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  • Writer's pictureSenthil Kumar

Mini-Stock Exchanges & Disaggregation of Economy: Need of the Hour

Given the volatility and inefficiency in large stock markets, and investment risk exacerbated by widening price-earning ratios and price-book ratios, this article proposes creation of several regional stock exchanges and disaggregation of larger economies. The mini stock exchange model proposed is not the replication of major national exchanges listing the same set of firms listed elsewhere; rather it is an attempt to extend the financial capital markets to local, small and regional firms in the respective geographic regions. These mini regional or intrastate markets can be considered a sort of crowdfunding which is a key feature of the JOBS Act, signed into law by President Obama in April 2012.

The proposal for creation of mini stock exchanges is not a radical innovation. In fact, this is a renewal of long forgotten American tradition of building local economies using regional exchanges. Interestingly, in 2014, Michigan became the first state in the United States to enact a law allowing the equivalent of a local stock market by passing the Michigan Investment Markets bill. This bill appears to be a revival of old institutions that built strong communities across United States and corporations like Proctor & Gamble, General Motors, and Maxwell Motors (Chrysler). With the introduction of Securities Act of 1933 and 1934, after the 1929 crash, which imposed stringent regulations on reporting, the local markets were either closed or merged. While modern technology-driven national financial markets are larger and global in scope, but now they are at the threshold of inefficiency for the reasons elaborated in previous sections; and they cannot serve the growing regional companies.

To read the full article, visit the ssrn link for downloading the article. Markets, Corporate Governance and Efficiency or Lack Thereof: Arguments in Favor of Reforms (April 10, 2015). by Senthil Available at SSRN: or

Not only cost of going public has risen in large national stock markets, it requires a minimum of $250 million initial stock offering which can be a major limiting factor for large number of regional companies (Cortese, 2014). Given the rise of modern internet and computing technologies that can link investors, firms, and financial institutions effectively, regional markets can be run more efficient with lesser coordination cost than larger markets.

This proposal for mini exchange is based on the following premises. First, mini regional exchanges will enable the availability of financial resources and capital to the multitude of small and medium scale businesses that would be at a disadvantage compared to large, national and global enterprises that are listed in major national stock exchanges. Second, the mini exchanges can mitigate risk, as typical stock exchange is supposed to do, the risk of investment in businesses by spreading and distributing the risk and ownership of the major portion of national industrial assets, and in turn contribute substantially to the growth of millions of young entrepreneurial ventures and the larger economy.

Third, Mini stock exchanges decentralize the asset structure of national economies, and localize the control and rewards, and can enhance the distribution of economic gains to larger section of the economy. Fourth, by decentralizing and localizing the stock exchange, regional and locally located small and medium scale would be availed with opportunity to raise funds and grow without relying only on debt financing from banking sector. Fifth, mini regional stock exchanges would greatly reduce information asymmetry - a phenomena that substantially contribute to the anomalies, abnormal returns, speculative movements, volatility and in turn high risk factor for long-term investors.

On the contrary, mini-regional exchanges will minimize the information asymmetry and enhance the control through facilitating a large number and portion of investors to participate in mechanisms such as Board of directors. Sixth, more importantly, large national markets are receiving enormous flow of surplus capital to the extent of oversubscribing the stocks of popular and large firms, increasing their demand, widening the price-earnings ratio and in turn increasing the investment risk to individual investors and economic hazards to national economies.

To read the full article, visit the ssrn link for downloading the article.

Muthusamy, Senthil Kumar, Markets, Corporate Governance and Efficiency or Lack Thereof: Arguments in Favor of Reforms (April 10, 2015). Available at SSRN: or


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