Alternative Trading Systems

Description

Hazel Henderson:

"When the collapse came, some like-minded investors and traders had already begun to build new exchanges from the bottom up. An underlying infrastructure already existed in the form of alternative trading systems (ATS). ATS are electronic markets such as Instinet and Archipelago, regulated by the SEC, that broker financial products outside traditional stock exchanges. The socially responsible trading networks, which use the ATS infrastructure as a platform, are new marketplaces where investors and companies can meet. They screen for ESG criteria, and they attract primarily nonspeculative long-term investment.

One such new marketplace is Entrex, an “entrepreneurial exchange” based in Chicago and focused on companies with less than US$250 million in annual revenue. Another private liquidity network, called Wall Street Without Walls, links credit unions and community development financial institutions to companies. Three electronic peer-to-peer lending sites — Prosper Loan Marketplace in the U.S.; Zopa in the U.K., U.S., Japan, and Italy; and Qifang in China — as well as hundreds for microlending (including MicroPlace, Kiva, Accion, and Women’s World Banking), are filling a huge need worldwide. An index of private green companies in Brazil is now in the planning stage with Entrex and the green broker-dealer Iowa Progressive Asset Management.

Consider the cultural DNA of exchanges founded along these lines. They are as robust as Wall Street in their back-office efficiency and their clearing and settlement provisions, but they have far less overhead. They trade in small and midsized enterprises: the 400,000 companies that provide most of the jobs in the United States. These companies are generally privately held; they tend to be unattractive to short sellers and market manipulators and leery of venture capital and private equity. Many have no interest in making an initial public offering on Wall Street.

These new marketplaces are less regulated than the public markets. Investors are protected by the screening, the enhanced transparency, and the disclosure requirements that constitute the wall of the garden. The networks work because the people inside the gates can trust one another. Corporate books are kept open and collectively scrutinized, and the emphasis on socially responsible investing makes it more likely that these companies will do well." (http://www.strategy-business.com/article/09314?gko=dc5ea)

More Information

Book: Investing in a Sustainable World: Why Green Is the New Color of Money on Wall Street (AMACOM, 2008), Matthew J. Kiernan