It is certainly a bold move. TXSE Group announced on 5 June 2024 that it had $120m in backing from a group of giant financial institutions to launch a Texas Stock Exchange to rival New York. It will be based in Dallas, and the firm hopes to have it up and running by the end of this year, with trading open by 2026.
It plans to have lower costs, especially for exchange-traded funds (ETFs), and fewer rules on issues such as the diversity of the board. If it gets all the necessary approvals it will be the first time Wall Street has had a real rival for a couple of generations. Texas is the natural home for an alternative.
The southern state is home to the most Fortune 500 companies in the US and more than 5,000 private-equity sponsored companies. There are also more than 1,500 publicly traded companies in the region. By itself, Texas is the eighth largest economy in the world, with a GDP of $2.4trn, larger than Russia, Canada, and Italy. Even if it just carved out a niche as the place to list locally based businesses, it could still be a substantial force. If Canada can support a stock market, why not Texas too?
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How will the Texas Stock Exchange work?
It will be interesting to see whether the new exchange can carve out a space as a lighter-touch regulator as well. Just like London, and most European exchanges, Wall Street has been requiring companies to meet an increasing number of diversity and governance targets. And just like London, the response has been for fewer and fewer companies to list.
From around 8,000 in the 1990s, only 4,000 are listed now, even though the US economy is much larger than it was 20 years ago. The Texas market may be an alternative for firms seeking freedom from all the rules that New York imposes.
The London market has even more absurd governance codes and regulations than New York does. Any company with a listing has to follow rules on who can be chairman, the composition of its board, the diversity of its directors, its climate-change policies, and a dozen other standards and targets that have been mandated over the last two decades. The result? Companies have been giving up in even larger numbers. In 1996, there were 2,700 businesses in London, but by last year that number had fallen to 1,100, a fall of 60%.
Major corporations such as CRH have shifted their listing to New York, many of the major initial public offerings, such as the chip designer ARM, are seeking to list there, and even a few of the giants such as Shell have hinted they may decide to move. As the number of firms dwindles, so does investors’ interest, with less and less money invested in the City.
A vicious cycle has started, with fewer companies, leading to less investment, and it is going to be very hard to break out of that now it has begun. It could get even harder under a Labour government that now looks certain to be elected early next month, which may well impose a range of extra regulations on everything from workers’ rights to diversity and climate.
Can the UK launch another stock exchange?
There is a simple solution. If Texas can launch its own stock exchange, then surely the UK could start one in Leeds or Manchester, or any of the other major regional cities. It would have nothing to do with the London Stock Exchange, and starting with a completely blank slate it could be built for the 21st century.
Just like Texas, it could offer significantly lower and easier trading for ETFs, a large slice of the equity market by themselves. And more significantly, it could ditch many of the environmental, social and governance rules that have built up over the last 20 years. True, there may be some legal obstacles, in that some of the rules are imposed on any “listed” equity. But it might not be too hard for clever lawyers to get around that by matching buyers and sellers electronically so that the shares were not technically “quoted”. This would not even be a very radical departure.
Manchester, Liverpool, Birmingham, and several other major cities of the industrial revolution, all used to have their own stock exchanges. Over time, trading consolidated in the City, and they were finally phased out in the 1980s. With the London exchange dwindling away, the moment has surely arrived to revive them.
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