iFor nearly 200 years after its inception in 1792, the New York Stock Exchange (“NYSE”) faced insignificant competition as the premier stock exchange within the United States. Then, alongside the technological surge of the late 20th Century, came an innovative alternative to the NYSE: the NASDAQ Stock Market (“NASDAQ”). Boasting itself as the world’s first electronic stock market, NASDAQ quickly gained popularity and market share in America’s financial sector by offering modernized processes for stock trading. Today, the NYSE and NASDAQ are positioned as the world’s two largest, most influential, and widely recognizable stock exchanges. And a new exchange in Texas is “bullish” on becoming the third.
The “Who, What, Where & When”
On June 5, 2024, TXSE Group Inc. published a press release announcing its plans to launch the Texas Stock Exchange (“TXSE”). Backed by an investment of $120 million from financial institutions such as Blackrock and Citadel Securities, TXSE Group Inc. will operate as a fully electronic securities exchange based in Dallas, subject to SEC approval. According to the press release, “TXSE will focus on enabling U.S. and global companies to access U.S. equity capital markets and will provide a venue to trade and list public companies and the growing universe of exchange-traded products.” James Lee, founder and CEO of TXSE Group Inc., told the Wall Street Journal that TXSE plans to file registration documents with the U.S. Securities and Exchange Commission (the “SEC”) later this year, start facilitating trades in 2025, and host its first listing in 2026.
The “Why”
While many stock exchanges exist within the U.S., NYSE and NASDAQ dominate the market; However, James Lee believes that “this is an opportune time to build a major, national stock exchange in Texas.” The reasoning seemingly revolves around increasing competition and Texas’ geographical advantage.
Relating to increased competition, James Lee said, “TXSE will create more competition around quote activity, liquidity and transparency, resulting in more consistent and reliable markets that benefit investors, global issuers and liquidity providers alike.” This includes meeting consumer demands relating to listing standards and costs. For example, stock exchanges have specified requirements that companies must meet in order to list on such exchanges and may charge users different amounts for broker membership fees, transaction fees, company listing fees, clearing fees, and other charges.
As for Texas’ geographical advantage, TXSE will be situated in the southeast quadrant of the U.S. which includes Texas, Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina and Tennessee. This region leads the U.S. in economic expansion and population growth.
The “How”
As mentioned above, TXSE has an eye toward its first listing in 2026. Be that as it may, many regulatory requirements must be completed before such a listing comes to fruition. In order to become a national securities exchange, TXSE must register with the SEC under Section 6 of the Securities Exchange Act of 1934 (the “Exchange Act”). Section 6(a) of the Exchange Act requires an exchange to file an application for registration as prescribed by the SEC.
Step 1: Application
The SEC maintains such application for registration as Form 1, which requires the applicant to provide information such as the applicant’s name, address, contact information, fiscal year-end, legal entity type, date and place of formation, and legal counsel information. Form 1 also requires filing a list of exhibits pursuant to Section 5 of the Exchange Act. Such exhibits include the applicant’s governing documents (e.g., articles of incorporation, bylaws, etc.), a description of how the electronic trading system operates, audited financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles, a list of the governing persons of the applicant, the exchange’s criteria for membership in the exchange, among others.
Step 2: Notice & Comment
Upon an applicant’s filing of Form 1 with the SEC, the SEC will publish notice of such filing and afford interested persons an opportunity to submit written data, views, and arguments concerning such application.
Step 3: SEC Determination
The SEC notice triggers a 90-day period (unless a longer period is consented to by the applicant), in which the SEC must grant such registration or institute proceedings, including notice and hearing within 180 days, to determine whether registration should be denied. The SEC will only register such applicant as a national securities exchange if such applicant satisfies the various requirements of Section 6 of the Exchange Act. For example, one requirement is that the applicant must promulgate rules designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in the facilitation of securities, to remove impediments to a free and open market, to protect investors and the public interest, and to prohibit unfair discrimination.
Step 4: Trades and Listings
If the applicant receives SEC approval as a national securities exchange, such exchange may begin facilitating trades and accepting company securities listings. Companies looking to publicly list their securities may choose among the various national securities exchanges in existence. Each exchange maintains its own set of initial and continued listing rules that companies must meet in order to list on such exchange. These rules cover areas such as corporate governance requirements, quantitative thresholds such as capitalization and liquidity, and fee requirements. In tandem with meeting the initial and continued listing requirements of the chosen exchange, a company must also meet the regulatory requirements promulgated by the SEC regarding the offering and sale of securities. Generally, this requires a company to file a registration statement with the SEC. Once the registration statement is declared effective by the SEC, the company may begin the offering and sale of its securities to the public.
TXSE is in the beginning stages of the process outlined above with the application for registration on Form 1 expected to be filed sometime later this year. Time will tell whether TXSE will become the next major U.S. stock exchange. However, one thing is for certain: the prospect of a national securities exchange located in Dallas poses exciting opportunities and interesting challenges for all parties working in the public securities sector. And Winstead P.C. looks forward to serving its clients who choose to navigate this new frontier.
Sources
Exclusive | New Texas Stock Exchange Takes Aim at New York’s Dominance – WSJ
