Spotify ditched convention with its direct listing on the NYSE.
 
It didn’t raise money or ring the opening bell. It gave shareholders a way out. It’s a touchstone for the state of the capital markets. CrunchBase says Spotify has raised $2.6 billion in 22 funding rounds in private markets where you don’t have to file 10-Ks and 10-Qs and fight proxy battles, meet a rising sea of disclosures from the impact of your business on the environment to how much more the CEO makes than the janitor.No high-frequency traders.
 
No passive investors ignoring your fundamentals but browbeating you over governance. No worrying about meeting expectations that somebody will game by spread-trading you versus the VIX.No analyst models to tussle over.
 
No scripts or contentious Q&A over quarterly results. No Activists. Spotify cut out all the banks save two to help with pricing and a bit of secondary market-making and let holders sell shares through a broker via the NYSE node on the market’s network and now they can trade anywhere.
 
Welcome to the new age.
 
It’s more proof of the decline and fall of the sellside, source of brokerage research. In the past 20 years, it’s been buffeted by a series of body blows:
 
-The Order Handling Rules in the late 1990s commenced a shift from valuable information to speed in trading markets.–Decimalization in 2001 gutted the intermediary margin paying for sellside analysts.
 
-Elliott Spitzer’s 2003 Global Settlement forcibly separated research from trading and with it went the glory era of the all-star sellside analyst and in its place came the age of trading technology.
 
-In 2007, Regulation National Market System transformed the stock market into a frenetic, automated blitzkrieg where competing markets are forced to share customers and prices, and market structure overtook story as price-setter, dealing another dire setback to analyst research.
 
-Over the ensuing decade with now prices made to trade at averages (the mandatory best-bid-and-offer model from Reg NMS imposed midpoints, averages, on the stock market), trillions of dollars dropped the sellside, shifting from information as key to beating benchmarks, to technology for tracking benchmarks, and average became better than superior.
 
Today Exchange Traded Funds, derivatives of underlying stock assets, drive 50% of market volume and have no connection to differentiating research. Blackrock, Vanguard and State Street have slashed active investment (and brokerage research), and most of their $13 trillion in combined assets follow models tracking benchmarks. (Editorial Note: Until the 2020 Coronavirus Correction, assets had risen to $16 trillion at these three.)
 
What’s all this got to do with Spotify? If form follows function, Spotify is the future. The function of the stock market isn’t capital formation anymore. That happens in private equity.
 
Public markets are an exit strategy, where stocks go to trade. So then, why are public companies spending billions on disclosure if half the market volume is machines trading things? Isn’t that a waste of money?