On Friday, May 10, 2019, the U.S. Securities and Exchange Commission (SEC) granted approval for a new national securities exchange, the Long-Term Stock Exchange (LTSE), which also is being called the Silicon Valley Stock Exchange in press reports. The LTSE expects to begin accepting listings of companies and commencing trading sometime later in 2019.
It will be the first exchange in California since the last remnants of the San Francisco-based Pacific Stock Exchange, once a significant national trading venue, were absorbed by the NYSE in 2006.
Among the high-profile Silicon Valley figures backing the LTSE is venture capitalist Marc Andreessen, who came to fame in the 1990s as the co-developer Netscape Navigator, the dominant web browser in the early days of the public internet. LTSE Holdings CEO Eric Ries, also a venture capitalist and author, has been promoting the idea of this exchange since 2011, CNBC reports.
Andreessen, Ries and other leading figures in the tech industry behind the LTSE are concerned with the focus on short-term profits that tend to dominate the public securities markets. A 2017 study by public policy think tank Third Way found that, within five years after going public, the pressures to meet analysts' short-term profit estimates leads to, on average, a 40% decline in patents, Reuters reports.
"Companies that operate with a long-term mindset tend to outperform their peers over time. But going public can pressure even the most visionary founder into a short-term mindset," the LTSE website states.
"We set out to help companies build lasting businesses and empower long term-focused investors by creating an ecosystem in which businesses are built to last," the LTSE states in its press release about gaining SEC approval. "In short, we are building a market where companies are rewarded for choosing to innovate, to invest in their employees, and to seed future growth. And where companies can run their businesses with the stewardship that similarly aligned shareholders, stakeholders and society demand," the LTSE press release adds.
Proposed Rules to Promote Long-Term Focus
In keeping with its stated mission of promoting a long-term focus among investors and companies alike, previous filings by the LTSE have proposed a variety of rules that might bind LTSE-listed companies. Per CNBC, these may include increasing a shareholder's voting rights as that person's holding period lengthens, as well as prohibiting executive pay schemes that are tied to short-term performance metrics.
In 2018, SEC Commissioner Robert Jackson, Jr. criticized the idea of scaled voting rights, according to The Wall Street Journal. He felt that this would vest undue power in company founders and early investors, to the detriment of later investors. In response, LTSE CEO Ries told CNBC that the next wave of companies going public "wants to share power broadly."