Adena Friedman, President & CEO, Nasdaq writes about the idea of adapting the best features of equities markets into more of our daily transactions - what Nasdaq calls the Markets Economy.
For many, 2017 was a year in which the promise of technology clashed with the peril of technology.
As artificial intelligence, machine learning, cloud computing, digital currencies and mobile technology continue to mature, the big question will be how to focus resources to amplify the opportunities to create jobs, grow global economies, and ensure that more people benefit from disruptive change.
When global business and political leaders gathered in Davos last week for the World Economic Forum’s annual meeting, the focus of conversation was on creating a shared future. One solution I was excited to discuss at the conference was the idea of bringing new fairness and opportunity across industries by adapting the best features of equities markets into more of our daily transactions. At Nasdaq, we call this the Markets Economy.
Up until the creation of the internet and the dawn of the sharing economy, the vast majority of modern commerce in the developed economies has been defined as a seller’s economy, where the seller of a good or service uses market information and competitive analysis to determine the appropriate price of a good, and the buyer’s only option is to buy at the price offered, take considerable effort to try to find another seller, or choose not to buy at all. The model is inefficient at many levels.
And yet, even as the seller’s economy has been dominant for hundreds of years in the developed consumer economy, a parallel model has existed, serving primarily a very discreet part of the global economy – and that is the markets economy. The markets provide true price discovery by giving buyers and sellers equal standing in determining the value of an asset. But, outside bespoke auctions, the majority of the assets that have benefited from robust markets are stocks, fixed income, and commodities.
That is quickly changing. Just as the electronification of markets, led by Nasdaq when it launched in 1971, revolutionized markets by opening them up to millions of individual investors, technology today is poised to create market-based economies across industries where until now only seller’s economies existed.
The goal should be to create a more inclusive economy.
With the launch of the digital economy and online commerce, eBay and other electronic auction communities were pioneers in embracing true price discovery. What we are seeing today, however, is the opportunity for the potential for continuous price discovery as well as auctions in assets outside specialty consumer products.
Established companies and startups are moving toward this model. Moving the markets into the cloud to globalize participation, leveraging the immense power of data to empower consumers and investors, integrating the blockchain to facilitate instant settlement and ownership tracking, and the potential for digital currencies to accommodate the flow of capital, will all combine to change the nature of capital markets -- just as it will the nature of global commerce. Ultimately, the Markets Economy will empower consumers, who will have more choices and control over their transactions than ever before.
As these new markets are developed, there is a tremendous opportunity to bring the best of the capital markets capabilities to the broader marketplace economy. And we are seeing these new markets turn to our capital markets technology. What is the value of instant, short-term insurance? What is the value of an advertising future? Today and tomorrow, consumers will be able to help set prices with instant auctions, continuous markets, and other new liquidity solutions.
However, as we are seeing with the nascent markets in assets like crypto currencies, the markets economy is not without its challenges. Just as the growth of the Internet of Things increases our connected risk, the Markets Economy could create an uneven environment for retail versus professional participants, as well as open new lanes to bad actors who are motivated to wreak havoc on new markets – unless we learn from our experience managing financial markets and develop universal best practices. For example, it will be critical to develop strong security and surveillance systems and protocols, pricing transparency, frictionless transactions, robust market participation and most importantly a level playing field for all participants.
With retail investor participation in the stock markets, the exchanges today are governed by extensive rules to create a fair and open environment. For the Markets Economy, we will want to bring all of the same best practices and principles to create an economy that empowers everyone to participate equally and with the proper intentions. The goal should be to create a more inclusive economy, not one that accrues benefits disproportionately to the wealthy.
We know this future is coming, and now is the time to build the infrastructure that will support it, ensuring safety, transparency and fairness. If we do so, we can secure a future in which all market participants are able to join in the enormous economic opportunities ahead.
This article first appeared on LinkedIn.