Silicon Valley will soon get its own stock exchange

LTSE investor Marc Andreessen wants a narrower bid offer.
LTSE investor Marc Andreessen wants a narrower bid offer.
Image: REUTERS/Beck Diefenbach
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The US will soon have a new stock exchange: government watchdogs have approved (pdf) the application for Long-Term Stock Exchange (LTSE), a trading platform backed by prominent Silicon Valley names. The company says its rules are meant to reward investments and business strategies that focus on the long term.

LTSE was given the go-ahead by the Securities and Exchange Commission today to become a national stock exchange, which will allow it to conduct listings and operate as a venue for buying and selling shares. “We are building a market where companies are rewarded for choosing to innovate, to invest in their employees, and to seed future growth,” LTSE CEO Eric Ries said in a statement.

Ries is a San Francisco entrepreneur and author of The Lean Startup, a book in which he advocates for the creation of an exchange like LTSE. One of the platform’s unique, and potentially contentious, proposals is its focus on long-term voting rights: the idea is that shareholders will be granted more voting power the longer they own a stock. Steve Goldstein, an LTSE spokesman, said the exchange will also emphasize governance standards like sustainability, executive pay, and diversity.

The exchange’s next step is to submit its listing standards to the SEC. Goldstein said the precise rules are still being formulated, but the exchange expects to accept clients by the end of the year.

San Francisco-based LTSE will become the country’s 14th equity market. US stock trading is dominated by markets run by the New York Stock Exchange, Nasdaq, and Cboe, which account for a combined share of more than 60% of volume. IEX, an exchange known as for its starring role in the Michael Lewis book Flash Boys, was approved as a national stock exchange in 2016; it currently accounts for about 3% of US equity trading.

LTSE isn’t the only exchange looking for regulatory approval. In January, banks, brokerages, and trading firms announced plans for their own Members Exchange. Adding more trading venues compounds the complexity of the already fragmented US stock market.

US tech companies, many of which have their roots on the west coast, have long griped about the process for listing shares, which is dominated by Wall Street investment banks and exchanges on the east coast. Their concerns include things like high-frequency trading (HFT), activist investors, and pressure to achieve short-term, quarterly results at the expense of longer-term sustainable growth. The for-profit company behind the LTSE has raised money from high-profile tech investors including venture capitalist Marc Andreessen, and Peter Thiel’s Founders Fund.

Some will likely question whether public markets are truly too focused on the short-term, given that investors have been highly receptive to listings by money-losing companies in recent quarters. And the Council of Institutional Investors has argued (pdf) that LTSE’s voting mechanism could hurt shareholders by giving too much power to founders. As for stakeholders in Silicon Valley, who will be a target market for the upstart exchange, they’ve “warmed up” to the LTSE’s ideas, Goldstein said.