Once upon a time, the Houston Stock Exchange operated in downtown and traded stocks, leases and oil not far from the Cotton Exchange. State and regional stock exchanges were common until the 1920s when modern communications led to consolidation in New York and state regulators tried to curb the abuses that led to the Great Depression.Why push for local stock exchanges now?
Flower Mound's Rep. Tan Parker, the Republican chairman of the House Committee on Investments and Financial Services, will hear testimony on his proposal to allow local stock exchanges to open under Texas securities laws Wednesday afternoon. Only Michigan allows state-regulated exchanges but none have opened there yet. Before 1930, 24 local stock exchanges operated across the country.
"Local stock exchanges; an old idea whose time has come again," Bill Hammond, CEO of Texas Association of Business, said in a statement. "Local exchanges will support local businesses, create jobs, and grow the Texas economy."That sounds like motherhood and apple pie. What's the real reason?
The bill comes at a time when crowdfunding websites have become a popular method of raising money for new businesses, non-profits or artistic projects. But crowdfunding is not the same as investing, which gives the person contributing capital an ownership share of the business.Crowdfunding equals capital raise, which equals investing. Back to the abuses that led to the Great Depression. How do these local investment schemes address those?
Crowdfunding as a way of attracting investors and raising capital for a business got a boost earlier this year when the Texas State Securities Board exempted some crowdfunding from state regulations as long as the amount raised is less than $1 million in a 12-month period. Federal regulations do not apply as long as the person selling the security and the person buying it both reside in Texas. A local stock exchange could allow those securities to trade within the state.
Gramm-Leach-Bliley dismantled Glass Steagall's provisions instituted to protect banks from the abuses that led to the great depression. Securities regulations may be headed back in time. Look for the wild, wild west.