TXSE: A New Crypto-Friendly Stock Exchange Challenger

Political and cultural divisions in the United States have led to a polarization between “red states” and “blue states,” and now stock exchanges seem to be following suit. For some months, there were whispers about an “anti-woke” stock exchange launching in Texas. These rumors recently became a reality as TXSE Group declared on June 5 its plans to establish the Texas Stock Exchange (TXSE) in Dallas. Notably, this project has already garnered $120 million in investment from heavyweights like BlackRock and Citadel Securities.

This ambitious move has generated numerous questions. Most prominently, can the New York Stock Exchange (NYSE) and Nasdaq be truly disrupted? Both hold dominant positions as the world’s largest stock exchanges by market capitalization. Some observers see this as part of a shift toward states with more welcoming regulatory and tax environments. Initially, TXSE will focus on attracting companies from the southeastern United States, including states like Texas, Alabama, Florida, and Georgia. But does this region genuinely need its own exchange, and how will this affect emerging sectors like blockchain and cryptocurrency?

The launch of a specialized stock exchange in Texas might be seen as favorable news for the burgeoning cryptocurrency sector. Will this new venture make a significant impact? Larry Tabb, the head of market structure research at Bloomberg Intelligence, remains skeptical. He notes that it is a noteworthy development but questions its overall effect. Tabb points out that moving operations away from New York involves significant costs. Owen Lau, a senior analyst at Oppenheimer and Co., echoes this skepticism, questioning how much liquidity TXSE can generate and how many companies will ultimately list there.

On the flip side, there are those who believe that New York’s dominant exchanges would benefit from some competition. Leigh Drogen, Chief Investment Officer at Starkiller Capital, feels that NYSE and Nasdaq have been resistant to innovation. He argues that new players like TXSE could push for advancement and break the regulatory grip these two giants have maintained. This sentiment is supported by the idea that BlackRock, which has faced criticism for its environmental, social, and governance initiatives, could improve its image by backing a Texas-based exchange.

According to Drogen, the trend globally is for leading exchanges to upgrade to digital platforms capable of handling digital assets. As such, Texas, which is pro-innovation and supportive of digital assets, could benefit from this shift. Other market watchers believe that supporting a Texas exchange could offer firms like BlackRock and Citadel an opportunity to push for more blockchain and crypto-related ventures, especially given BlackRock CEO Larry Fink’s interest in tokenization.

A new exchange would still require approval from the U.S. Securities and Exchange Commission (SEC), which could be a hurdle, especially if the SEC doesn’t support crypto listings. Even with the advantage of a pro-innovation state like Texas, companies going public generally prioritize market valuation over political or cultural considerations. Currently, the NYSE and Nasdaq still offer significant advantages in terms of reputation and history, which makes them the preferred choice for companies seeking higher valuations.

Despite these challenges, some argue that new competition in the U.S. stock exchange sector can only be a positive development, particularly for crypto firms looking to go public. Matthew Le Merle from Blockchain Coinvestors is optimistic about the potential of a Texas-based exchange, especially one that embraces blockchain technology and digital assets from the outset.

Any firm’s valuation aspirations drive them towards the tried-and-true NYSE or Nasdaq. Tabb notes that any new exchange, including TXSE, would struggle to compete with these established entities due to the incumbent exchanges’ historical credibility and established liquidity.

The call for an “alternative” stock exchange in Texas might alleviate some of the regulatory burdens imposed recently by major exchanges like Nasdaq, which has introduced new diversity requirements for board members. The concept of “red state” and “blue state” stock exchanges is largely symbolic. Firms looking to demonstrate libertarian or anti-woke credentials have alternative strategies, such as secondary listings, that may be more practical.

TXSE’s success remains speculative at this point. It aims to disrupt the status quo but faces significant uphill battles, especially against the established might of NYSE and Nasdaq. Their focus will initially stay on building their critical mass rather than directly challenging New York’s duopoly. While it might not overthrow the major players, the new exchange could nonetheless carve out a niche for itself within the broader landscape of U.S. stock exchanges.