New US stock exchanges seek to make a mark

When it comes to picking a listing venue in the US, there’s been little choice but the New York Stock Exchange and its midtown rival Nasdaq. But some new entrants to the exchange game are seeking to carve out business with novel approaches.

They hope to attract listings with pitches that partly draw on corporate aspirations, strategy or identity rather than purely on the level of fees or trading liquidity. In June, the Texas Stock Exchange caused a stir with its plans to enter the industry, seeking to appeal to companies “demanding more stability and predictability around listing standards and associated costs”. Then in July, Green Impact Exchange submitted a regulatory application for an exchange that lists companies with a sustainability strategy.

“More market participants are using non-financial criteria, or longer-term factors, in how they think about investments,” said Matthew Josefy, a strategy specialist at Indiana University’s business school. “It’s a reasonable thesis that a new exchange could position itself around those issues.”

There are already 16 regulated US stock exchanges, although NYSE, Nasdaq and Chicago-based Cboe Global Markets own 12 of those between them, and most of the others prioritise trading, not listing. “Focusing on listings is different to what we’ve usually seen from new exchanges. These are trying to fill a need and that’s good,” said Joe Saluzzi, co-founder and head of equity market structure research at broker Themis Trading.

But in doing so, the new entrants are stepping into areas that have triggered culture wars and debate such as board diversity and climate change — a sharp departure from the usual approach of bourses around the world, which strive to be seen as visible champions of a country’s business prowess but quietly neutral in their rules.

The GIX filing came months after the Securities and Exchange Commission was taken to court following its introduction of rules that required companies to boost their disclosures of climate risks. And Dallas-based TXSE has been described as the anti-woke exchange despite saying it is apolitical. Its pitch on predictability of listings standards has been viewed by some as a shot at the controversial 2021 board diversity requirements introduced by Nasdaq, which are currently being challenged by conservative groups in court.

GIX plans to offer secondary not primary listings, enabling a company to retain its prized NYSE or Nasdaq status while also bolstering its green credentials, albeit at extra cost. GIX says its value lies in the fact that a company follows its rules or gets delisted — something that companies work hard to avoid.

“For investors who’ve bet on a company for the long haul, it’s got real value when a regulated exchange says ‘this company has achieved a level of transparency about its sustainability plans’, rather than it has achieved some level of greenness for now,” said Dan Labovitz, chief executive of GIX and a former NYSE official.

TXSE has said nothing more since an initial announcement in June, when it touted $120mn in funding from a group including Citadel Securities and BlackRock. It also talked of the appeal of its home state, now home to the headquarters of more of the biggest US companies than any other.

Success for the newcomers is far from guaranteed. Exchanges who have previously tried to compete with NYSE and Nasdaq for listings have, at best, failed to make inroads. Long Term Stock Exchange launched listings in 2021, offering secondary listings with an emphasis on companies laying out long-term strategies for growth including how executive compensation aligned with those plans. Its short-term results have been underwhelming. So far LTSE has attracted just three listings, one of which has since left.

Before that there was Investors Exchange (IEX). It started a listings business in 2017, a year after its launch as an exchange with plans to challenge the dominance of high-frequency trading in US markets. That followed its rise to fame in 2015 thanks to the Michael Lewis book Flash Boys: A Wall Street Revolt. It lured a single company from Nasdaq before conceding defeat in 2019. But even IEX sees potential for new entrants.

“Beyond the NYSE and Nasdaq duopoly, everything else about equity markets is much more competitive. That suggests there ought to be more of an opportunity to get into the listings business,” said John Ramsay, IEX’s chief market policy officer.

Privately, company advisers admit their clients often choose between NYSE and Nasdaq based on a CEO’s personal preference rather than any business or financial factors. A little more choice would make things more interesting for companies — and investors.

jennifer.hughes@ft.com