Technological advances and regulatory changes over the last 10 years have transformed the way that markets function, but small and medium growth firms are not feeling the benefit, says Nasdaq.
The exchange operator is calling for the industry to move past the rigid, one-size-fits-all thinking of that has dominated and leverage technology to benefit these smaller players as part of a package of wider market reforms designed to "reignite America's economic engine".
In a report, Nasdaq sets out how it thinks that markets should be modernised to benefit firms with market capitalisations of below $1 billion, which have suffered because liquidity is now spread so thinly across more than 50 trading venues, none of which controls even a quarter of trading.
This "thin crust" of liquidity can be broken by a single large order, hitting the market's ability to absorb it and hurting the investor who placed it.
Says the report: "Nasdaq believes concentrating that disaggregated liquidity onto a single exchange, with limited exceptions, will allow investors to better source liquidity."
The exchange wants to let smaller issuers trade on a market "largely exempt" from Unlisted Trading Privileges - the regulation that lets exchanges offer trading in securities not listed or registered on them.
"Eliminating UTP for small and medium growth companies would reduce the number of exchanges authorized to trade them; most importantly, it would allow liquidity to develop, and for supply and demand to find one another," argues the report.
Nasdaq also calls for "intelligent tick sizes" for smaller firms, claiming that technology means that it is not necessary to have the current rigid, one-size-fits-all system. Smaller firms should be able to trade on sub-penny, nickel or dime increments.
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