For most, Texas conjures images of cowboys, oil, and barbeque — not ticker tape and fast-paced securities trading. That could soon change if BlackRock, the world’s biggest money manager, and Citadel Securities, one of the largest electronic trading firms, have anything to say about it. The two financial heavyweights are leading a group backing The Texas Stock Exchange (TXSE), which has raised $120M to launch a 100% electronic trading exchange, with a physical presence in downtown Dallas. The TXSE plans to file a registration statement with the Securities and Exchange Commission (SEC) later this year with a goal of beginning trading in 2025 and listing companies in 2026.
What are the unique selling points of this venture? Can the TXSE compete with NYSE and Nasdaq, the two largest exchanges in the US and in the world? It is not unprecedented for upstart exchanges to try and steal trading volume and market share from large traditional exchanges. Decades ago, regional stock exchanges outside of New York were either shut down or acquired. In recent years, several electronic trading firms have grabbed volume with the advent of high-frequency trading. The TXSE is different, however, in that it plans to list companies, not just trade their shares. It also hopes to attract listings of exchange-traded products.
Let’s examine some factors that could influence the TXSE’s trajectory. Of all US locations, Texas makes sense as a site for a new exchange. In terms of the number of Fortune 500 companies domiciled in the state, Texas is tied with New York and trails only California, which has been experiencing an exodus over the past few years. Texas is known for having a favorable corporate regulatory and tax environment, making it an appealing place for companies to have their centers of operations.
The TXSE will seek to capitalize on Texas’ business-friendly circumstances to provide competitive options for listing its shares. In boardrooms, disaffection has been mounting over increasing compliance-related costs at the NYSE and Nasdaq, as well as newer rules, including mandated targets for board diversity. While rumors about a new “anti-woke” exchange have been swirling for months, TXSE CEO James Lee insists that the project is apolitical. The unlikely marriage of Citadel’s Ken Griffin, who has been a vocal critic of “woke ideology”, and BlackRock’s Larry Fink, who has been a target of conservative political activists for his firm’s ESG focus, certainly seems to support this.
The NYSE and Nasdaq have dominated the US IPO market for an exceptionally long time. The established exchanges have their processes fine-tuned for the listing of new shares. Will CEOs of emerging companies want to take a chance with a new exchange? A recent Wall Street Journal article alluded to the fact that where shares are listed “also brings to bear soft factors like branding and reputation.” Listing on the NYSE conveys “gravitas” while listing on Nasdaq suggests “cutting-edge”. How will listing on the TXSE be marketed? Will CEOs find the new exchange appealing because it is located closer to where they are domiciled (“the local exchange”), or because it has less restrictive or different parameters for listing regarding board or other requirements?
The evolution of the TXSE will undoubtedly be an interesting process to observe. However, the most important thing is that our capital markets remain liquid and fair for all investors. The SEC, as the regulatory body, will certainly ensure that the TXSE adheres to these principles. As investors, we can rest assured that our ability to execute trades for our clients will not be materially affected by the advent of a new exchange.
