United

Citadel

James

BlackRock

The United States is fracturing politically and culturally into “red states” and “blue states,” so why should stock-listing exchanges be any different?
Rumors had been circulating for months about an “upstart, ‘anti-woke’” stock exchange launching in Texas, <a href="https://www.wsj.com/finance/regulation/new-texas-stock-exchange-takes-aim-at-new-yorks-dominance-e3b4d9ba" target="_blank" rel="noopener noreferrer nofollow">according</a> to The Wall Street Journal — and recently, the rumors came to fruition.
TXSE Group announced plans on June 5 to launch the Texas Stock Exchange (TXSE), headquartered in Dallas. Importantly, the venture has already raised $120 million in capital from BlackRock and Citadel Securities, among others.
It is a bold initiative and immediately raised a slew of questions. Was the New York “duopoly” of the New York Stock Exchange (NYSE) and Nasdaq, the world’s two <a href="https://www.statista.com/statistics/270126/largest-stock-exchange-operators-by-market-capitalization-of-listed-companies/#:~:text=The%20New%20York%20Stock%20Exchange,What%20is%20a%20stock%20exchange%3F" target="_blank" rel="noopener noreferrer nofollow">largest</a> stock exchanges by market capitalization, really ripe for disruption?
Was this development truly part of a “shifting corporate landscape” toward states with more favorable regulatory and taxation policies, as the WSJ suggested?
TXSE will initially look to <a href="https://www.txse.com/#press-release" target="_blank" rel="noopener noreferrer nofollow">attract</a> capital-seeking companies in the southeast quadrant of the U.S., including Texas, Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina and Tennessee. But do startups in that region really require their own stock exchange?
And what about the emerging blockchain and cryptocurrency industry? Wasn’t this good news: An “upstart” stock exchange seemingly custom-made for an insurgent crypto sector?
<h2 data-ct-non-breakable="true" id="will-it-have-an-impact">Will it have an impact?</h2>
What is one to make of this announcement — is it even significant?
“Is it newsworthy? Yes. Is it interesting? Yes,” Larry Tabb, head of market structure research at Bloomberg Intelligence, told Cointelegraph.
“But will it be impactful?” Perhaps not. It will “be a hard row to hoe in Texas,” predicted Tabb.
“There are costs for companies moving away from New York,” Owen Lau, senior analyst at Oppenheimer and Co., told Cointelegraph. TXSE has taken the first step to appeal to companies for specific themes and specific regions, but “it remains questionable on how much liquidity they can build, and how many companies will eventually list there.”
Others, however, think that the New York exchanges could profit from some competition. “What this is mostly about is just a classic example of NYSE and Nasdaq having a lot of power, refusing to innovate, and using regulatory capture to maintain their duopoly,” Leigh Drogen, general partner and chief investment officer at Starkiller Capital, an institutional investment management firm, told Cointelegraph.
For that reason, it makes sense for big players like Citadel and BlackRock to back a new exchange “wherever it might be located, to loosen the grip of those two players and force innovation,” added Drogen.
“We know that [BlackRock CEO] Larry Fink is supportive of the idea of tokenization. NYSE and Nasdaq won’t be, and they will use their regulatory capture to slow down crypto,” said Drogen.<iframe width="100%" height="315" src="https://www.youtube.com/embed/HTveRlW7QPo" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen data-ct-non-breakable="true"></iframe>
“Most of the world’s leading exchanges, including in London, Tokyo, Zurich and other cities, have announced that they will upgrade to digital exchanges capable of handling natively digital assets — we expect Texas will do the same,” Matthew Le Merle, co-founder and managing partner at Blockchain Coinvestors, told Cointelegraph.
“Texas has been one of the most pro-innovation, pro-digital asset states in America, and it would be very natural for a new stock exchange to begin with the latest technologies and to support digital assets from day one,” Le Merle added.
Elsewhere, BlackRock has been criticized for its environmental, social, and governance investing initiatives, which some consider too “woke.”
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Supporting a Texas exchange might help the world’s largest asset manager improve its image in Texas, suggested Tabb. Meanwhile, Citadel CEO Ken Griffin has supported the Republican Party; he moved Citadel headquarters from blue-state Illinois to red-state Florida two years ago.
That said, even a Texas-based stock exchange will require approval from the U.S. Securities and Exchange Commission (SEC), and “if the SEC doesn’t bless crypto, it doesn’t matter” where the exchange is based, said Tabb, at least from a crypto-listing standpoint.
Moreover, among companies that sell their shares to the public, the first priority is almost always market valuation. It’s not about scoring political or cultural points. Tabb said:
<blockquote data-ct-non-breakable="true">
 “Are they likely to get a higher [price-earnings] multiple for their new stock listing on the NYSE, with its 200 years of history, or Nasdaq, with its 50 years, than in Texas? Yes, most probably.”
