Stock markets no longer fit for purpose: John Fullerton.

Guardian: “Stock markets are not the nerve center of capitalism, as portrayed on TV. They are nothing more than tools to facilitate the buying and selling of shares.” “Today’s stock markets are primarily about speculating on the future prices of those shares, largely disconnected from real investment or what goes on in the real economy of goods and services. It’s time for investors such as pension funds to reconnect with businesses in a long-term relationship through a new investment architecture.
Stock exchanges were originally conceived for the public interest and had a clear public purpose: to allow companies to raise equity from a large pool of investors and to provide a market for investors to later sell their shares in those companies. The promise of a liquid market lowered the cost of that equity to enterprise thereby increasing economic growth and, theoretically at least, shared prosperity.
But capital formation is only a small part of what happens on stock markets today. Yes, successful stock offerings provide the avenue for venture capitalists to recycle investments made in private markets back into new, innovative young enterprises. But it is short-term speculation in stocks, aided by the increased speed of information flow, that has grown like a cancer into a big business of little real value and now dominates stock market activity.
….Six factors have combined to make our equity capital markets no longer fit for purpose:
1. The privatisation of stock exchanges, destroying their public purpose mandate and instead making the growth of trading volume their single-minded goal and high-frequency traders (computers programmed to trade) their preferred customers.
2. The unrestrained technology arms race in computing power combined with the adoption of technology-driven information flow spurring the rapid acceleration of trading volume, which at critical times can be highly destabilising.
3. The misguided ascent of “shareholder wealth maximisation” (at the expense of all other stakeholder interests) in our business schools, board rooms, and the corporate finance departments on Wall Street.
4. The well-intended but equally misguided practice of using stock-based incentives, and stock options in particular, as the dominant form of senior management compensation, which incentivises them to focus only on short-term results at the expense of the long-term health of the enterprise, people and planet.
5. The misalignment of interests between short-term focused intermediaries and real investors such as pension funds whose timeframe should be measured in decades.
6. Regulators’ lack of courage and confidence to counter the trader-driven paradigm and institute substantive structural reform such as a Financial Transactions Tax and other reforms that would penalise excessive speculation while incentivising long-term productive investment.
Rather than limit themselves to this deeply flawed system, real investors can build direct relationships with enterprise in negotiated, innovative, mutually beneficial partnerships that are truly aligned with both parties’ long-term goals including the harmonisation of financial, environmental, social, and governance imperatives.
Private direct investment in enterprise (in contrast with trading in the stock market) with a long investment horizon, is nothing new. The Capital Institute has created a Field Guide to investing in a regenerative economy, which describes an “evergreen direct investing method” (EDI).”