New State Law Could Revive Local Stock Exchange, Stimulate 'Localvesting'

A little noticed bill signed last week by Gov. Rick Snyder made Michigan the first state in the country to enact legislation that creates the modern-day equivalent of a local stock market.

The latest progression in Michigan’s MILE/crowdfunding legislation, House Bill 5273 gives businesses and residents the ability to become broker-dealers and the authority to create, either online or in person, a market through which intrastate stocks can be traded.

The New York Times hailed the legislation as a revival of era in which the United States was teeming with local stock markets to fuel economic growth, including Michigan’s own Detroit Stock Exchange in the early 1900s, which provided growth capital to General Motors and Maxwell Motor Co., the predecessor to the Chrysler Corp.

The 1929 stock market crash prompted the Securities Act of 1933 and 1934, which subjected publicly traded companies to stringent registration and reporting requirements that hurt the local exchanges. Listing on the small exchanges required the same disclosures as the New York Stock Exchange, causing local trading to dry up.

Subsequent advances in communications technologies accelerated the shift from the local markets to the NYSE.

In her Oct. 24 op-ed in The Times, Amy Cortese, the author of “Locavesting: The Revolution in Local Investing and How To Profit From It,” wrote that while efficient, global financial markets no longer serve regional companies as they once, leaving investors who would like to invest in companies benefiting the local economies the choice of “putting their money in a market that is subject to the whims of high-frequency traders and short-term speculators, or under the mattress. ….”

“Which brings us back to Michigan,” Cortese wrote. “The Michigan Investment Markets bill does not create a new stock market. It modifies existing law to provide a regulatory framework that an intrastate market can operate within. The markets would be regulated at the state level as broker-dealers, and would deal solely with Michigan-based investors and securities.”

» Read the full op-ed on The New York Times.

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