Market exchanges bring corporations together with investors.
There are numerous exchanges across the globe that exist with different mandates.
The New York Stock Exchange (NYSE) is the premier exchange for large, established companies, often paying out dividends. It is the largest American stock exchange by volume.
The National Association of Securities Dealers Automated Quotations (Nasdaq) was introduced with the new feature of automated, electronic quotes for stock prices and volume with the purpose of increasing the cost efficiency and providing equal access to individual and institutional traders around the world. The Nasdaq accepted newer, more speculative industries that traditionally didn’t meet the requirements of the NYSE, such as the tech sector.
The Toronto Stock Exchange (TSX) serves as Canada’s primary exchange, with its younger sibling the TSX Venture Exchange (TSX-V) accommodating early-stage companies, such as junior exploration and emerging tech.
Every new stock exchange tends to arrive with a distinct mission in addition to the common goal of providing investors with access to their listed public companies.
Did you know: a company must pass a series of strict requirements in order to be “listed” (ie, accessible to investors) on an exchange; these requirements and regulations can vary greatly and are often tied directly to the mandate of the exchange. For example, the Nasdaq doesn’t require as much historical financial data as the NYSE does, as they are targeting newer companies.
We are investigating a brand-new exchange that quietly launched in late 2020, along with the first two companies listed that are leading the charge!
The roots date back to 2011, when now-CEO Eric Ries proposed the concept of the Long-Term Stock Exchange (LTSE) in his book, The Lean Startup.
The idea was to create a new stock exchange to facilitate the trading of companies that are structured to sustain long-term thinking. It wasn’t until 4 years later that Ries had started the process of setting up this exchange.
Long-term success and a stakeholder-forward approach are the main goals of companies that list on the LTSE. After 3 years of careful planning and building a foundation, the LTSE applied to become a regulated exchange in November of 2018.
In true long-term fashion, it wasn’t until September 2020, after back and forth between the Securities & Exchange commission (SEC) and the LTSE, that the exchange was able to launch.
Some of the most crucial aspects of approving an exchange are the listing requirements. Among the entry and annual listing fees, a company must meet requirements that include but are not limited to:
- Minimum shareholders’ equity – This refers to the amount of equity the main stakeholders have in the company. Ex. The Nasdaq requires at least US$2 million in shareholder equity.
- Minimum number of shareholders – This requirement is simple; it means there needs to be a minimum number of investors who hold shares in the company before listing. Pre-IPO companies will often participate in a strategic financing with low maximum investments, to spread shares across many shareholders and meet this requirement. Ex. The Nasdaq requires a minimum of 300 shareholders to list on their exchange.
- Minimum share price – Many exchanges require a minimum price in order to list on their exchange. While this is typically not enforced in companies with smaller market caps on early-stage exchanges, certain exchanges like the Nasdaq require a $3 minimum bid price in order to list. Many companies trading below $3 per share consolidate their shares in order to meet this.
The LTSE has requirements that are much more extensive, which makes sense considering their mandate for being an exchange to facilitate investment in long-term companies.
Companies on the LTSE are required to publish a series of policies. These policies are intended to ensure that companies seeking to list on the exchange are focused on creating long-term value. The purpose of the LTSE principles is to provide shareholders with ample insight into the way that the companies operate and build out their growth trajectories for a longer period of time.
The principles for the LTSE are as follows:
- Long-term focused companies should consider a broader number of shareholders. Each shareholder plays a key role in one another’s success. AKA: think about the little guy.
- Long-term focused companies should measure their success in years and decades, prioritizing long-term decision making. AKA: have patience.
- Long-term focused companies should align executive compensation and board compensation with long-term performance. AKA: make sure management is patient.
- A long-term focused company’s board of directors should be engaged with the company and have crystal-clear oversight of the long-term strategy. AKA: get involved with those who are there for the long haul.
- Long-term focused companies should engage with their long-term shareholders. AKA: talk to your people!
As you may know, plenty of exchanges and for-profit companies tend to have much shorter-term growth trajectories. Most people who invest in small to medium-sized companies seem to anticipate an exit strategy within the year (or even within a few months); chat rooms across the internet discuss short-term trading strategies for many of the stocks we see today listing on the Nasdaq, Canadian Stock Exchange (CSE) and the TSX Venture exchange (TSX-V).
It is from our experience working with retail investors of all kinds (particularly those interested in small-cap companies), that we know that not every investor is looking to be active on the market daily. Sometimes, people just want to invest in a company they like and leave it for the future. However, with the short-term volatility and inconsistent volume of many early-stage companies, monitoring share price performance daily can prove to be less-than-peaceful.
