Texas is stepping up to challenge the financial titans of Wall Street with the introduction of a new national stock exchange, the Texas Stock Exchange (TXSE). Based in Dallas, this ambitious project is supported by prominent Wall Street firms such as BlackRock and Citadel, aiming to compete with the well-established New York Stock Exchange (NYSE) and Nasdaq.
The TXSE Group, the entity behind this new exchange, has announced plans to file for registration with the US Securities and Exchange Commission (SEC) later this year. With an impressive backing of over $120 million from more than two dozen investors, TXSE is the most well-capitalized exchange ever to seek SEC approval. This substantial financial foundation highlights the serious intent and high expectations for this venture.
James Lee, the founder and CEO of TXSE Group, expressed his enthusiasm and confidence in the project. “We’re thrilled to bring to fruition the long-held vision for a national stock exchange in Texas,” he stated on Wednesday. He emphasized the economic strength of Texas and other southeastern states, noting that the growing demand from investors and corporations for diverse trading and listing options makes this the perfect time to establish a major national stock exchange in Texas.
The TXSE aims to tap into the substantial market of over 5,200 private equity-sponsored companies in the region, many of which may be looking to go public. Lee revealed that the exchange is targeting a launch date in 2026, setting a clear and ambitious timeline for this project.
One of the driving motivations behind the creation of TXSE is addressing a significant issue in the US financial markets: the dramatic decline in the number of public companies. Since the 1990s, the number of companies listed on US exchanges has halved. In 1996, there were approximately 8,000 companies listed, but today that number has dropped to about 3,700, according to data from the Center for Research in Security Prices.
This decline is not due to a reduction in the number of companies overall but rather a trend of companies opting to stay private. Several factors contribute to this, including stringent reporting requirements, high litigation costs, burdensome regulations, demanding board governance, shareholder activism, intense public scrutiny, and the pressures of meeting quarterly earnings expectations. As a result, many companies find it more advantageous to remain private, avoiding these challenges and focusing on long-term strategies without the distraction of public market demands.
Economists at Wells Fargo highlight that there are now about five times as many private equity-backed firms in the US as there are publicly traded companies. This trend has been steadily growing. For instance, the average US technology firm used to go public after four years in 1999, but by 2019, this period extended to 11 years. This shift has raised concerns among industry leaders, including Jamie Dimon, CEO of JPMorgan Chase, who has publicly questioned whether this is the desired direction for the market.
TXSE aims to address some of these burdens by providing an alternative that promises greater alignment and competition in the equity markets. According to a press release from TXSE, their launch comes at a time when changes in the equity markets present opportunities for more stability and predictability in listing standards and associated costs. The exchange seeks to broaden access to US capital markets for all investors and offer better alignment for public companies and those looking to access public capital.
Despite the dominance of NYSE and Nasdaq, the US is home to approximately 13 stock exchanges, including those in Philadelphia and Miami. TXSE plans to carve out a niche primarily serving businesses located in Texas and the southeastern United States, reflecting the region’s economic dynamism and growth potential.
In summary, the establishment of the Texas Stock Exchange represents a significant development in the US financial landscape, promising to inject new competition into the market and provide more options for companies considering going public. With substantial backing and a clear vision, TXSE is poised to become a notable player in the world of stock exchanges, offering a fresh and competitive alternative to the long-established giants of Wall Street.