Silicon Valley In Talks With The SEC To Possibly Create A New Stock Exchange

The next major Silicon Valley innovation may change the way companies look at quarterly earnings. “The Lean Startup” author Eric Ries is in the preliminary stages of launching a brand new “long-term” stock exchange in the United States, according to a recent Bloomberg report. The LTSE would address some of the major issues with the current major U.S. stock exchanges that Ries believes are stifling innovation.

Ries argues the current mentality of public companies is driven by quarterly earnings reports. Instead of innovation, companies are focused on squeezing out every last dollar on a short-term basis.

“The most common conventional wisdom now is that going public will mean the end of your ability to innovate,” Ries explained.

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Ries is now in early discussions with the SEC about launching the LTSE, which would have rules in place to discourage the self-destructive, short-term mentality of the major exchanges.

Ries proposed three primary reforms to the current system:

• 1. A LTSE listing will require companies to comply with the exchange’s executive compensation rules, which call for companies to make sure executive pay is not tied to short-term stock performance.
• 2. Companies will be encouraged to provide more information about R&D spending.
• 3. Investors will be encouraged to provide the real names of beneficial owners to management.

Ries acknowledges that the major difficulty for the new exchange will be to get the ball rolling with its first handful of company commitments. However, he is confident that companies will see the benefits of listing on the LTSE.

“You’re advertising to the markets that you’re willing to be held to a higher standard,” Ries said. He believes this commitment will encourage long-term shareholder investment in LTSE-listed stocks.

The LTSE exchange has a long way to go before it poses a threat to Intercontinental Exchange Inc ICE or Nasdaq Inc NDAQ, but the revolutionary ideas Ries is proposing likely have the attention of a number of investors and startups.

Disclosure: The author holds no position in the stocks mentioned.