(FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.)
The New York Stock Exchange and Nasdaq have dominated US listings for a long while. The Texas Stock Exchange is seeking to break what it calls the “duopoly” of the incumbent New York exchanges.
NYSE has more high-value, ‘blue chip’ companies, a bigger listings market capitalization and more companies from the S&P 500; Nasdaq typically gets the sexier, high-growth technology companies, and it has more listings overall.
Listings are critical for an exchange operator, acting as a primary source of revenue, market liquidity, and reputation. Listings provide capital access for companies, while generating fees and enhancing the exchange’s visibility and prestige, influencing investor behavior.
There are reasons why NYSE hangs giant banners outside its exchange for big IPOs and Nasdaq does similar on its Times Square digital billboards.
Listings are also a ‘sticky’ business and a recurring revenue stream in that when a company lists on an exchange it tends to stay there for the long haul. Packing up and moving to another exchange is a big hassle and distraction that companies don’t want to deal with unless there’s a compelling reason to do so.
So while TXSE has ample buzz currently, it faces an uphill climb in winning listings.
IEX is a cautionary recent example. The trading venue made famous in Michael Lewis’s Flash Boys book launched as an exchange in 2016 and added listings in 2018, with Interactive Brokers (IKBR) as its first win. But IEX exited listings just one year later to focus on exchange trading, saying “it has become clear that the legacy exchanges have a stronghold on this market.”
Still, TXSE is a different company than IEX, with different backers and a different approach, so perhaps it will succeed. For starters, an estimated 10% of publicly traded US companies are headquartered in Texas, which is a substantial audience for TXSE’s appeal to Lone Star State pride including pro-business and conservative leanings.
A cleverly titled recent article, Let’s NMS With Texas, published in the University of Chicago Business Law Review, conveyed optimism:
“TXSE is arguably the most intriguing new exchange registrant in recent years, insofar as it is backed not only by financial heavyweights and regional interests, but also an aggressive marketing campaign attuned to the sensibilities of the entrepreneurial class,” Tulane University law professor and article author Onnig Dombalagian wrote. “It has raised expectations not only among issuers and investors looking for a marketplace aligned with their needs, but also among scholars of finance and securities law who view more competition as a solution to structural problems in stock trading.”
For their part, NYSE and Nasdaq seem to be taking the upstart exchange’s threat seriously, as both exchange groups have opened offices in Texas and added people. Some of these folks presumably have been taking executives from Texas-based listed companies out to lunch to try to head off any poaching.
May the best exchange win.
