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Deep Capture is a web site founded by Patrick Byrne, CEO of Overstock.com. Deep Capture argues that the regulatory system of the stock exchange has essentially been caputured by traders who use manipulative practices to control prices. The prime example of manipulative practices is the naked short sale. In this tactic, a hedge fund sells large quantities of stock without even bothering to locate the stock that they are selling. Selling nonexistent stock creates a tremendous downward pressure on the stock price, which can trigger panic selling of the stock. Naked short sales show up in the regulatory system as Failures to Deliver.
I believe that Mr. Byrne is correct in his assessment on DeepCapture. I have included a number of links to his site from my blog and on the Community Color project.
Although I believe the information on his blog is correct, I do not believe that a blog written in the boondocks of Salt Lake City will have much effect on the power mavens of Wall Street or in Washington, DC.
Realizing that a blog, in and of itself, would not force change, the question in my mind is how one would go about forcing change in a free market?
The best way to force change in the free market is to create competition.
On Septemeber 20, I wrote a blog post titled Can the Market Heal Itself? In this post I suggested that the best way to force the issue of regulatory reform would be to create a new stock exchange. This new exchange would differentiate itself from the NYSE and NASDAQ by resolving trades in real time. To further differentiate itself, the exchange would prohibit short sales. Only the registered owner of the stock could sell the stock.
My contention is that, in a free market, companies would use the exchange that best suited their purpose. If the owners of companies are upset with the abusive practices on the NYSE and NASDAQ, they would list their equities on the new exchange.
I contend that, even if the new exchange is not successful in drawing customers, the creation of a new exchange would help spur market reform simply by creating competition. In the face of competition using superior technology, the antiquated stock exchanges would feel compelled to upgrade to real time technology.
To make the new exchange work, it needs to carve out a different niche than the NYSE or NASDAQ. Currently, people distrust the mortgage backed equities used in financing real estate.
Rather than taking the big exchanges head on, I propose creating an exchange for trading equity in Real Estate. This proposal will include multiple essays on my thoughts on financing real estate. I have written several posts on shared ownership as an alternative to mortgage financing.
I penned my suggestion for a new exchange on a blog with a readership of perhaps three people.
While watching the September 29th market crash, I felt compelled to do something. I decided to make a second stab at contacting the Deep Capture team about my idea of creating a new exchange.
During this new reading of the site, I discovered that Deep Capture had a community reviewed essay contest; So, I made the decision that I would write up my ideas on a new exchange and submit it as an essay in the contest.
The entry form for the contest is on the page Crack the Cover Up. The winner is chosen by the Overstock.com community. You login with your Overstock.com ID and vote for the entries you like best. My entry begins with the words "Competition drives the free market" and my user name is yintercept.
To help indicate that I am willing to act on convictions, I decided to register the domain OSRTX.com (Open Source Real Time Exchange).
The end date of the essay competion is October 31. I am submitting this stub article as the beginning of the essay. I will add articles on my thinking behind the exchange after submitting the essay.
If you are a participant in the Deep Capture community and believe that creation of a system for exchanging shares in real time would help raise awareness of the Deep Capture cause, then, I humbly beg that you vote for this essay.
If there is sufficient interest for creating an exchange, I would be more than happy to donate the domain I registered to the cause and will lend my expertise as a database developer to the effort.
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