Tag: long-term stock exchange

LTSE proposes listing standards to support long-term value creation

As evidenced by Corp Fin’s most recent Roundtable, short-termism is a major concern of SEC officials, both in terms of its potential impact on Main Street investors—who are investing for the long term to fund their retirements and other long-term needs—and its potential to deter companies with a long-term focus from becoming public companies, instead driving them to seek funding in the private markets, where short-termism is less of a factor. (See e.g.,  this PubCo post and this PubCo post.)  As SEC Chair Jay Clayton commented during the Roundtable, with so many companies delaying their IPOs or avoiding them altogether, at the end of the day, he was concerned that, in 10 years, the general public would not be able to participate in 70% of the economy because those companies would be privately held. (See this PubCo post.) Will the Long-Term Stock Exchange, a novel concept for a stock exchange that was approved by the SEC in May (see this PubCo post), come to the rescue?

The LTSE has just been approved as an exchange—will it make a difference?

Many have recently lamented the decline in the number of IPOs and public companies generally (about half the number since the boom in 1996), and numerous reasons have been offered in explanation, from regulatory burden to hedge-fund activism. (See this PubCo post and this PubCo post.)  In response, some companies are exploring different approaches to going public, leading to a resurgence in SPACs and the launch of IPOs as “direct listings,” which avoid the underwritten IPO process altogether.   At the same time, companies are seeking ways to address some of the perceived drawbacks associated with being public companies—including the pressures of short-termism, the risks of activist attacks and potential loss of control of companies’ fundamental mission—through dual-class structures and other approaches.  Even the SEC is currently planning a roundtable to address the causes of and potential solutions to short-termism. (See this PubCo post.) Changing dynamics are not, however, limited to the IPO process itself.  And one of the most interesting concepts designed to address these issues on completely different turf was just approved by the SEC this month—a novel concept for a stock exchange located in San Francisco, the Long-Term Stock Exchange.  The concept has been in the works for a couple of years now and is backed by some heavy-hitting investors.  According to the LTSE’s founder and CEO, the “IPO is like a wedding. The IPO process is, what kind of wedding planner do you hire? What kind of wedding do you want to have? But being a public company is you’re now married to the public markets for the rest of your life. People have mostly focused on the IPO process — it’s like making the wedding more efficient….That’s not the problem. The problem is we have to live like this forever.”  How will the new Exchange seek to improve this “married life” going forward?

Will a new securities exchange be effective to promote long-term value creation?

Many have recently lamented the decline in the number of IPOs and public companies generally (from about 8,000 in 1996 to about 4,000 now, according to EY), and numerous reasons have been offered in explanation, from regulatory burden to hedge-fund activism. (See this PubCo post and this PubCo post.)  In response, some companies are exploring different approaches to going public, leading to a recent resurgence in SPACs (see, e.g.,  this WSJ article), while others are flirting with the possibility of “direct listings,” which avoid the underwritten IPO process altogether (see, e.g., this article discussing the pending NYSE rule change to facilitate direct listings).   At the same time, companies are seeking ways to address some of the perceived afflictions associated with being public companies—including the pressures of short-termism, the risks of activist attacks and potential loss of control of companies’ fundamental mission—through dual-class structures and other approaches.  Changing dynamics are not, however, limited to companies.  And one of the most interesting proposals designed to address these issues is being introduced on completely different turf—a novel concept for a stock exchange, the Long-Term Stock Exchange. According to the LTSE blog, “[w]hile other proposed solutions target the IPO process, the LTSE’s mission is to transform the public company experience by relieving the short-term pressures that plague today’s businesses and laying the foundation for a healthier public market ecosystem.”