The U.S. government on Friday approved the formation of a new Silicon Valley stock exchange following regulatory criticism late last year. Backed by top Valley figures such as venture capitalist Marc Andreessen, the Long-Term Stock Exchange was born out of concern from the nation's tech elite who were frustrated about the public market's focus on near-term profit. Its mission is to create a "market that reduces short-term pressures and encourages a steady cycle of innovation and investment in long-term value creation would benefit companies and their investors alike," according to its website. "We welcome the approval, which advances our vision of a new way of being public for a generation of companies that aspire to build their businesses and generate value for decades to come," said Zoran Perkov, the top operations executive at the exchange. The LTSE said in a release that it anticipates being ready to accept listings and start trading later this year after completing administrative and technical steps. "Today's announcement from the SEC is a huge step," LTSE Holdings CEO Eric Ries told CNBC. Ries, an author and venture capitalist who first floated the idea of the exchange in 2011, holds a significant stake in the exchange's holding company and helped raise funds for the venture, according to government filings. Prior filings indicated that a key aspect of the exchange could include scaled voting power the longer an investor holds a stake in a company. Firms listed on the exchange may also required to abide by certain rules, including a ban on tying executive pay to the company's short-term financial performance. "It sounds too good to be true for people out here," said Ries about the exchange's mission. The exchange filed with the Securities and Exchange Commission on Nov. 9, though the company faced criticism by Commissioner Robert Jackson Jr., who said the structure of the exchange could grant founders and early investors in startups excessive power at the expense of other shareholders, according to a Wall Street Journal report. Asked about Jackson's concerns, Ries told CNBC that he believes the next wave of companies looking to go public "wants to share power broadly."<doc-sep>The US will soon have a new stock exchange: government watchdogs have approved (pdf) the application for Long-Term Stock Exchange (LTSE), a trading platform backed by prominent Silicon Valley names. The company says its rules are meant to reward investments and business strategies that focus on the long term. LTSE was given the go-ahead by the Securities and Exchange Commission today to become a national stock exchange, which will allow it to conduct listings and operate as a venue for buying and selling shares. “We are building a market where companies are rewarded for choosing to innovate, to invest in their employees, and to seed future growth,” LTSE CEO Eric Ries said in a statement. Ries is a San Francisco entrepreneur and author of The Lean Startup, a book in which he advocates for the creation of an exchange like LTSE. One of the platform’s unique, and potentially contentious, proposals is its focus on long-term voting rights: the idea is that shareholders will be granted more voting power the longer they own a stock. Steve Goldstein, an LTSE spokesman, said the exchange will also emphasize governance standards like sustainability, executive pay, and diversity. The exchange’s next step is to submit its listing standards to the SEC. Goldstein said the precise rules are still being formulated, but the exchange expects to accept clients by the end of the year. San Francisco-based LTSE will become the country’s 14th equity market. US stock trading is dominated by markets run by the New York Stock Exchange, Nasdaq, and Cboe, which account for a combined share of more than 60% of volume. IEX, an exchange known as for its starring role in the Michael Lewis book Flash Boys, was approved as a national stock exchange in 2016; it currently accounts for about 3% of US equity trading. LTSE isn’t the only exchange looking for regulatory approval. In January, banks, brokerages, and trading firms announced plans for their own Members Exchange. Adding more trading venues compounds the complexity of the already fragmented US stock market. US tech companies, many of which have their roots on the west coast, have long griped about the process for listing shares, which is dominated by Wall Street investment banks and exchanges on the east coast. Their concerns include things like high-frequency trading (HFT), activist investors, and pressure to achieve short-term, quarterly results at the expense of longer-term sustainable growth. The for-profit company behind the LTSE has raised money from high-profile tech investors including venture capitalist Marc Andreessen, and Peter Thiel’s Founders Fund. Some will likely question whether public markets are truly too focused on the short-term, given that investors have been highly receptive to listings by money-losing companies in recent quarters. And the Council of Institutional Investors has argued (pdf) that LTSE’s voting mechanism could hurt shareholders by giving too much power to founders. As for stakeholders in Silicon Valley, who will be a target market for the upstart exchange, they’ve “warmed up” to the LTSE’s ideas, Goldstein said.