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U.S. regulators approve the Long-Term Stock Exchange (reuters.com)
394 points by yahelc 12 days ago | hide | past | web | favorite | 188 comments

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.

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.

Thanks for all the support over the years, this project has been a true community effort,


Eric, great job on the SEC. Regarding large, long-term investors, ILPA might be a place of interest. I've gone to some of their conferences in New York. Good luck.

Eric, great job on the SEC. Regarding large, long-term investors, ILPA might be a place of interest.

I like this plan a lot. One criticism that seems valid is that giving more voting power to people who've held stock longer gives a large advantage to founders. It also doesn't directly accomplish the goal of giving more power to people who intend to hold stock longer (though at least it tends to).

A more direct idea proposed by Vitalik Buterin: give people a vote in proportion to how long they're willing to commit to keeping their stock. Optionally, only enforce the commitment when the vote goes their way (though this probably only works for major decisions).

Would something like this be feasible for stocks? Would it be compatible with LTSE?

Yes, that’s feasible and even today a company could adopt a system like that (instead of one where certain insiders automatically have complete voting control for life).

We are considering a range of proposals for future listing standards and I won’t be able to comment on those until we file them publicly.

But suffice to say we are thinking along these lines. To me, one key principle is that in order for companies to make long-term decisions, they have to know who their long-term investors are, and find ways to be aligned with them, including via rewards like you propose.

Thank you for driving innovation in equity markets! We need more focus on long-term capital allocation, and less on the casino aspect of stock prices.

Have you considered incorporating some form of low-frequency trading? With an auction for shares held once a day, once a month, or even once a year?

(I have heard Warren Buffett say that, if it were possible, he would prefer if investors could buy or sell Berkshire Hathaway shares only once annually at a price close to intrinsic value. The low frequency would encourage investors to focus on understanding businesses instead of short-term price movements.)


Equity auctions already happen at the open and close (and any restarts).

Eric, congrats on the SEC approval. I really love this idea. I'm an SEC RIA, developing a mobile app called Gainvest for investors to access private opportunity zone funds and I view it as evolving into a similar marketplace but for private funds. I have two questions if you have time :) 1. How do you see this ecosystem evolving over time re: mobile platform, global outreach/expansion, and access to foreign direct investment? 2) Do you anticipate private funds or investment banks themselves being able to list on the LTSE?

Again, congrats, best wishes.


Have you seen any interest from companies who are already traded on existing stock exchanges from delisting there and being listed on the LTSE?

Yes. (Technically “delisting” is not the right verb to describe this, but you’re on the right track.) The rules also will allow companies to dual list across LTSE and other exchanges.

Will it be possible for listed companies to prohibit short-selling of their stocks?

Edit: If so, I'm pretty sure Tesla Inc. would be happy to participate in your beta program.


Some of the standards we hope to file in the future could affect the volume of shares available for short activity, but that would be an indirect consequence of encouraging longer holding periods.

Edit: indeed. But we don’t do anything to help with CEO tweeting :)

Does the volume limitation mean that there would be an option for an investor to buy without allowing the brokerages to borrow the stock out to short sellers?

There’s no volume limitation and the specific implementation you mention is not correct. But you’re on the right track, something like this is indeed possible.

Great idea, congrats on the approval. I have a few questions after reading the article.

Broadly, what did you have to change to get SEC approval?

Have you considered supporting some sort of crowdfunding private model as well - like angel investing for the masses, before a company goes public?

Will you be available in all the big trading brokers for retail investors? I use freetrade (uk broker) and would love to see your stocks there.

Have you considered listings being asked to reward investors with long term dividends or bonds? I know this is usually up to the company, but the exchange could perhaps encourage it. Tech stocks often focus on growth but it’d be nice if there were more emphasis on sustainable long term growth. For most investors voting rights are pretty academic and a very blunt instrument.

Our application was just the first step. This is the base layer of rules and standards, very much akin to NASDAQ or NYSE. That’s not a change per se, it’s just where you have to start. We will make additional filings soon.

Crowdfunding and private markets. We have some ideas on how this could be done in an ethical and transparent way, but we would proceed cautiously if we go that way. Too much activity these days is quite dubious and we don’t want to profit from that.

Yes, all of our listing stocks will reads as part of the National Market System, which means you’ll be able to access them everywhere including at retail. It’s very important to use that everyday people are able to access the same features and benefits as larger holders.

On rewards for long-term holders, yes we have considered that and I think you’ll be pleased by what we eventually roll out.

Sounds great, thank you for the informative responses in this thread. Re changes/revisions before acceptance by the SEC, I was referring to this part of the article:

Friday’s decision followed an uncertain fate for LTSE, which had faced SEC opposition before revising parts of its proposal.

Yeah, I understand why they wrote that - this process is confusing. This is an entirely new proposal because we are applying under a different regulatory pathway (a “form one filing” instead of a “rules change” on a legacy exchange).

