U.S. regulators approve the Long-Term Stock Exchange

Hey everyone, Eric Ries here, founder and CEO of LTSE (and also you may remember me from such roles as the Lean Startup guy). Day one of approval has been kind of exhausting with all the attention but I wanted to stop by this thread and say hello.<p>Have questions? Happy to answer as best I can. Keep in mind that this is a highly-regulated startup so we are sometimes limited in what we can say publicly. I’ll do my best to give you a straight answer if I can.<p>Thanks for all the support over the years, this project has been a true community effort,<p>Eric

Engineers, product focused entrepreneurs and innovators would like a Long-Term Stock Exchange (LSTE) quite a bit if it works out.<p>Usually to list on public markets the whole bizdev&#x2F;marketing&#x2F;operations&#x2F;VC&#x2F;board&#x2F;lawyer&#x2F;executive machines end up taking most companies away from innovation and the founders, as well as taking large chunks of the company and the rewards, where the efforts become clouded in power struggles.<p>If the LTSE market helps stop short and distort, pump and dump schemes, it could be very attractive to long term investors and innovative&#x2F;engineering focused companies. A company like TSLA or a company rebuilding like AAPL in the 90s would probably love to be in a longer term, less short term focused exchange. The new market may encourage deeper dives for innovation and protect the companies on the exchange from the eviscerating games of the public markets where long term investors get skimmed and are &#x27;suckers&#x27; to the big fish.<p>LTSE is a very welcome direction and attempt to clean up the public markets problems including the short term quarterly focus, high bar for entry, constant attacks after going public and loss of power&#x2F;percentages by founders and innovators&#x2F;engineers&#x2F;product once the company goes public.

Anybody have a good, technical&#x2F;professional doc on how the LTSE mechanisms work? Some of this seems crazy, but smart people have looked at it.<p>Example: It seems like stock transfer would reset voting rights, which should depress prices and (intentionally, I think?) discourage sale. But what keeps a fund that owns vested shares from effectively selling their economics <i>and</i> voting rights through a secondary contract?

Excited to see this. I hope it leads to a trend to listing sooner and giving access to retail investors much earlier. Buying Uber at a few dollars instead of $42 for example. The markets will operate like they want to unless there are explicit rules to stop it. Right now it&#x27;s wait to IPO as long as possible, and HFT only accessible to huge companies. Retail is left with the scraps.

To be a company that&#x27;s operationally mature enough to list on an exchange they&#x27;re likely of the size of a company that could IPO on NYSE or Nasdaq. I don&#x27;t think this will suddenly allow a flurry of startups to suddenly become public on a different exchange.

&gt; And the Council of Institutional Investors has argued (pdf) that LTSE’s voting mechanism could hurt shareholders by giving too much power to founders.<p>I mean, the most high-profile tech stocks to hit the market as of late already give all the power to founders via voting class stock, so I don&#x27;t think it&#x27;s a big change other than truly standardizing it.

<i>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.</i><p>And what are those rules? Nowhere in the article does it actually say what this actually is.

The title of the story is “U.S. regulators approve new Silicon Valley stock exchange”<p>Despite the actual name of the exchange, the title of the article seems much closer to how the exchange is described:<p>&gt; 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.<p>From the HN guidelines:<p>&gt; Otherwise please use the original title, unless it is misleading or linkbait; don&#x27;t editorialize.

Why don’t we just levy a 5% tax on every stock trade? That would provide a lot of funding and also get rid of front running, flash crashes, and a lot of kinds of market manipulation in a hurry. It would also make sure that any stock trade was with the intent of making longer term investments.

&gt; emphasize governance standards like sustainability, executive pay, and diversity<p>What would a company gain by choosing to list on here (over other far more established options) while having to commit to these additional rules? Access to a group of investors who don&#x27;t complain too much about quarterly profit objectives?

We are thrilled that the SEC has officially approved the Long-Term Stock Exchange as a national securities exchange!

With dual class shares lacking accountability and leading to corruption among founders, founders and investors clashing over dual class or multi class shares, and allowing a sense of corporate loyalty to appear among founders who run companies with dual class shares, I do see a good sense of demand for tenure voting. With increasing calls for banning dual class shares and the scandals at Facebook and Google shining light on the dictatorship held companies by founders, we will see regulators and many retail and institutional investors become aware of dual class shares and either regulate or ban them. So tenure voting is the best way to go!<p>I think that tenure voting is the next step forward and it is a good way to attract an alignment between investors and founders as well as employees since they get incentivized with more votes for holding a stock long term. We&#x27;ve seen this work really well in France especially with companies like LVMH that investors are patient towards due to this tenure voting incentive.<p>But like how dual class stock caught on with startups starting with Google and Facebook, can we see the same for tenure voting if there are hot startups in the future with this structure?<p>Will LTSE allow dual class or multi class share structures or only tenure voting among companies wanting to list on the exchange?<p>Also will all sorts of companies be able to do this or will LTSE only be open to tech companies?

I don&#x27;t really see how the rules mentioned will change things that much.<p>&gt; asking companies to limit executive bonuses that award short-term accomplishments.<p>Why would I care as an investor? I still want the stock to go up quickly. Executives own stock and without a cash bonus wouldn&#x27;t this incentive trying to get quick increases in stock value.<p>&gt; 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<p>Seems relatively minor vs the benefits of a stock jumping significantly in a short time. As a minor stock holder I have no interest in voting power. There still isn&#x27;t a downside to short term deals.

