Ok, so Billy-Bob Smith in Bippus, Indiana sees the AMEX and the NASDAQ and decides that he doesn’t like either of them and he’s going to open his OWN stock exchange.
Using his millions of dollars of capital which he has earned by cornering the pickled pig’s feet market, he organizes a national ad campaign suggesting people trade stocks publicly on the Billy-Bob exchange.
Would this be legal? Why or why not?
Billy Bob could certainly go about creating an exchange, but he’d need regulatory approval first. The Securities and Exchange has been tying itself in knots over exactly this issue, as technology allows for the creation of ever-grerater numbers of exchanges. The central problem from a public-interest perspective is that while competition might yield benefits by reducing trading costs and middlemen fees, the lack of single, centralized market might result in price differentials that either would wipe out the gains or, worse, would encourage manipulation.
See the link for an extensive discussion of the issues from the SEC’s perspective.