How well regulated securities exchange delivers fine growth

Trader at the floor of the New York Stock Exchange (NYSE) on May 18, 2022, in New York City. PHOTO | AFP

Sustainable development is a mechanism to alleviate poverty, to spread opportunity, and to foster equality.

Given the potential of securities exchanges, it is important to not only improve the understanding of the role of exchanges and how they operate, but to create environments where they function well.

Globally, securities exchanges provide the backbone to economic infrastructure and capital. Securities exchanges help companies raise money to expand and also provide individuals with the ability to invest in such companies.

Securities exchanges provide order and impose regulations for the trading of stocks. Finally, securities exchanges and all of the associated companies provide jobs.

Investors use the exchanges to buy into a company’s future. Allowing the average person to invest in these companies leads to increased wealth that leads to additional economic activity.

Without trading regulations and shareholder protections that exchanges provide, few people would be willing to invest in stocks. Because of the oversight of the securities exchanges, the average person has the confidence to invest.

The investor wealth grows over time, which allows them to contribute more to the economy.

Developing countries that want a faster pace of economic growth should consider policy changes that will speed up development of securities markets and encourage investment by citizens and foreigners.

The best way to do this is to remove tax, legal and regulatory barriers. Countries don’t require interventionist policies such as tax incentives to spur investment.

By removing barriers to the free flow of capital, countries can let market forces work naturally to boost their economic growth and prosperity.

A securities exchange can serve as a barometer of a nation’s fiscal health, broadcasting the ups, downs, trends and shifts of the domestic economy.

When stocks fall, spending stops, consumers lose confidence and a nation’s financial state begins to falter. Conversely, when securities rise confidence spreads, spending and investments grow.

A nation’s mood can rise or fall on securities market activity and performance.

Since the securities market is a vote of confidence, a crash can devastate economic growth. Lower securities prices mean less wealth for businesses, pension funds, and individual investors.

If securities prices stay depressed for long, new businesses can’t get funds to grow. Companies that had invested their cash in securities won’t have enough for salaries or fund pension plans.

The government and even local authorities like municipalities may decide to borrow to finance huge projects by selling bonds that are raised through the securities exchange.

When the government gets this alternative source of funds, it will no longer need to raise taxes, giving people more power to invest and consume.

When people draw savings and invest in shares, it leads to a more rational allocation of resources.