I remember when a bunch of nobel prize winning economists founded &quot;Long-term Capital Management&quot; on the theory that, because they only traded relative value arbitrage, they couldn&#x27;t lose money. Then they levered the strategy without realizing that these value arbitrages could shift against them and result in additional margin requirements. Those were the smartest people in finance at that time, and they nearly took down the world&#x27;s financial system. The only real similarity here is the &quot;long-term&quot; name, but I don&#x27;t think that anyone with a true understanding of capital markets would name their firm &quot;long-term&quot; after that fiasco.

Having been exposed to the shell games that go on at a large corporation, I think this could be really good.<p>If this is actually executed properly, I think this could be a good exchange for more than just tech start ups.

I couldn&#x27;t see it in the reuters article so apologies if this is no longer relevant. Is the plan still to give different number of votes depending on how long the shares have been held? If so, wouldn&#x27;t selling your shares you&#x27;ve held for a long time destroy value i.e. by resetting the votes to zero? Also, if different shares have different values, would they each have different prices, or would the listed price be some weighted average?

I can imagine some kind of OTC exchange where people dont have to worry about Sarbane-Oxley and other SEC rules as being useful. Is this what it will be?<p>If you have to comply with SEC and the CEO can&#x27;t post jokes on twitter, I dont really see what advantage there is over NYSE or NASDAQ.

Congrats Eric and the team!<p>What does the ideal LTSE &quot;customer&quot; look like? IOW, what are the signals or attributes of a company that would be a great fit for considering an LTSE listing?

I think it&#x27;s worth it to allow this but I fail to see it&#x27;s true relevance. If companies don&#x27;t innovate sufficiently for the long term they will die to other companies that do. Hence the market takes care of itself.

Kind of bad luck — naming anything in finance “long-term”. It attracts the attention of quite a few angry gods to smite you.<p>Some of us still remember what happened with LTCM — “Long-Term Capital Management” hedge fund, who was heralded back then as the pinnacle of innovation. It was back in 1998, which looks like eternity for Silicon Valley types... but some remember.<p>Naming a financial entity “LTSE” is inviting trouble.

Will any capital use it if they know the short term exchanges are available?

This is great news. Congratulations. How are you going to help companies and their investors define performance for the long term in this new age?

Is this more than a Regulation ATS approval?<p>If this is a national stock exchange, then that would be fitting for silicon valley and California. If bankers here would like to take other parts of the transaction for IPOs and direct listings it could really be a boon for the state and remove a lot of the pressure from New York investment banks, as California is economically larger than other most countries with relevant financial centers. On many lists, California is only in 5th place GDP worldwide because the United States as a whole is above it and double counts California.

Eric, Congrats man! What unbelievably good news for the planet. I have been telling anyone who would listen for the past year that the LTSE simply HAS TO HAPPEN!!! You have the solution to the currently flawed version of shareholder focused capitalism. Now, all stakeholders can enjoy the ride. When you get a chance check out: TorreyProject.org to see how we are going to use LTSE to change the world.

Eric, Could companies listed on NYSE and Nasdaq eventually move over (not dual list) to LTSE? If so, what does such road look like?

I think there is big potential value in a new exchange that optimizes for cheap IPO&#x27;ing rules. Something between Nasdaq and Wefunder.<p>I&#x27;m not persuaded by some of the ideas they have (like adding diversity to their governing board, seems designed to be exclusive to tech-startups that already have a bias toward that &quot;value&quot;). But if only by competition they make listing cheaper and easier it could have a big impact.

Does listing on ltse absolve the company ofthe standard rules around going public like Sox compliance?

here is the SEC filing:<p><a href="https:&#x2F;&#x2F;www.sec.gov&#x2F;rules&#x2F;other&#x2F;2019&#x2F;34-85828.pdf?mod=article_inline" rel="nofollow">https:&#x2F;&#x2F;www.sec.gov&#x2F;rules&#x2F;other&#x2F;2019&#x2F;34-85828.pdf?mod=articl...</a><p>question to LTSE employees: do you plan to host your matching engine in California?

This is a silicon valley exchange, silicon valley VCs can&#x27;t compete with multi-billion dollar &quot;vision funds&quot; so they&#x27;d use retail investors to drive their moonshot bets. Silicon valley startups would get a much better deal with an IPO on LTSE than a private deal with vision funds.

How does this differ from the OTC market?

What are the downsides of this?

Any investor who limits themselves to the &quot;long-term&quot; is doing nothing more than allowing execs to get away with bad behavior.<p>There is absolutely zero evidence that current stock prices don&#x27;t price in the long-term. Indeed, if there were, savvy investors would arbitrage for that... and then it would no longer be the case. This is pretty much by definition, just Econ 101. (Also, somebody who thinks stocks are biased to the short-term... please explain AMZN&#x27;s valuations over the past two decades.)<p>The <i>only</i> people calling for limiting investor ability to sell are executives of companies themselves, who are afraid of accountability from investors. Because sometimes CEO&#x27;s would rather be lazy or work on their fun (yet unjustifiable) pet projects, than actually build a profitable, sustainable business like investors want. (It&#x27;s just human nature.)<p>A &quot;long-term stock exchange&quot; is one of the greatest cons ever played by execs. It is good only for management, at the expense of investors, customers, and everyone else generally. It is simply the removal of accountability, which can never be a good thing.