I have spent a fair bit of time recently studying the major stock exchanges in Second Life (particularly WSE and AVIX). Initially, I assumed these exchanges would be serving the same basic roles as in real life: to allow business owners an easy way to raise capital for expansion from a broad community of investors. However, it is hard to maintain this perspective when the WSE includes the following text on all prospectuses, right after the entry allowing (but not requiring) management teams to post their real-life information:
- (Real life details are optional as the WSE is a fictional securities exchange based on avatars in the virtual world of Second Life.)
My original intent was to post my thoughts on how to improve the functioning of SL’s capital markets through listing and disclosure requirements—but such a post makes sense only if the markets are actually intended to raise capital. If the markets are simply a game, my assumptions about the goals of the market are invalid, and I wouldn't know what to recommend. (Would regulations need to be maximize fun, rather than liquidity of capital flows?)
Since many Terra Novans have written extensively on the boundary between games and real life, particularly as it pertains to legal and economic matters, I would like to poll readers on the following issues (weigh in on the ones that interest you):
- Are SL exchanges actually intended to me ways for people to raise capital? Those who want to answer 'yes' must explain why listed firms are frequently owned almost entirely (e.g., 90% or more) by the CEO and other officers. Apparently, raising outside capital is not the top priority for many management teams.
- What does it mean for WSE to be a “fictional securities exchange?” After all, real people are investing real money (as there is an active curency exchange converting Lindens into US$) in the hopes of getting a real return through the efforts of real people. Does WSE say this simply to stave off real-world governmental regulation (by the SEC, for example)?
- Are stock exchanges in SL just a game? If so, is there still a reason for residents to create a quasi-regulatory body (like the SLEC, a group of SL residents seeking to develop stricter listing standards and other practices.) If not, how long till the SEC or NASD comes knocking?
- Alternatively, are the exchanges simply a way for unscrupulous residents to fleece their naïve compatriots? Accusations of questionable behavior and outright fraud are certainly common (and strongly denied), both targeting and emanating from major players in the exchanges. Does this make inworld regulatory oversight by a group like the SLEC essential, or would that simply add a veneer of credibility to what might simply be corrupt enterprises? (Please note that I am no claims about the motives or morals of the leaders of the exchanges, management teams or investors. To get some evidence on what SL residents think, look at comment threads here, here and here.)
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