"The Big Idea: A New Stock Exchange"

MAKE MONEY BLOG$;In this issue of Forbes, just posted online, a former Nasdaq vice chairman named David Weild says in this story that small companies are America’s engine — and that the U.S. needs to launch a new stock exchange to promote them.

Why? To summarize, today’s financial markets have become enormous trading factories, dominated by super-fast traders who swap stocks, futures, options and other instruments in microseconds. Traders are arbitraging between various markets, bouncing between stock index futures on CME Group, stock options on the Chicago Board Options Exchange, and stocks at the New York Stock Exchange. All that trading drives profits at exchanges.

But the stock market is neglecting its onetime core: small companies. Good luck finding the next Apple or IBM to invest in. Fewer companies have been going public, says Weild. New public offerings were up modestly last year, but many small companies have been selling themselves and getting buried inside larger ones. Some, like Facebook, are selling stock in less transparent, secondary markets rather than listing on the New York Stock Exchange or Nasdaq.

And the country needs small companies to go public and grow. The best investments are in small companies on their way to becoming big ones, creating wealth and jobs in the process.

To fix the situation, the U.S. needs to recreate the stock market as it existed until a decade ago, Weild says. A new stock exchange that focuses on small companies is central to his plan, even though it could take an Act of Congress to create.

Interestingly, although most news headlines about Nasdaq lately have been about its continuing interest in the NYSE, the current chief of Nasdaq OMX Group (Weild’s former employer) recently told Steve Forbes in an interview posted here that he plans to create a market geared to smaller companies. “We have great optimism that that will be a great feeder system to Nasdaq the market itself, but most importantly allowing these innovative growing companies to get public at a lot smaller scale than is possible today,” Nasdaq’s Bob Greifeld said. So it’s not just Weild talking — a small-cap stock exchange could be the next big thing.

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