Investors and traders are often found analyzing support levels, short interest, resistance levels, escrowed share schedules, and painstakingly analyzing best prices to find the best entry and exit positions.
What if you want to be an investor in a company for 5-10 years to come?
Stocks trading on the LTSE commit to making this journey of buying and holding a lot more assuring, even in the presence of a retail-crazed market era where long-term is often considered a few months.
The principles laid out above help introduce transparency on the vision of the company beyond the next quarter, supporting the long-term philosophy of owning a piece of a company. When the entire board of directors and all other entities within the company (investor relations, marketing, etc.) is on board with a long-term scope, it helps create a sense of calmness and confidence for those who don’t care to go much further than that first buy order of a company they have a strong belief in.
It’s pretty apparent to us that the LTSE is an exchange appealing to investors, rather than traders.
Two companies have joined the LTSE via the dual public listings of their common stock. This exciting debut of the Long-Term Stock Exchange welcomes Asana, Inc. ($ASAN) and Twilio Inc. ($TWLO).
The governance of both Asana and Twilio have been deemed to have aligned with the priorities and principles of the LTSE. The transparency required, along with detailed, published policies that grant stakeholders insight into how the company builds out its business for the long-term are key factors that warrant an LTSE listing.
The way that Asana and Twilio operate and communicate amongst their shareholders, customers, employees, and communities is designed to promote sustainability, market resilience, and the constant creation of value over time; aligning with LTSE principles.
“Both Asana and Twilio demonstrate the kind of governance and growth that will help build a better future for everyone,” said Eric Ries, founder and CEO of LTSE group. “We’re honored that companies of this caliber are committing to the Long-Term Stock Exchange.”
Asana is a work management platform. The platform empowers workforces to orchestrate their work in unison, whether it be for day-to-day tasks, or larger initiatives.
The primary objective for Asana is to enable the world’s workforce to collaborate seamlessly to achieve their goals faster. The platform is utilized among organizations of all different sizes, industries, and geographic locations. Their culture of trust, transparency, and inclusivity is part of what aligns them with the values of the LTSE.
“Everything we do at Asana is in service of our mission: empowering teams to achieve their own missions. When we all work together, we can achieve great things. By listing with the LTSE we are elevating our public commitment to our long-term view, further developing our structures to execute on strategies and aligning even more without stakeholders who share similar values,” said Dustin Mokovitz, Co-founder and CEO of Asana.
Twilio is a cloud communications and customer engagement platform that operates mainly around the principle that the company serves multiple “stakeholders.” These stakeholders consist of customers, employees, shareholders, broader communities; anyone affected by a business can be considered a stakeholder of that business.
This is part of their mandate to promote sustainable growth, by focusing on both society and the bottom line. Considering and incorporating social impact into their business objectives is what sets them apart.
Twilio has built a highly diverse business that helps over 235,000 customers across all types of industries by prioritizing customer trust and building a culture of inclusion amongst their workplace and customer base.
“At Twilio, we believe a company’s impact on society should be net positive,” said Jeff Lawson, Co-founder and CEO of Twilio. “Our focus has always been on creating sustainable value for all of our stakeholders. We’re just scratching the surface of a generational opportunity, and we look forward to joining a community of stakeholders that share our commitment to long-term growth.”
What’s In Store for the Future?
Overall, the LTSE is setting an unprecedented standard for a specific mandate on an exchange. As the scope of what makes a public company successful is ever-changing, the LTSE intends to keep up to date; companies who are listed under this exchange are enabled to withstand the test of time and the markets.
The requirements and listing standards are the starting point for the listing process. Stronger governance and allying with shareholders and other stakeholders helps foster insights into the way that companies operate and build their businesses for the long term.
Dubbed the “Very Simple Market (VSM)” model, the LTSE has removed a few conventional exchange incentives that tend to benefit from the undesirable aspects of volatility and speculation. Quoting and trading procedures are intended to create a fair market that is not motivated by profit on behalf of the exchange.
Transparency is a critical part of the LTSE’s tactics. Order types are simple, and easy to use. Trade data and market quotes are only distributed on the public market data feeds. All users have access to the same data.
Perhaps one of the biggest standouts of the LTSE is the fact that it is the only national securities exchange that operates with a fee-free model. There are zero transaction fees. Participants aren’t paid nor charged to interact on the LTSE market.
Imagine Robinhood, Warren Buffet, and Reddit created the perfect exchange. Fairness, long-term focus, and easy-to-use, scheme-free trading. The LTSE may turn more heads in the future as its unique market approach encourages generational value creation for modern companies and investors alike.