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S&P Global Market Intelligence: Governance Concerns Still in Focus as Long-Term Stock Exchange Plans Launch

Sam Belden

Sam Belden

A Silicon Valley-backed exchange venture wants to reinvent the role listing platforms play in the U.S. stock market.

With support from the likes of Marc Andreessen and Peter Thiel, Long-Term Stock Exchange Inc., or LTSE, has its eyes set on becoming the 14th national securities exchange in the U.S., a process that started in November 2018 when it applied with the SEC.

But the exchange has no interest in resembling traditional Wall Street bourses such as the Intercontinental Exchange Inc.-owned New York Stock Exchange, Nasdaq Inc. and Cboe Global Markets Inc. While trading is the linchpin to most exchanges’ business models, LTSE does not plan to compete on trading market share. Instead, the California-based venture hopes to become a stock exchange to bridge the growing divide between companies and their investors that it says has been caused by an increased focus on quarterly earnings guidance, intraday stock movements and analyst expectations, among other near-sighted factors.

“It’s like a disease that is infecting modern capitalism,” LTSE founder and CEO Eric Ries said of short-term pressures in an interview. “Our goal is to not build the best stock exchange in the world. Our goal is to fix this problem.”

Across corporate America, executives and founders have increasingly complained that investors have grown fixated on short-term gains rather than their companies’ long-term growth prospects.

Many executives, such as JPMorgan Chase & Co. Chairman and CEO Jamie Dimon and Berkshire Hathaway Inc. Chairman, President and CEO Warren Buffett have advocated that companies move away from practices such as quarterly earnings guidance, which they say can unnecessarily increase investor focus on upcoming earnings reports. Executives say the increased focus on a company’s near-term results or daily stock movements limits their ability to work on parts of their business with longer growth horizons, such as product development and new market entries.

LTSE hopes it can provide issuers with a listing home designed to incentivize long-term thinking among shareholders. How exactly it will do that remains unclear, though.

Within its SEC application, LTSE did not include any specific long-term-focused proposals, a decision management made to ensure the exchange receives SEC approval before pursuing any novel listing or voting structures, Ries said. No final decisions have been made about what models it will end up using, an LTSE spokesperson said.

The relatively straightforward exchange application could put LTSE on a fast track for SEC approval, as the agency is not in the business of determining “winners and losers,” Security Traders Association President and CEO Jim Toes said in an interview. The SEC has until late July to issue a ruling on the application. But the boilerplate filing has still sparked questions up and down Wall Street about what exactly the exchange’s platform could look like.

To read the full article, click here. For more on the Security Traders Association, click here.

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