Dive Brief:

• The Texas Stock Exchange has raised $120 million from more than two dozen investors, including BlackRock and Citadel Securities, to establish a competitor to the New York Stock Exchange and Nasdaq, parent company TXSE Group announced Wednesday.
• TXSE will be a fully electronic national securities exchange, although it plans to have a physical office in downtown Dallas, The Wall Street Journal reported.
• The exchange plans to file a registration with the Securities and Exchange Commission this year. It intends to begin facilitating trades in 2025 and host its first listing in 2026, the Journal reported.

Dive Insight:

The TXSE will focus on facilitating access to U.S. equity capital markets for companies within the country and globally. It will also serve as a platform for trading and listing public companies and the expanding realm of exchange-traded products.

“We’re thrilled to bring to fruition the long-held vision for a national stock exchange in Texas,” James Lee, founder and CEO of TXSE Group, said in a statement. “Texas and the other states in the southeast quadrant have become economic powerhouses. Combined with the demand we are seeing from investors and corporations for expanded alternatives to trade and list equities, this is an opportune time to build a major, national stock exchange in Texas.”

Texas has become a front-runner in economic expansion and population growth as companies flock there for lower taxes and a more lax regulatory atmosphere: The state now has about 5,200 private equity-sponsored companies and about 1,500 publicly traded companies, according to the press release.

In the banking industry, Goldman Sachs is building an 800,000-square-foot campus in Dallas to serve more than 5,000 staffers. JPMorgan Chase has more than 30,000 employees working in Texas, a figure that outnumbers its 29,000-person New York headcount, according to Bloomberg.

TXSE’s launch comes as corporate issuers and sponsors of exchange-traded products seek more stability and predictability regarding listing standards and associated costs. 

“Changes in equities trading markets are driving more volume to exchanges and more choices for issuers and sponsors," Lee said in a statement Wednesday. “TXSE will ultimately 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.”

The exchange aims to capitalize on companies' growing discontent with increasing compliance costs and newer regulations, like the one mandating board diversity targets, at Nasdaq and NYSE. TXSE backers say it will be more “CEO-friendly,” according to The Wall Street Journal.

Nasdaq has established a board diversity rule that requires companies listed on the stock exchange to disclose board-level diversity data every year. The SEC approved the proposal in 2021, but the rule is being disputed in federal appeals court.

In the past, there were numerous regional stock exchanges outside of New York, but they either closed or were acquired by more prominent players, the WSJ reported. Establishing a new exchange would be a formidable challenge because NYSE and Nasdaq hold an effective duopoly over U.S. corporate stock listings. Traders typically direct orders to exchanges with the greatest volumes. TXSE envisions its backers assisting in that regard, WSJ reported.

Additionally, Texas is establishing a specialized business court system to attract more of the intricate corporate litigation cases that Delaware is usually famous for. These courts will be alternative venues for specific cases exceeding $5 million and will officially be created Sept. 1.

Elon Musk’s Tesla, for one, is urging its shareholders to vote in favor of a proposal to relocate the company’s articles of incorporation from Delaware to Texas during this month's annual meeting. Earlier this year, Musk announced that SpaceX, his space exploration company, had already transferred its incorporation to Texas.