Two of the Nicest Stock Exchanges Make a Fine Couple
This post originally appeared in Money Stuff.
Yesterday the Long-Term Stock Exchange and IEX announced that they are teaming up to be the very nicest stock exchange, or subset of a stock exchange:
IEX’s recently approved listing standards are traditional and appeal to a broad set of public companies looking to switch from their current listings exchange to IEX. Under this new partnership, ‘LTSE Listings on IEX’ will provide a specialized set of standards designed for those private companies looking to go public while making a commitment to long-term value-creation. The LTSE will simultaneously continue pursuing regulatory approval to operate its own exchange marked by this differentiated approach. When the regulatory approval is received, qualified companies on ‘LTSE Listings on IEX’ will have the opportunity to seamlessly transfer to LTSE.
As I understand it:
- IEX is an actual stock exchange, with listings standards that mirror those of the New York Stock Exchange and Nasdaq.
- LTSE is a proposed but so far nonexistent stock exchange, which wants to have high disclosure standards but also tenure voting that will protect management teams from activist pressure.
- Until LTSE is approved as an actual stock exchange, you can get an LTSE listing on IEX.
It's like a synthetic listing: You list on IEX, but it's as though you had listed on LTSE. As a fan of synthetic things, of course I like this. But I am also a fan of choice and diversity in corporate governance, and an admirer of IEX's and LTSE's work at convincing people that they are the nice guys who are working on behalf of long-term investors. In fact, I have been pushing something like this -- LTSE-like listing standards on IEX -- for a while.
The synergies are obvious: If you are a certain type of corporate chief executive officer, you want to raise money from public markets, but you are afraid of the predators who live in those markets. Those predators are ill-defined, but they include activist investors who will pressure you to focus on the short term and high-frequency traders who will manipulate your stock price. IEX positions itself as an exchange that protects real investors from predatory HFTs; LTSE positions itself as an exchange that protects companies from short-term activists. I am a bit skeptical, but who cares what I think; I am clearly more pro-HFT and pro-activist than the average corporate CEO. The point is that both IEX and LTSE are good at convincing people that they are exchanges for long-term investors, and both tell stories that appeal to large and overlapping sets of CEOs. Of course they should team up.
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