How is technology changing financial markets?

That's the question the Techonomy conference tackled in a panel with NYSE Euronext's Duncan Niederauer, SecondMarket CEO Barry Silbert, and J. Doyne Farmer, a former hedge fund manager, now looking to reinvent the study of markets at the Santa Fe Institute.

Justin Fox, the editorial director for the Harvard Business Review, kicked off the conversation with the question: What is WRONG with financial markets?

Silbert declared "trust has been destroyed," saying public markets are broken for companies below a certain size and many companies of a certain size don't want to go public any more.

SecondMarket creates a market for illiquid assets — private companies in particular. Second Market, which trades shares in 40 private companies including Facebook, Twitter and LinkedIn, works with management to trade under their specific parameters. The problem in public markets, Silbert says, started about a decade ago with the advent of online brokers, decimalization, the formation of new markets that fractured the market. The fact that 70 percent of trading in public markets is high frequency trading, Silbert says is a major problem.

Niederauer says public markets haven't created a good solution for companies and that innovation came mostly from unregulated banks and the shadow banking system.

Niederauer says there's no question Congress has over-regulated and the cost of being a public company has run amuck. Now, he says, we need a private enterprise solution to drive the costs back. While raising the market cap exemption for companies *not* to have to comply with Sarbanes Oxley is a start, Niederauer says Fannie Mae and Freddie Mac are woefully in need of regulation.

NYSE Euronext in more invested in technology than any other global exchange, but Niederauer is also making sure not to rely too much on tech. "It's not so bad to take the plane off auto pilot every once in a while," Niederauer says. "There's a place and a time, in times of turbulence... I like having the idea that you can actually slow it [the trading] down and discover the right price."

Farmer cautions that people are not rational, warning that we're always going to have problems with financial markets. But he's optimistic about the new Office of Financial Research, which will require financial services to report transactions in real time. During the recent financial crisis, Farmer says Congress couldn't act, because they had no idea what was going on and they had no objective adviser. The Office of Financial Research would fill that void, testifying and providing a risk dashboard with all the information Congress needs.

So what now?

Silbert says we need to move away from the markets' casino mentality, which calls for fundamental changes.

He's not advocating for tax or regulation, but rather a change of mentality.

The fact that companies like Facebook, which certainly could go public, isn't going public, speaks to the fact that successful private companies can raise money and find liquidity without going to the public markets. If going public is just a branding event — a sign of success — entrepreneurs don't need that any more.

Look for extensive coverage from Techonomy online and on-air throughout the week on CNBC.

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