The article in the url below reports on the latest developments with the proposed Long Term Stock exchange (LTSE):
"The founders of the Long-Term Stock Exchange (LTSE) want to operate a full-fledged US stock exchange, with a twist: The exchange aims to combat short-term thinking by introducing extra rules designed to reward long-term shareholding and long-term business strategies. The LTSE and Investor's Exchange (IEX) disclosed today that IEX, an upstart exchange already operating under US Securities and Exchange Commission approval, last week formally filed with the SEC for the LTSE to handle initial public offerings via special securities listings on IEX."
It is interesting that they are working with IEX, which is the stock exchange set-up by Brad Katsuyama to try and compete against the high-frequency trading algorithms (and featured in Michael Lewis' book, Flash Boys). The goal is to open an independent stock exchange with a long-term, sustainable focus:
"By piggybacking on IEX, the LTSE hopes to accelerate the ability of companies to go public with the LTSE's rules binding them and their investors. The LTSE plans to submit an application to become a full-fledged stock exchange, a significantly tougher proposition, after the SEC has ruled on its arrangement with IEX."
While certainly well-intentioned, I think the LTSE contains flaws that are similar to the Benefit Corporation project. First, if the main purpose is to raise money (as the founder states it is), there are many alternative sources of capital today. It is not clear that we need another stock exchange for IPOs:
"The LTSE, founded by San Francisco entrepreneur and The Lean Startup author Eric Ries, is an ambitious project to overhaul how companies raise money, allow employees to sell shares, and practice good corporate governance. It comes amid challenges to Wall Street's traditional approach to financing businesses, with many companies shunning public markets altogether, while others turn to newfangled fundraising methods like cryptocurrency initial coin offerings instead of stock offerings."
Second, the rules mentioned in the article seem pretty superficial. The most important, I think is the restriction on short-term incentives.
"The rules for companies listing via the LTSE include:
- Increased voting rights for shareholders who hold company stock for long periods of time
- Restrictions on offering short-term incentives to executives
- Additional disclosures, such as clearly showing the impact of any stock buybacks
- A board-level long-term product and strategy committee, to focus on issues of governance and sustainability"
It will be interesting to see if that gets any traction. A stronger rule would be no stock-based compensation at all, which is what I would like to see firms adopt. If I can do my job without performance incentives, I am not sure why executives cannot. Just pay them a salary! But, this speaks to a more fundamental issue, which is that all firms can already adopt these measures, if they wanted to:
"The LTSE acknowledges in the SEC filing that companies could voluntarily adopt the rules it has drawn up without listing through the LTSE. But it contends that the structure it has created allows for regulatory enforcement of the rules, giving them more impact."
Finally, I am somewhat sympathetic to the argument in the article that we might lose some of the shareholder oversight. Short-sellers, in particular, perform a valuable buffer against corruption:
"Critics say that the LTSE's rules would overly insulate company executives from shareholders, reducing the accountability that can help boost performance over the long term."
While I do not trust shareholders much, I am not sure I would rather trust executives to act with any less oversight than at present! :-)
Take care
David
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The company aiming to create a long term-focused stock exchange has applied to handle IPOs
By Kevin Delaney
March 19, 2018
Quartz
