A Silicon Valley challenger to the NYSE and Nasdaq is test-driving its alternative stock exchange, but companies may not list there until 2021
- The Long-Term Stock Exchange, an attempt to create an alternative to the NYSE, NASDAQ, and other exchanges, said Friday it had recruited a board of directors and begun tests of its trading platform.
- The 10 directors include Amy Hong of Goldman Sachs, Erica Williams of Kirkland & Ellis, and former SEC enforcer Kathleen Hamm.
- The US outbreak of COVID-19 delayed plans for the exchange to begin operating in Q1 of 2020. Founder Eric Ries said companies could still start listing on the LTSE in 2020, although he "wouldn't bet on it."
- Ries said the LTSE will offer lower fees and simpler operations than other exchanges, and will not be aimed at high-frequency traders.
- The LTSE is designed to increase transparency and discourage short-term business planning by requiring companies to make commitments to their investors to think long-term.
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The Long-Term Stock Exchange (LTSE), an ambitious attempt to compete with heavyweight exchanges like the New York Stock Exchange and Nasdaq, said Friday it has appointed a board of directors and started real-time tests of its digital trading mechanism on Aug. 3. Real people traded fictional shares in the simulation, the company said.
But though the startup stock exchange received Securities and Exchange Commission approval last year, and it's funded by prominent investors, its founder says it may take until 2021 before the first company makes its debut as a publicly traded company on the LTSE. The coronavirus pandemic — what else? — is a big hitch in the fledgling exchange's plans.
The LTSE, masterminded by "The Lean Startup" author Eric Ries, was designed as a counterweight to short-term business planning by company leaders. The alternative stock market plans to require listing companies to make commitments to their investors to focus on long-term thinking and long-term growth.
The nascent exchange had aimed to begin operating in the first quarter of 2020 following its May 2019 approval by regulators, but the US outbreak of COVID-19 delayed those plans.
The operation is backed by big-name investors including Andreessen Horowitz, Founders Fund, and Collaborative Fund. Even with the virus pushing its operating launch far into the future, Ries told Business Insider that the exchange had enough money left that it would not need to seek more funding any time soon.
Ries said companies could start listing on the LTSE as soon as this year, though he "wouldn't bet on that" because of how tricky it is to convince companies to sign up for a new exchange.
"You have double uncertainty," Ries said. "You have to be real enough for companies to take you seriously. And then the timing of their going public, IPO, or direct listing has to be such that they would want to do that."
The LTSE's timeline is in flux due to the virus, Ries said, making him unsure how long the testing phase will last and when companies will start listing on it for real.
"When the pandemic hit, it just it seemed irresponsible to go forward and put people's lives at risk to boot up a stock exchange," Ries said.
Ries did say he'd been in touch with a number of companies interested in listing on the LTSE, ranging from large operations interested in making a statement with their IPO to companies that are "too small to be viable in the kind of activist and hedge fund-infested waters of the public markets."
Ries said the LTSE will have simpler operations and lower fees than the NASDAQ or NYSE.
"Everything in our market happens in the light, there's no hidden orders," Ries said. "And therefore, it's really not optimized for high-frequency traders."
The first meeting of the exchange's board took place Thursday. Eight of its members are women, and two of them are women of color, bucking Silicon Valley finance's notorious homogeneity, although Ries said that the members were not chosen for that reason.
Among the directors are several prominent names in finance and regulation, including Amy Hong of Goldman Sachs, Erica Williams of Kirkland & Ellis, former SEC enforcer Kathleen Hamm, and Sayena Mostowfi, COO of of Electronic Equities at Citigroup. The board is chaired by Zoran Perkov, who has been CEO of the exchange since its approval last year.
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