Federal regulators have approved a new stock exchange aimed at high-growth companies that seeks to focus on long-term strategies rather than short-term benchmarks.
The Securities and Exchange Commission approved the Long-Term Stock Exchange, or LTSE, last week. It's aimed mostly at Silicon Valley startups that may have a long ramp to profitability, the founder of the exchange, startup advisor Eric Ries, wrote in a blog post.
What Is The LTSE?
Ries has said the new exchange will have rules that will encourage companies to focus more on the long-term rather than putting so much attention on making quarterly results.
"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," he said.
A key part of the plan is encouraging long-term shareholders by increasing investors’ voting power the longer they hold a stock.
"The people who have the long-term interests of the company at heart therefore should have more say," Ries said in an interview on CNBC.
The exchange's rules will have executive compensation packages that incentivize long-term plans, and it will bar companies from offering short-term guidance, Ries said.
In a Q&A about the new exchange on Ycombinator.com, Ries hinted in response to a question that LTSE could also move away from continuous transactions, in favor of timed trading on intervals, such as at certain points during the trading day. “Stay tuned,” Ries said when asked whether such rules might be part of the exchange’s operations.
"Our vision is that companies in every industry will be able to go public while continuing to prioritize and pursue strategies for long-term success," Ries wrote.
How Is It Different From The Established Exchanges?
“We are the only stock exchange that was built from the ground up to serve companies and their long-term investors primarily,” Ries said on the Ycombinator Q&A. “We have a different philosophy, business model and eventually will have different market rules than the legacy exchanges.
“We have nothing against those older institutions, or against traders for that matter,” Ries wrote. “We simply think the next generation of companies is looking for something different.”
Who Would List On The LTSE?
Ries told Reuters that some technology companies and some number of investors and asset managers had signed on to participate, but the exchange isn’t disclosing them yet.
Ries proposed the exchange in November and raised nearly $20 million to start. Venture capitalist Marc Andreesen is among the investors.
An exchange official told Quartz that the LTSE, which will be the country's 14th equities market, expects to begin accepting clients by the end of the year.
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