Consolidation and competition in the US equity markets

Abstract

Strong secondary trading markets are essential to the formation of public capital. Although private investors in securities may be willing to accept some degree of limited markets in return for the opportunity to invest in a small or young company, or to earn a liquidity premium, investors that buy securities in public offerings desire strong secondary trading markets where they can readily sell their securities at low transactions costs. Strong secondary markets, with their attendant benefits of continuous liquidity and efficient prices, are desired by both small investors, who lack large liquid reserves, and by large investors, the size of whose stock positions require deep markets. Without strong secondary markets, fewer companies would be able to raise capital in the public markets, and companies accessing the public markets would find them more expensive, raising the cost of capital and lowering real investment. The US Securities and Exchange Commission (SEC) has long recognized the importance for capital raising of strong trading markets. In recent pronouncements, the SEC has said that in regulating trading markets the interests of long-term investors and Key points