- The Washington Times - Sunday, February 27, 2011

The New York Stock Exchange’s plan to merge with Deutsche Borse, while promising more efficiency for investors in global stocks, may hurt small U.S. enterprises that are finding it increasingly difficult to tap into the stock market so they can grow and create jobs.

The move accelerates a trend of stock exchanges becoming more focused on the profitable trading in stocks of big global corporations at the expense of smaller companies trying to tap the market for the first time with initial public offerings (IPOs), stock analysts say.

The trend, which started in the mid-1990s, resulted from a multitude of well-intentioned regulations and technical changes in the trading of stocks, as well as the decisions by major stock exchanges to go public and, more recently, to join forces with other global exchanges.

Research shows that these developments have been bad for small corporations hoping to attract investors and are hurting U.S. workers and the larger economy because fast-growing small enterprises typically are important sources of dynamic growth and millions of good jobs in the U.S.


According to Grant Thornton LLC, a Wall Street accounting firm, the dramatic drop in stock offerings by small corporations in the past decade may have cost the economy as many as 22 million jobs — even before the Great Recession eliminated more than 8 million positions across the economy.

“The inability of emerging growth companies to access U.S. public equity capital by completing IPOs less than $50 million inhibits job creation and hurts American entrepreneurs more than any other group,” said Pascal Levensohn, founder of Levensohn Venture Partners.

The New York Stock Exchange, the Nasdaq Stock Market and other U.S. exchanges have essentially lost their status as public “utilities” that once served budding enterprises as well as small investors, said David Weild, Grant Thornton consultant and former vice chairman of Nasdaq.

Today, the exchanges have become largely beholden to private stockholders as a result of going public themselves, he said.

Deutsche Borse’s planned takeover of the venerated New York exchange accelerates this trend by making the exchange even more focused on global markets and large companies, and less interested in the more marginally profitable business of helping smaller companies access the markets, he said.

“They are no longer the voice for American corporations” that the exchanges used to be in the halls of Congress and elsewhere, he said.

Under ownership of Deutsche Borse, the prestigious New York exchange “will speak more for European stockholders” than for U.S. companies, he said.

The turn away from the small stock issues that used to be the bread and butter of Wall Street firms has led to dramatic drops in the number of U.S. stock offerings as well as the total of U.S.-listed stocks.

The number of new public offerings averaged 530 a year at the peak in the 1990s, which also happened to be an era of rapid job growth associated with the proliferation of technology startup firms and the tech stock boom.

But that number plummeted by 75 percent to 126 per year in the past decade at the same time job growth slowed markedly and went into reverse during the recession.

According to estimates by Grant Thornton and Global Insight, an econometric firm, if the U.S. were still experiencing the rate of company births and job gains seen in 1997 — the height of the tech boom — the country would have 22 million more jobs today.

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