<doc-sep>The big picture: In the twelve years before the average tech startup goes public, they’ll have typically lost millions of dollars and have sold their souls to venture capitalists in exchange for the funds they needed to get off the ground. And once they have gone public, the experienced CEOs cede control to investors focused on short term results and quarterly profits. A study in 2017 found that in the five years following a public listing companies secure 40% fewer patents, hurting their long-term development. One proposed solution is a stock exchange designed specifically for tech companies with long-term prospects, and investors that understand startups need time to grow before they turn a profit. Enter the Long-Term Stock Exchange (LTSE), a Silicon Valley startup that the Securities and Exchange Commission approved yesterday to do just that. The LTSE has three key goals: to let startups float on the public market while focusing on research, to let long-term investors cash in on fast-growing startups, and to provide the tools to support both parties. To do this LTSE requires that companies reward their executives based on long-term goals over short-term profits and to disclose long-term plans and investments. They also reward investors with voting power that increases the longer they hold onto their shares. “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,” says Eric Ries, who founded LTSE three years ago. LTSE has been holding their cards close, a wise move considering the changes they had to make to get SEC approval, a difficult process. They’re one of just 15 or so stock exchanges approved in America and the only one in Silicon Valley since the dot-com boom. What we do know, however, is that LTSE intends to draw in companies with very low prices by profiting off analysis services, and by letting companies dual list on other stock exchanges. Despite competition from the big players like the New York Stock Exchange and Nasdaq, LTSE already has several interested parties claims Ries, who says that several technology companies and investors have signed letters of intent to participate in the exchange.<doc-sep>
SAN FRANCISCO (Reuters) - U.S. regulators on Friday approved a new stock exchange that is the brainchild of a Silicon Valley entrepreneur, a move that will give high-growth technology companies more options to list their shares outside of the traditional New York exchanges. FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst/File Photo The U.S. Securities and Exchange Commission approved the creation of the Long-Term Stock Exchange, or LTSE, a Silicon Valley-based national securities exchange promoting what it says is a unique approach to governance and voting rights, while reducing short-term pressures on public companies. The LTSE is a bid to build a stock exchange in the country’s tech capital that appeals to hot startups, particularly those that are money-losing and want the luxury of focusing on long-term innovation even while trading in the glare of the public markets. The stock exchange was proposed to the SEC in November by technology entrepreneur, author and startup adviser Eric Ries, who has been working on the idea for years. He raised $19 million from venture capitalists to get his project off the ground, but approval from U.S. regulators was necessary to launch the exchange. Friday’s decision followed an uncertain fate for LTSE, which had faced SEC opposition before revising parts of its proposal. Ries says the public market’s focus on short-term results leads to a decline in innovation, something LTSE wants to reverse. A 2017 study by public policy think tank Third Way showed that going public was accompanied by a 40 percent decline in patents within five years after listing, the result of pressure to satisfy analysts’ short-term expectations. “Everyone is incentivized to make the numbers quarter to quarter,” Ries said in a recent interview with Reuters. The new exchange would have extra rules designed to encourage companies to focus on long-term innovation rather than the grind of quarterly earnings reports by asking companies to limit executive bonuses that award short-term accomplishments. It would also require more disclosure to investors about meeting key milestones and plans, and reward long-term shareholders by giving them more voting power the longer they hold the stock. LTSE would be the only stock exchange in California and the first in Silicon Valley since the shuttering of the Pacific Exchange in San Francisco at the end of the dot-com boom. It remains to be seen how well it would compete with the larger and better-resourced New York Stock Exchange and Nasdaq, which often court tech companies with fanfare to persuade them to list. Ries wants companies to go public sooner and have the ability to continue experimenting. This way, he said, more value can be created in the public markets, giving retail investors a chance to cash in on high-growth startups. The median age of tech startups going public has stretched to 12 years, and by the time they list have achieved most of their growth, enriching only an elite group of investors. Ries said LTSE would allow companies to dual-list their stock on other exchanges. He added that a number of technology companies and a mix of foreign and U.S. investors and asset managers had signed letters of intent to participate in the exchange, but declined to provide further details.