October 2024

• Investors have announced they are setting up a new Texas Stock Exchange – which is planning to go live in 2025.
• It could attract a lot of the companies that make Texas their home.
• It could also shake up the New York Stock Exchange by having fewer requirements, offer new products, and having lower costs.

Texans aren’t big on following the leader. We like to go our own way. It may not be a huge surprise, therefore, that Texas is about to make a significant impact on the financial world with the establishment of its own stock exchange. This groundbreaking initiative, the Texas Stock Exchange (TXSE), aims to provide a new platform for businesses to raise capital and for investors to trade securities. But why are they doing this? And what are the potential ramifications? Lets talk about it.

Why Texas?

Obviously there already are stock exchanges in the US – most notably in New York. So why do we need a new one? Or why do some folks think we need a new one? The decision to establish a stock exchange in Texas is likely rooted in several compelling factors. First, the state boasts a thriving business environment, with a diverse range of industries and a strong entrepreneurial culture. Texas has consistently attracted companies from across the nation and the globe, drawn by its favorable business climate, low taxes, and skilled workforce. And companies have been moving to Texas in big numbers the last few years. A stock exchange located within the state can provide a convenient and accessible platform for these companies to access capital and expand their operations.

Secondly, Texas has a long history of financial innovation and a reputation for regulatory efficiency. The state’s business-friendly environment has fostered a culture of innovation and experimentation, which can be conducive to the development of new financial products and services. Moreover, Texas’ regulatory framework is often viewed as less burdensome than that of other states, particularly New York, which may make it more attractive to certain types of businesses and investors.

While headquartered in Dallas, the exchange will be fully electronic. It appears to hope to attract companies that may be frustrated with some extensive regulations put on by other exchanges.

The Potential Impact on Other Stock Exchanges

The establishment of the TXSE could have significant implications for other stock exchanges, both domestically and internationally. While the new exchange may initially attract a smaller portion of the overall market, it has the potential to grow and compete more effectively with established players. As I wrote above, there are a lot of companies that have moved to Texas. And this could attract even more. As the TXSE gains traction, it could divert trading volume and market share away from other exchanges, particularly those that are perceived as less efficient or more heavily regulated.

Furthermore, the TXSE could introduce new competition and innovation into the stock market ecosystem. By offering different trading products, fees, and services, the new exchange could challenge the status quo and drive improvements in the industry. This competition could ultimately benefit investors by providing them with more choices and potentially lower costs.

Legal Considerations

The establishment of a new stock exchange is a complex undertaking that involves a myriad of legal considerations. One of the most important issues is ensuring compliance with federal securities laws, such as the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws impose various requirements on stock exchanges, including registration with the Securities and Exchange Commission (SEC), adherence to certain trading rules, and the implementation of investor protection measures.

In addition to federal regulations, the TXSE may also be subject to state-level laws and regulations. Texas has its own securities laws, which may impose additional requirements on the exchange and its participants. The relationship between federal and state securities laws can be complex, and it is essential for the TXSE to carefully navigate these legal complexities to ensure compliance with all applicable requirements.

Who Will Join the TXSE?

The TXSE is likely to attract a diverse range of companies seeking to raise capital and access public markets. Smaller, emerging companies may find the new exchange particularly appealing, as it may offer a more accessible and less expensive path to going public compared to established exchanges like the New York Stock Exchange or Nasdaq.

Moreover, companies with a strong Texas connection may be drawn to the TXSE as a way to showcase their local roots and build relationships with Texas-based investors. This could include businesses headquartered in Texas, as well as those with significant operations or customer bases within the state.

Conclusion

The establishment of the Texas Stock Exchange represents a significant milestone for the state’s economy and financial markets. By providing a new platform for businesses to raise capital and for investors to trade securities, the TXSE has the potential to drive economic growth, foster innovation, and enhance the competitiveness of Texas-based companies. As the exchange continues to develop, it will be interesting to observe its impact on the broader financial landscape and the types of companies that choose to list their securities on this innovative marketplace.