NYSE Euronext’s Free Market Fallacy

Last Friday I received a seemingly innocuous invite through LinkedIn to connect with NYSE Euronext Free Market. Oh boy, did they not do their homework before sending me this message.

 

Define free

Most likely unbeknownst, NYSE Euronext sent the invite to someone who knows a thing or two about what constitutes a “Free Market”, and thus greatly objects to the use of the differentiated nomenclature added to their stock exchanges.

Little did they know any public association with free-markets will be vigorously challenged by a newly minted economist, with arguments that once again shine a light on our core macroeconomic fallacies. Much worse than mere semantics.

But to start with the latter first: a stock-market is an exchange in which the supply of stock (using a specific predetermined methodology) is exchanged for money from those who choose to purchase stock. In contrast (but there is a little more to a free-market): a free-market is a marketplace in which the seller and buyer of goods or services enjoy equal un-arbitrated trading freedoms.

 

Violate freedom

No stock-market (I know of) today works according to the principles of a free-market. Not in the least because our Neanderthal implementation of freedom deploys few rules to protect its participants from the many violators of freedom, and thus fails to be free.

Precisely the reason why no-one, who depends on the purported authenticity of stock-markets (and the value of their underlying assets) to grow their pensions and life-savings, should be investing in the stock-market (directly or through an index).

Here is why an exchange cannot be called a free-market:

  • The seller and buyer of stock do not enjoy equal trading freedoms.
  • Not all buyers of stock have equal access to trading mechanisms, generally favoring short-sellers.
  • The exchange has powers to influence how the stock is listed, favoring a specific desired outcome of the transaction, rather than the needs of its participants.

Stock-markets, in the way they are implemented today, are an economic fallacy. Albeit a popular one. As gambling in Vegas, lotteries and betting on horse races are. Not the ability to opt-out makes them “free,” but the fiercely guarded freedoms deployed after opt-in dictates whether they are free.

The cards in Vegas, of your favorite lottery, and at the horse-track are stacked against you, and so is the value of stock handled by an exchange that violates fundamental free-market principles. In no way is the value (up or down) of stock, exchanged by a marketplace in violation of the free-market tenets, an accurate indicator of the value or upside of the selling company.

 

Stop greater-fool cheerleading

Hence, the use of the phrase “Free Market,” probably by some overzealous marketing advisor, falsely suggests the NYSE Euronext exchange is fundamentally and economically different in the way it exchanges stock for money. Except for a few different filing rules and cost, NYSE Euronext isn’t the economic game changer in the land of exchanges it portrays to be.

This economic ignorance, I would give it too much credit to call it a false claim, of NYSE Euronext however, is more than a slip of the marketing pen. It falsely suggests unparalleled freedoms to all participants of the exchange that it just cannot substantiate.

The misplaced association of a “Free Market” used by NYSE Euronext signals how its people know nothing about the economics of a free-market and neither do the fledgling companies that enroll based on the belief of that premise. Even worse, those who “invest” in the currently prevailing makeup of a stock-market, once again unknowingly become the cheerleaders of greater-fool economics that continue to erode the trust in money.

 

New responsibility

The greatest form of control is to manipulate people into thinking they are free.

And so, the real reason why I spent any time debunking the marketing claim of NYSE Euronext, is not to spend my precious time on putting them down, but to make clear what exactly that kind of pretense of freedom, hidden underneath many of our financial systems, is responsible for the massive adoption of greater-fool economics that is so extremely finite and destructive to our economic evolution.

The eroding loss of trust in the merit of money stemming from greater-fool economics is directly responsible for turning our macroeconomic outlook into mush. Our loss of faith in the merit of money is what stifles an economy that relies on money as its sole metric of success.

 

Protect our economic evolution

We cannot recover economically if we keep selling economic ignorance and financial foolery to the public as the greater-fool. We all must improve our sense of responsibility, and build systems that are fair and authentic, and let merit – not manipulation – determine the metric of our success.

So, NYSE Euronext, I suggest you change the name of your exchanges to reflect what they are, or stick with the names and obey to the guiding principles of a free-market. That is if you want to be perceived as the beacon of trust.

 

 

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Here is how NYSE Euronext described itself in the LinkedIn invite:

NYSE Euronext is an American multinational financial services corporation that operates multiple securities exchanges, most notably New York Stock Exchange and Euronext. On April 4, 2007, the NYSE merged with Euronext N.V. to form the first global equity exchange.

NYSE Euronext operates NYSE Technologies, the Free Market, and also owns NYFIX, Inc., a leading provider of innovative solutions that optimize trading efficiency.

This page is dedicated to NYSE Euronext’s Free Market. The Free Markets of Brussels and Paris, organized by NYSE Euronext, is tailor made for companies that wish to access the capital markets, but are too young or too small to be listed on a larger stock exchange. Listing on the NYSE Free Market is very fast and does not require a prospectus, like most other stock markets.

The NYSE Free Market is not a regulated market in the sense of the EU Directive. The criteria for admission to the NYSE Free Market is much simpler, and listing costs low. The NYSE Free Market provides a mechanism for disseminating buy and sell orders, where trades are executed by NYSE Euronext member firms. Companies listed on the NYSE Free Market are not held to strenuous admission procedures or subject to disclosure requirements.

 

 

Let’s lead the world by example with new rigors of excellence we first and successfully apply to ourselves.

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