Texas Stock Exchange to rival NY giants on the cards

Bengaluru/New York — TXSE Group, backed by BlackRock and Citadel Securities, plans to launch Texas Stock Exchange in Dallas, going up against established New York-centric exchanges in a bid to attract global companies.

The exchange, which has raised about $120m, plans to file registration documents with the US Securities and Exchange Commission (SEC) to start operating as a national securities exchange later this year, TXSE said on Wednesday.

A rebound in capital markets has sent a plethora of companies from within and outside the US scrambling to list their stocks, creating more opportunity for indices.

But carving a space could be difficult for a new exchange in the lucrative US listings market, where the New York Stock Exchange (NYSE) and the Nasdaq have dominated in a virtual duopoly since the 2000s.

Major regional stock exchanges such as the Philadelphia Stock Exchange, the Boston Stock Exchange, and the Chicago Stock Exchange, merged into either the Nasdaq or the NYSE, diminishing competition, after the SEC introduced laws that gave preference to automated trading platforms.

Trading volumes, a key measure of strength of exchanges, have also been concentrated between the two industry giants, which make it difficult for exchanges with low volume activity to draw big orders from traders.

But changes in equities trading markets, such as a shift in listing standards and associated costs, are driving more volumes to exchanges and more choices for issuers and sponsors, said James Lee, founder and CEO of TXSE.

Corporate issuers and exchange-traded product sponsors are demanding more stability and predictability around listing standards and associated costs, the company said.

The Texas stock exchange aims to attract listings of exchange-traded products and challenge increasing compliance costs at major US indices, as well as newer rules including setting targets for board diversity at the Nasdaq, as per a report from the Wall Street Journal on Tuesday.

“TXSE will ultimately create more competition around quote activity, liquidity and transparency, resulting in more consistent and reliable markets,” Lee added.

Texas has been at the forefront of politically “red” states that restricted their public pension funds from doing business with BlackRock and other Wall Street firms that have embraced environmental, social and governance (ESG) principles.

With the growing prominence of sustainable investing, existing exchange operators have increased their focus on ESG business opportunities and are increasingly rolling out new initiatives.

Complicated relationship

BlackRock has had a complicated relationship with the officials of the Republican-leaning state of Texas in recent years.

The company, which is a major investor in oil companies such as Exxon and has rejected calls to divest fossil fuel holdings, faces accusations of “boycotting” certain industries due to its call for wider emission disclosures from its portfolio companies.

In February CEO Larry Fink appeared with Texas lieutenant governor Dan Patrick at an event in Houston to stoke infrastructure investments. But the next month, a state fund withdrew $8.5bn from BlackRock's management, citing the company's energy policies.

“BlackRock is proud to be a founding investor in the Texas Stock Exchange to increase liquidity and improve market efficiency for clients and other investors in the US capital markets,” a company spokesperson said.

Before Texas Stock Exchange, Citadel Securities has backed some exchanges focused on different assets such as Members Exchange (MEMX) in equities and options, FMX Futures Exchange and EDX Markets in crypto.

Reuters