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Texas stock exchange: will it work?
BlackRock and Citadel Securities last week announced a plan to deliver one of the biggest shakeups to the world of finance in some time: They intend to compete with the stock market duopoly of NYSE and Nasdaq by launching the Texas Stock Exchange, which will have a physical presence in downtown Dallas and cater to CEOs tired of the costs and regulation associated with listing in New York. The new exchange, TXSE, plans to host its first trades next year and attract its first listing in 2026.
The news gave rise to a very clever headline:”All of my indexes live in Texas” (Reference to George Strait Here) — and even some Texas-sized boasting. The CEO of the new venture said the time is right for a major stock exchange in the Lone Star state, in part because “Dallas has become one of the dominant, if not the most, dominant financial centers in the country, if not the world . “
Oh really? If Dallas is the world’s most dominant financial center today, that will be news to the hundreds of thousands of people who work in banking and related industries on Wall Street and downtown Manhattan. I don’t buy it. There are places that continually claim they will usurp Hollywood for film or Silicon Valley for technology, but that never happens, and Texas doesn’t trump New York in terms of finance. The reason is the same in all three cases: An ecosystem of people and resources has emerged in these centers that cannot be lifted and moved the same way you would ship a car factory south.
TXSE’s plan to replace New York as the top financial player is also a gamble in light of recent history. Since 2000, a number of other emerging markets have entered the scene with big plans to steal the NYSE and Nasdaq’s customer base. The most famous of these is IEX, which got the Michael Lewis treatment in Flash Boys for its founders’ attempts to undermine the advantage of high-frequency traders. Despite all the hype, today there is trading on IEX and “other” US exchanges matters only 6% of the total volume. As for new listings, some CEOs may complain about the NYSE and Nasdaq but, when push comes to shove, they always choose these two for their initial public offering.
If you want to make the bull case for Dallas meddling in the Empire State stock market business, you can point out that TXSE has the backing of two of the richest and most powerful financial firms. Meanwhile, some CEOs are actually chafing at the rules imposed by the NYSE and Nasdaq, especially when it comes to board diversity. And finally, the New York stock exchanges have not shown a knack for innovation, and instead have behaved like the bloated duopoly that they are: Consider the NYSE’s foray into the cryptocurrency industry with Bakktits digital assets unit that has raised hundreds of millions of dollars but is doing so run to the ground.
A little competition would be good for everyone. But will it be the CEOs of major corporations who ring the opening bell in Dallas? I’ll believe it when I see it.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
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