Does any Stock Exchange REALLY work?

Some months back, an idea struck me which I wish to share with you for your comment.

There is something inherently wrong with the JSE and all other major stock exchange systems worldwide, which needs to be corrected within our lifetime in order for them to remain sustainable...

First, to recap basics (Thanks to Ed Kinsey for helping to clarify my thoughts with his response to my first attempt to verbalise this idea).

The very purpose of stock markets is for companies to raise capital for expansion, by selling "shares" in their company to the investing public.

There exists two basic markets:
1) A Primary Market: Where a company sells shares to the investing public in an Initial Public Offering (IPO)to raise capital and,
2) A Secondary Market: where sellers and buyers of these shares come together to trade their shares. i.e the guts of the JSE

The Secondary Market is where the vast majority of trading takes place and accounts for huge volumes of money changing hands.

Think about this...  When a company lists and sells the initial shares, they receive lots of cash...

However, here is the problem. After the initial sale by the original company, these shares now change hands many times on the Secondary Market, without any benefit to the actual company whose shares are being traded.  The buyers pay the sellers, and the brokers make a bit every time any shares change hands, whether at a profit or a loss. And of course the exchange itself must rake off a small slice from every transaction to remain operating. 

So, we have lots of cash flowing between investors on the secondary market, however none of it flows towards the companies whose shares are being traded (except for the very first initial offering, or when they decide to sell MORE shares in their company).

Not only are they reaping no benefit after the initial release of shares to the public, but on top of that, they must constantly pay dividends to whoever holds their shares!

Of course, they can buy their shares back and reduce the dividends they must pay out, but that's not the point.

When there exists high demand for a particular company's shares and everyone wants to buy in, does that company enjoy any real benefit from this enviable situation? Absolutely none at all...

The exchanges need to go back to grass roots and review the INTENT of the exchange... and figure out some way to generate cashflow TOWARDS the company whenever someone wishes to purchase some shares in that company, not just on the initial offering, but on EVERY transaction! Due to the very high volumes traded, this could be a tiny percentage.

Why should the brokers enjoy the only failsafe, risk-free financial benefit of every transaction? They cannot lose, whether the purchaser is making a wise decision or not, or whether the seller is making a profit or loss on the sale!  (This does not ignore the fact that __if__ their advice is usually sound, they are likely to gain a solid reputation leading to increased custom, increased volumes and increased revenue).

The number of speculators and the sheer volume of automated trading being done by hardware and software on the secondary market, plus the recent development of several levels of derivatives, has bastardised the system and is abusing the basic concept. The original intent of the stock exchange is almost lost.

The companies whose shares are being traded should benefit intrinsically by high transaction volumes in their own shares, and not only the brokers.

This percentage could be as low as 1% or even lower for those with high volumes of shares in the market.

There must exist a reasonable percentage that will not scare buyers away, will not affect the profitability of good shares, and will benefit the company whose shares are being traded.

That would add further incentive for listed companies to perform, as increased trading volumes on their shares would increase their own revenue stream.

A small "entry cost" of perhaps as little as 1% is not going to turn investors away from a good share, especially if it is applied across the board.

An alternate solution would for the exchange to force the brokers to pay a tiny fraction of their cut (amounting again to perhaps 0.5% to 1% of the share price) and to route that to the company on a quarterly basis.

I believe this could lead to a new type of stock exchange that would offer companies an added incentive to list and sell shares to the investing public.

This is just an idea to overcome the biggest shortfall of the system that everyone has been using to their advantage, often at the expense of the company that issued the shares.  High trading volumes tend drive the price up, so that the company battles to buy back their own shares later.

There could be no real resistance to this concept in the long run... and, it helps to finance development and growth of industry, a prerequisite of prosperity for all.

Any thoughts on this concept?