Texas stock exchange gets federal approval as state tries to compete with New York heavyweights

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The Texas Stock Exchange on Tuesday crossed its latest hurdle toward becoming a direct competitor to the dominance of the New York Stock Exchange and the Nasdaq.

The announcement that the U.S. Securities and Exchange Commission had approved the Dallas-based startup to operate as a national exchange was met with celebration by Texas lawmakers, including Gov. Greg Abbott, who declared “Texas is swiftly becoming America’s financial hub.”

The hype around the Texas Stock Exchange, or TXSE (pronounced Tex-ee), has been building since the June 2024 announcement that the exchange intended to launch with $120 million in backing from investment large firms like BlackRock and Citadel Securities, making it one of the most well-funded attempts at a new national exchange in decades.

TXSE officials say the strength of the Texas economy made the move possible, noting the many Fortune 500 companies that have come to the state, drawn by favorable regulatory and taxation policies.

Texas is home to the headquarters of the second most Fortune 500 companies in the country, leading New York and closely trailing California.

“Texas is a major player in the U.S. regardless of the exchange landscape, but it ultimately makes sense as the 7th largest economy in the world,” Global Managing Director of Listings Nicole Chambers told a gathering of Dallas business leaders in September, adding that 45 countries smaller than Texas have their own stock exchanges.

“Texas has really become a leader in where you can do business,” Chambers said at the panel discussion at the University of Texas Austin campus. “That is why there is the Texas stock exchange. We couldn't do this in Oregon or in Nebraska.”

When TXSE launches — that’s expected to happen next fall — it won’t even be the only stock exchange hosted in Dallas. Following the announcement of TXSE’s intention to seek SEC approval, the New York Stock Exchange in February announced it would reincorporate its Chicago electronic exchange and move it to Dallas, branding it NYSE Texas.

Bill Bailey, managing director of market intelligence at TXSE, said he sees that decision as a reaction to TXSE’s creation, also noting Nasdaq’s March announcement that it would open a regional headquarters in Dallas.

The moves promise to test whether Dallas’ recent growth into a hub for financial services firms is significant enough to justify the city’s new nickname: “Y’all Street.”

Can a startup stock exchange lure companies to join?

Stock exchanges are private institutions where stocks, bonds and other securities are traded, connecting supply and demand “like any other market,” University of Texas at Arlington associate professor of finance Sriram Villupuram said.

The bell ringings on the floor of the New York Stock Exchange and Nasdaq to signal the start of the day’s trading stand out in the minds of the public, but those events are largely for public relations as the two exchanges compete to convince companies to list themselves on their separate exchanges.

Since the acquisition of the American Stock Exchange by the NYSE in 2008, the NYSE and Nasdaq have been the two dominant exchanges in the U.S., effectively creating a duopoly, Villupuram said.

Regional exchanges outside of New York, like the Boston Stock Exchange, the Philadelphia Stock Exchange and Chicago Stock Exchange have been swallowed up by the parent companies of the NYSE and Nasdaq, while other exchanges shut down.

Attempts to create a third, dominant national exchange have largely floundered, failing to attract a significant number of companies that want to list on their exchange.

TXSE leadership says this time will be different.

The exchange will be entirely digital but have a physical presence in Dallas, Bailey said. TXSE also intends to hold bell ringing ceremonies for its companies and incorporate much of the pomp and circumstance of its two rival exchanges with its own Texas flair, he added.

With the $120 million in backing from investors like BlackRock and Citadel Securities, Bailey said the digital exchange will be state-of-the-art and have fewer requirements for the makeup of company boards of directors than other exchanges. TXSE also hopes to capitalize on discontent over new rules and rising fees and share price benchmarks at Nasdaq and NYSE.

Much of TXSE’s success will depend on the patience of its investors, Villupuram said. It will take time to convince companies to list themselves on the exchange, but each company that does will build momentum. The speed at which TXSE is able to lure its first 50 to 100 companies to the exchange will be crucial, Villupuram added.

“It gives those that are thinking about listing an idea about what it takes to get on the exchange, and it could snowball from there,” Villupuram said.

TXSE officials say the exchange’s success will also hinge on the health of the Texas economy. If the economy continues to grow, Texas will continue to attract large companies and financial firms, which TXSE officials can try to recruit into the new exchange.

Stock transactions are now largely conducted digitally rather than on a trading floor, but a physical presence near major companies is still crucial for a stock exchange, Villupuram said.

“With stocks, the demand, the trading has become automated, electronic, whatever you want to call it, but the supply, the courting of companies to come get listed with us, that is still very much human to human,” Villupuram said.

“The landscape is changing”

Historically, Dallas was a trading hub due to its central location in the Sun Belt, making it Texas’ primary location for the communications, transportation and finance industries as the state modernized. That has continued as Texas-based corporations grew and Dallas-Fort Worth International Airport became a national travel hub, said Ray Perryman, president of the Waco-based economic research company The Perryman Group.

“Dallas is the natural location for a financial center to emerge in this region,” Perryman wrote in an email.

Top investment banks such as JPMorgan Chase and Goldman Sachs now have tens of thousands of employees in the region and are continuing to grow. Goldman Sachs is in the midst of building a $500 million tower in downtown Dallas that will host more than 5,000 employees, which will make it the bank’s largest hub outside of New York, according to the company. Charles Schwab moved its headquarters from California to Dallas in 2020.

New York has seen just a 16% growth in employment in the investment and securities sector over the last 20 years, while Texas has experienced 111% expansion, Perryman said.

The state’s lower cost of living compared to the northeast also makes it appealing to employees like Sasha Stratton, head of risk for Selby Jennings in Dallas and the South. The company assists with recruitment for financial services companies across the country. Stratton moved to Dallas from her home state of New York five years ago, seeking the opportunity to purchase a home and live a higher quality of life for less money.

“(Firms) are prioritizing hiring in Dallas over hiring in New York in a lot of instances, which I think is a pretty unique shift,” Stratton said. “That's driven by the availability of talent, the cost of operations, the availability of real estate and with the Texas Stock Exchange and other exchanges following suit, realizing it's not a compromise to be building out in Dallas, it’s actually a smart, strategic decision to take advantage of how booming the economy is.”

The shift in economic activity to the south paired with the deep pockets of TXSE’s funders suggests the exchange could be a formidable competitor to the NYSE and Nasdaq, Perryman said.

TXSE’s launch coupled with the expansion of NYSE and Nasdaq to the area will make it easier for growing Texas companies to access capital, allowing for more expansion and hiring, Perryman added, creating a feedback loop that benefits both the exchanges and the Texas economy as a whole.

“New York will likely remain the primary center of equity markets for the time being, but the landscape is changing,” Perryman said.

Disclosure: The University of Texas-Arlington and University of Texas at Austin have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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