (2019). Foundations of financial management (17th ed.). McGraw-Hill Higher Education.
Downey, L. (2021, March 25). Efficient market hypothesis (emh). Investopedia. https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp (Links to an external site.).
The figgy by shenanigan kids. Kickstarter. (2021, April 7). https://www.kickstarter.com/projects/thefiggy/the-figgy-by-shenanigan-kids (Links to an external site.).
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