New Texas Exchange promises tough standards in challenging the old guard

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The head of the Texas Stock Exchange has promised stricter listing standards than its New York rivals as part of his state’s bold bid to establish Dallas as a financial rival to East Coast dominance.

TXSE chief executive Jim Lee told the Financial Times that the new exchange’s standards, including earnings tests, price floors and other unspecified measures, would be strict enough to effectively exclude more than a third of Nasdaq-listed companies and New. York Stock Exchange.

The comments defy early expectations that the fledgling stock exchange would adopt looser rules in its bid to break New York’s preeminence. Its emphasis on “predictability” in its initial release in June was seen as a riposte to a controversial 2021 board diversity disclosure rule introduced by Nasdaq, which is being challenged in court.

“Ours will be the strictest (quantitative standards) inside the strike zone,” he said in an interview. “Our quality standards will be stricter, not for each element, but in total, so that about 1,500 Nasdaq companies (would) fall and about 200 NYSE companies (would) fall – that would not qualify for continued listing on our exchange. ”

The NYSE and Nasdaq declined to comment.

The TXSE’s anticipated launch comes as part of a broader push by Texas to position itself as a corporate mecca, with a proposed hands-off approach to regulation that has drawn hundreds of headquarters relocations and redomicils to the state in recent years. The new exchange contributes to an effort to establish Dallas — the nation’s second-largest financial center by industry employment — as a rival to New York.

TXSE will formally file with the Securities and Exchange Commission on December 1. Assuming approval, it expects to make its first trades in December next year and list companies in early 2026.

Backed by Citadel Securities and BlackRock, among others, the TXSE made waves when it was unveiled in June with plans to break the duopoly on stock and exchange-traded fund listings enjoyed by Nasdaq and the NYSE, which is part of the Intercontinental Exchange based in Georgia.

Lee told the FT that the exchange would seek to minimize costs by remaining “agnostic” to certain “entirely optional” environmental, social and governance standards imposed by major operators, but declined to point to specific rules. He also said that TXSE’s minimum requirements will prevent speculative penny stocks.

But its ambitions have been met with skepticism from rivals and other industry participants, who have pointed to the failure of previous attempts to wrest listings from the New York duo.

“No one has been able to start a new listing exchange in 50 years — and they’ve tried,” said James Angel, a finance professor at Georgetown University. “The people behind this know how to start a stock exchange, so with good technology and marketing, they will make sure they have a good trading product. But lists are an uphill battle.”

While the US has 16 national stock exchanges, most focus on trading stocks, not listing. Hosting companies, as TXSE aims to do, produce attractive annual returns for that exchange, regardless of where the shares are actually traded.

Rick Perry, the former Texas governor who will sit on TXSE’s board, told the FT that its launch was “the next step in the (pro-business) evolution” of the state.

At the governor’s mansion in the state capital of Austin this week, Greg Abbott, Perry’s successor, hosted an event in support of the stock exchange in front of signs reading “the bull market is coming home.”

Abbott said, “Texas has already become the home of the capital in the United States of America. Today, we stake our claim as a capital markets house with the addition of the Texas Stock Exchange.”

The exchange estimates it could attract about 1,000 publicly traded companies — about a fifth of the national total — and a book of 14,000 private equity-backed companies that are based in the so-called Southeast quadrant of the U.S., a area. which stretches from Texas to North Carolina.

Lee said the TXSE would be “as apolitical an exchange as could ever be created” and described ESG as a “short-term aberration that other exchanges are pushing their issuers under.”

Lee said the TXSE would structure its rules to prevent penny stocks, which have become a hot topic among brokers and exchanges after a boom in their number threatened to alter trading fees paid by exchanges.

Trading fees in the US are based in part on the volume or number of shares traded. Sub-dollar trading volume accounted for about 14% of total US trading volume this year, double the level two years ago.

Lee said: “Market makers and major liquidity providers are forced to make markets in those companies and it’s not healthy. It is not healthy for investors. It is not healthy for liquidity providers. Frankly, these companies should not be listed.”