The Texas Stock Exchange, unveiled this week with $120 million in funding from BlackRock, Citadel Securities and others, wants to challenge the NYSE and the Nasdaq by giving companies and investors an alternative — but it's got its work cut out for it.
Why it matters: The U.S. currently has a handful of exchanges, but business has long been concentrated in the top two. The No. 3 player, CBOE, has only about a 12% market share in trading volume, and the rest don't even clear 3%.
Among the biggest challenges TXSE will face:
Regulatory approval: A few new exchanges like IEX, the Long-Term Stock Exchange, and MEMX have gotten the green light in recent years, but it takes time. For example, IEX waited 13 months after its debut for approval to list companies.
Listings: There's little upside for companies to switch exchanges and have to explain that to their investors, says Georgetown University associate professor James J. Angel.
- And for those considering IPOs, "you go public once and you don't want to mess it up," he adds. "Do you really want to risk being one of the new guys on this unknown exchange?"
- Some upstart exchanges have tried to mitigate this by allowing dual listings, but even that hasn't helped very much.
- Moreover, much of the listing requirements are dictated by the SEC — there's not that much wiggle room for exchanges to distinguish themselves.
Liquidity: Exchanges compete for order flow — that is, where brokers route their initial orders. Exchanges can offer various incentives to attract both brokers and market makers, and this is where TXSE may have some interesting plans we don't know about yet.
- "I kind of understand why MEMX came about — the big users of the market said, wait a minute, we're being charged too much for data, and we want a platform to be designed for us," says Angel. Citadel is a member of MEMX, and BlackRock is an investor. "I'm curious why they feel the need to do it again," he adds.
Between the lines: It's also possible that a group of CEOs (and big institutional players) decide to just go for it, and bet big on TXSE because they like the brand and values it represents — and that could kick off momentum for the new exchange.
What we're watching: The company said it will file for approval with the SEC this year. It hopes to begin facilitating trading next year, and listings in 2026.