</blockquote>
By this logic, a Texas location probably wouldn’t sway a blockchain or crypto firm looking to go public. It still would follow the money.
As for trying to break the New York “duopoly” on stock exchanges, Lau noted that “other exchanges tried, but most of them failed to achieve what they had initially hoped for.” Trading is already a crowded space, and it’s getting hard to build meaningful liquidity. And for stock listings in particular, he added:
<blockquote data-ct-non-breakable="true">
 “There are factors such as pride, brand and even index consideration associated with listing in NYSE or Nasdaq. You may lose that by listing on other venues.”
</blockquote>
Still, given the heated political temperature in the U.S., it’s hard to overlook the blue-state/red-state aspect of this.
Bülent Temel, a professor of economics at the University of Texas at San Antonio, <a href="https://www.texasstandard.org/stories/dallas-texas-stock-exchange-blackrock-citadel-securities-economic-impact-jobs/" target="_blank" rel="noopener noreferrer nofollow">told</a> the Texas Standard that the incumbent stock exchanges have been imposing burdensome regulatory mandates on companies lately. One such mandate is a rule change requiring that Nasdaq-listed companies “satisfy certain diversity requirements on their boards set by Nasdaq.”
This, along with other complaints, such as high trading fees, has spurred a “backlash” of sorts and a search for alternative exchanges. “That’s why I think those large firms back such a project with quite significant sums,” said Temel, referencing the BlackRock and Citadel investments.
Could we soon be talking about “red state” stock exchanges and ”blue state” stock exchanges, then?
“I don’t think it is a good idea to have ‘red state’ and ‘blue state’ stock exchanges,” said Lau. “I am not sure how this idea can appeal to new companies coming to the United States.”
Maybe an innovative new Texas stock exchange would encourage more crypto firms to go public, though?
“I haven’t seen anything concrete from them about appealing to the crypto and blockchain industry,” continued Lau. “There is certainly room for them to put more emphasis on building a blockchain-based exchange and tokenizing securities. We will see how they evolve in the future.”
Drogen, for his part, doesn’t see a red state/blue state fracturing when it comes to equities-trading marketplaces. “I wouldn’t lean too heavily into the culture war thing because it’s a bit of a red herring, and the real story is a lot more important.”
He views what TXSE is doing as a “rational move” to erode the power of the NYSE/Nasdaq by pursuing “more efficient forms of transactions because it doesn’t suffer from the innovator’s dilemma,” i.e., a circumstance in which the largest incumbent players have a disincentive to innovate.
Moreover, if a crypto firm wants to demonstrate its libertarian or anti-woke credentials, there are other ways to do it, Tabb suggested. They could apply for a secondary listing on the TXSE, for example. This could probably be done for a fraction of the NYSE’s $300,000 flat-rate initial listing fee for common stock. Their primary listing would still be one of the New York exchanges, presumably.
<h2 data-ct-non-breakable="true" id="will-a-texas-exchange-succeed">Will a Texas exchange succeed?</h2>
All in all, it’s hard to see how additional competition in the U.S. stock market exchange sector can be bad for crypto firms looking to sell their company’s equity shares to the public.
“BlackRock CEO Larry Fink has been articulate in describing the benefits of digital assets on blockchain rails,” declared Le Merle. “We hope and expect that BlackRock’s backing of the new Texas exchange will include a focus on blockchain technology and natively digitized assets.”
Elsewhere, TXSE CEO James Lee <a href="https://www.dallasnews.com/business/2024/06/04/financial-giants-plot-new-national-stock-exchange-based-in-dallas/" target="_blank" rel="noopener noreferrer nofollow">told</a> the Dallas Morning News: “We aim to be the number three listing venue in the United States.”
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When Cointelegraph contacted TXSE, the company <a href="https://www.dallasnews.com/business/2024/06/04/financial-giants-plot-new-national-stock-exchange-based-in-dallas/" target="_blank" rel="noopener noreferrer nofollow">referred</a> us to the same Dallas Morning News story that was equivocal on the matter of crypto-firm listings. The overall suggestion was that TXSE would stay focused on building “critical mass,” at least initially.
Will the new exchange succeed?
“Will they challenge NYSE and Nasdaq? No,” opined Tabb.
Will they do better than some of the other 18 or so stock exchanges operating or soon to be operating in the United States? Perhaps, Tabb acknowledged.
Still, any crypto startup — or any other rapidly growing U.S. firm, for that matter — that wants to get a $1 billion valuation for their public shares still needs to go to the NYSE or Nasdaq for that to have a chance of happening, at least for the foreseeable future, suggested Tabb.

TXSE ‘upstart’ stock exchange could become a crypto-friendly challenger

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