Texas Stock Exchange Approved, Poised to Challenge NYSE and Nasdaq
By PAUL COBLER/The Texas Tribune
Updated September 30, 2024
Dallas, Texas – The financial landscape of the United States is poised for a significant shift as the U.S. Securities and Exchange Commission (SEC) officially approved the Texas Stock Exchange (TXSE) to operate as a national exchange. This pivotal September 30 announcement marks a formidable new competitor to the long-standing duopoly of the New York Stock Exchange (NYSE) and Nasdaq, signaling a growing decentralization of American finance.
A New Challenger Emerges: TXSE’s Backing and Ambition
The Dallas-based startup, affectionately pronounced “Tex-ee,” has been making waves since June 2024, when it revealed an impressive initial backing of $120 million. This substantial investment from financial titans like BlackRock and Citadel Securities makes TXSE one of the most robustly funded attempts at launching a new national exchange in decades, underlining the serious intent behind this venture.
Texas lawmakers, including Governor Greg Abbott, have met the SEC’s approval with enthusiasm. “Texas is swiftly becoming America’s financial hub,” Abbott declared, echoing a sentiment that has fueled the state’s remarkable economic ascent. TXSE officials credit the state’s booming economy and pro-business environment – characterized by favorable regulatory and taxation policies – as the primary catalysts for this ambitious undertaking.
Texas: A Global Economic Powerhouse and Financial Hub
Indeed, Texas currently hosts the headquarters of the second-highest number of Fortune 500 companies in the nation, closely trailing California and surpassing New York. Globally, if Texas were an independent nation, its economy would rank as the world’s seventh largest. “Texas is a major player in the U.S. regardless of the exchange landscape, but it ultimately makes sense as the 7th largest economy in the world,” stated Nicole Chambers, Global Managing Director of Listings for TXSE, highlighting that even 45 countries smaller than Texas manage to sustain their own stock exchanges. “Texas has really become a leader in where you can do business. That is why there is the Texas stock exchange. We couldn’t do this in Oregon or in Nebraska.”
Dallas: ‘Y’all Street’ and the Response from Incumbents
The rising prominence of Dallas as a financial center has earned it the nickname “Y’all Street.” This moniker is proving increasingly apt, especially with the competitive response from established exchanges. Following TXSE’s initial announcement, the NYSE revealed in February that it would reincorporate its Chicago electronic exchange and relocate it to Dallas, rebranding it NYSE Texas. Not to be outdone, Nasdaq announced in March its plans to open a regional headquarters in Dallas. Bill Bailey, Managing Director of Market Intelligence at TXSE, views these moves as direct reactions to the emerging Texas challenge, underscoring the potent threat the newcomer poses.
Breaking the Duopoly: TXSE’s Differentiating Strategy
Historically, stock exchanges are private institutions facilitating the trading of securities, functioning as marketplaces connecting buyers and sellers. While the ceremonial bell-ringing at NYSE and Nasdaq are iconic public relations spectacles, the reality of modern trading is largely digital. Since the acquisition of the American Stock Exchange by the NYSE in 2008, a formidable duopoly has dominated the U.S. market, with past attempts at creating a third national exchange largely faltering. Regional exchanges, such as those in Boston, Philadelphia, and Chicago, have either been absorbed or shuttered.
TXSE leadership believes their approach will break this pattern. The exchange will be entirely digital, yet maintain a vibrant physical presence in Dallas, complete with its own “Texas flair” bell-ringing ceremonies. Crucially, TXSE aims to differentiate itself by having fewer requirements for the composition of company boards of directors compared to its rivals. It also seeks to capitalize on a growing sentiment of discontent among companies regarding rising listing fees and increasingly stringent share price benchmarks imposed by Nasdaq and NYSE.
Path to Success: Attracting Companies and Investor Patience
Sriram Villupuram, an associate professor of finance at the University of Texas at Arlington, emphasizes that TXSE’s success will hinge on investor patience and its ability to rapidly attract a critical mass of companies. “It gives those that are thinking about listing an idea about what it takes to get on the exchange, and it could snowball from there,” Villupuram noted, suggesting that securing the first 50 to 100 listings will be vital for building momentum. Ultimately, the exchange’s trajectory is inextricably linked to the continued health and growth of the Texas economy.
Dallas’s Strategic Ascendancy as a Financial Center
Dallas’s evolution into a major financial hub is not accidental. Its central location in the Sun Belt has historically made it a nexus for communication, transportation, and finance. This advantage has only amplified with the growth of Texas-based corporations and Dallas-Fort Worth International Airport’s status as a national travel hub. Ray Perryman, president of The Perryman Group, a Waco-based economic research company, affirms, “Dallas is the natural location for a financial center to emerge in this region.”
Major investment banks have already established a significant footprint in Dallas. JPMorgan Chase and Goldman Sachs, for instance, collectively employ tens of thousands in the region. Goldman Sachs is currently constructing a $500 million tower in downtown Dallas, slated to house over 5,000 employees and become its largest hub outside of New York. Charles Schwab, a financial services giant, also relocated its headquarters from California to Dallas in 2020. This influx is starkly reflected in employment figures: over the last two decades, New York saw a 16% growth in its investment and securities sector, while Texas experienced a staggering 111% expansion.
Quality of Life and Business Strategy Drive Talent Influx
Beyond corporate strategy, the appeal extends to individual professionals. Sasha Stratton, head of risk for Selby Jennings in Dallas, a recruitment firm for financial services, moved to Dallas from New York five years ago. She cites the lower cost of living and a higher quality of life as key motivators, a sentiment increasingly shared by many. “(Firms) are prioritizing hiring in Dallas over hiring in New York in a lot of instances, which I think is a pretty unique shift,” Stratton remarked. “That’s driven by the availability of talent, the cost of operations, the availability of real estate and with the Texas Stock Exchange and other exchanges following suit, realizing it’s not a compromise to be building out in Dallas, it’s actually a smart, strategic decision to take advantage of how booming the economy is.”
A New Era of Competition and Opportunity
Perryman suggests that the combination of Texas’s shifting economic gravity and the substantial funding behind TXSE positions it as a potentially formidable rival to the established exchanges. The launch of TXSE, coupled with the expansion of NYSE and Nasdaq into the area, is expected to create a virtuous cycle. It will ease access to capital for growing Texas companies, spurring further expansion, job creation, and ultimately reinforcing both the exchanges and the broader Texas economy.
“New York will likely remain the primary center of equity markets for the time being, but the landscape is changing,” Perryman concluded, signaling a new era of competition and opportunity in the world of American finance.
This story was originally published by The Texas Tribune and distributed through a partnership with The Associated Press.
