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The Hawaii Legislature adopted SCR 134, to form a working group to investigate the feasibility of a locally-focused stock exchange. It would be chaired by the Commissioner of Financial Institutions, and include the Securities Commissioner and representatives from the investor community. A nonprofit corporation, to be known as the Hawaii Exchange for Local Investment, would administer the exchange. Considerations are securities laws and regulations associated with the formation of a local investment exchange, the appropriate agency to regulate it, the criteria for listing enterprises on the exchange, and indemnification.

A local stock exchange is not new to Hawaii. The Honolulu Stock Exchange was formed in 1898, a month after Annexation was approved. In those days before information could be transmitted via telegraph, trades had to be delivered by ship, which took more than a couple of weeks. A cable linking Hawaii with the US Mainland wasn’t available until 1901.

Securities traded on the Honolulu Exchange included a number of sugar and other companies previously formed in the Kingdom of Hawaii, or later in the Republic of Hawaii. Among them, including years of incorporation, were:

• C. Brewer and Company, Ltd. – 1883
• Castle & Cooke, Inc. – 1894
• Theo. H. Davies & Co., Ltd. – 1894
• Ewa Plantation Company – 1890
• Hawaiian Agricultural Company – 1876
• Hawaiian Commercial & Sugar Company, Ltd. – 1882 (in California)
• The Hawaiian Electric Company, Ltd. – 1891
• Hawaiian Telephone Company – 1883
• Hawaiian Trust Co., Ltd. – 1898
• Hilo Electric Light Company, Ltd. – 1894
• Honokaa Sugar Company – 1875
• Honolulu Iron Works Company – 1876
• Honolulu Rapid Transit Co., Ltd. – 1898
• Kahuku Plantation Company – 1890
• Kekaha Sugar Company, Ltd. – 1898
• The Lihue Plantation Co., Ltd. – 1892
• McBryde Sugar Company, Ltd. – 1899
• Pepeekeo Sugar Company – 1899
• Puna Sugar Company, Limited – 1899
• Von Hamm-Young Company – 1899
• Waialua Agricultural Company, Limited – 1898

The Honolulu Stock Exchange closed its doors in 1978, primarily because of a lack of trading. By the time it closed, many of the listed companies traded on the major exchanges or on NASDAQ. Amfac, C. Brewer, Castle & Cooke, Hawaiian Electric, and others traded on multiple exchanges.

The Honolulu Stock Exchange wasn’t limited to Hawaiian securities. Also listed were a number of Asian securities, such as:

• Bogo-Medellin Milling Co. Inc.
• Hawaiian-Philippine Company
• San Carlos Milling Co., Inc.

There were efforts to resurrect the Honolulu Stock Exchange in the 1980s, with a goal of listing securities of international companies to trade when other exchanges were closed.

There aren’t many regional stock exchanges around today. The Miami Stock Exchange serves as a major currency trading market for the 27 Latin American and Caribbean exchanges. There are also electronic communication networks (ECNs). Prior to closing in 2001 due to a lack of trading, the Arizona Stock Exchange was an electronically enabled stock exchange for carrying out e-Trading after usual market hours. Use was restricted to large institutional users.

The NASDAQ Stock Exchange wasn’t always a stock exchange. NASDAQ was a subsidiary of the NASD (now FINRA), before the NASD restructured it in 2000 by selling shares to its members. NASDAQ wasn’t approved as a national securities exchange until 2007.

In addition to stock exchanges with trading activities, there are information exchanges that facilitate capital transfer. One is The California Stock Exchange. This exchange serves as a match making and listing service where buyers and sellers can meet in person and work out transactions between themselves.

There are also clearinghouses for private secondary transactions. SecondMarket claims to be the largest marketplace for private company stock. SecondMarket connects buyers directly with sellers. One must qualify as an Accredited Investor or Qualified Institutional Investor, to view SecondMarket’s listings. Sharespost also connects private companies with investors. SharePost is a passive bulletin board that enables sophisticated buyers and sellers of private company securities to view existing portfolio items held by its members.

It’s unlikely that Hawaii’s public companies already listed on national exchanges would see a need to list on a local investment exchange. Many of the small-to medium sized businesses in Hawaii are unproven as well as illiquid. There are two key issues to consider – whether the investment is suitable for anyone at all, and whether the investment is suitable for a specific investor.

About the Author: Richard Dole is CEO of Dole Capital LLC of Honolulu, a registered investment banking firm offering financial advisory services, and is a member of the SCR134 Working Group.