Does this exchange have any plans in place to avoid front-running high frequency trading? Similar to IEX.

It seems the focus of this initiative is aimed at aligning long term voter control, but these front-running techniques don't really care about control.

Our current filing is silent about these features and I can’t be specific with our future plans until we file with regulators. With this approval, we can now work with participants in the market and learn how we can best serve all stakeholders.

Can you explain why another exchange is needed for this? A company is free to issue a special share class and list it on one of existing exchanges, no problem. There is nothing stopping companies from doing this long term incentive thing now. If they aren't doing it on existing exchanges, why would they do it on your exchange?

An analogy: any software company is free to build their own custom protocol, no problem. Nothing stops them from doing their own hyperlinking thing now. If they aren’t building it on existing applications, why do we need the WWW?

not a great analogy. There is no new protocol required to trade stocks, right? Companies already issue different classes of stocks with different rights. GOOG vs GOOGL or Viacom VIA vs VIAB. It's not a technology issue, it's a legal / regulatory issue. Because of Reg NMS, your exchange will get some volume but I don't see what value it creates beyond playing regulatory arbitrage.

1) What are some of things you did to validate this idea in accordance with the Lean Startup Methodology?

2) Do you think any approval of this by the regulators was an attempt to stay competitive to the rise of crypto crowdfunding / instant liquidity via crypto markets (ICOs, STOs, IEOs, etc)?

1. We use it in a lot of ways big and small.

I’d say two notable examples are building our tools platform (http://LTSE.com/tools) for early stage companies which has allowed us to do exchange-like things long before being operational as a national securities exchange and our earlier attempt to build the exchange with a legacy partner. That partnership ultimately failed but in the process we learned a lot of essential lessons that set us up for success. Classic MVP.

2. Not really. They are obviously aware of those things and I have found them knowledgeable and conscientious in wanting to protect and serve the public. But the process to create a stock exchange is defined by law and they followed that to reach their decision. If you read their almost 50 page approval order, you’ll see how detailed their analysis is.

What are the key differences between a LTSE and a regular one?

We are the only stock exchange that was built from the ground up to serve companies and their long-term investors primarily. We have a different philosophy, business model, and eventually will have different market rules than the legacy exchanges.

We have nothing against those older institutions or against traders for that matter. We simply think the next generation of companies is looking for something different. It’s a strength of the American system that it supports competition and allows us to give people a choice.

We will publish additional details as we are able to.

why continuous auction and not discrete timed auctions? four times a day or every half hour or whatever would remove HFT from the equation.

Stay tuned

Will LTSE support reg A+ early IPOs?

The answer is unfortunately complicated and depends in part on the resolution of this issue: https://www.lexology.com/library/detail.aspx?g=96b76e1c-a54a...

But we would like to.

Engineers, product focused entrepreneurs and innovators would like a Long-Term Stock Exchange (LSTE) quite a bit if it works out.

Usually to list on public markets the whole bizdev/marketing/operations/VC/board/lawyer/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.

If the LTSE market helps stop short and distort, pump and dump schemes, it could be very attractive to long term investors and innovative/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 'suckers' to the big fish.

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/percentages by founders and innovators/engineers/product once the company goes public.


Anybody have a good, technical/professional doc on how the LTSE mechanisms work? Some of this seems crazy, but smart people have looked at it.

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 and voting rights through a secondary contract?

Here's the exchange rulebook.[1] This is rather long. I haven't found the "long term" part yet. It appears to function as an ordinary short-term exchange. It's not like stocks trade once a minute or once an hour to eliminate high-speed trading. They allow day trading and margin.

There have been proposals for exchanges designed to discourage short term churn, but this doesn't seem to be one of them.

The web site seems unhelpful. Not much solid info.

[1] https://longtermstockexchange.com/regulation/docs/LTSE%20Rul...

Fta:”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.

It would also require 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.”

I don't blame our OP for wanting more information. Certainly anything trumpeting the zeitgeist or offering a suspiciously tuned Worry De Jour should be evaluated carefully. (That is, it's obvious that "we want to fix short term ism in the stock market" will be a popular and marketable idea, whether that is the intention/actual end result or not.)

Even in the parts you've quoted, the language seems very careful.

They'll "ask" businesses not to give huge executive bonuses, but asking is free and non-binding. A large portion of the American public has been "asking" for this for a long time. Is the problem really that no one has asked?

They'll require "more information" about key milestones and plans for investors, which sure, that's nice for investors, or will be if it's more information than is usually given by CEOs to a board, which I doubt. (Investors already demand to know what the plan is, and even startups usually have plans for several years out even if they're goals more than plans.)

But is that actually the problem that causes short term ism? Are we insinuating that investors love long term investments and the only reason they don't make them is because CEOs don't tell them enough?

Etc. Now, maybe these worries are invalid, and the actual charter does actually prescribe effective regulations to solicit the desired behavior.

But to confirm that, we will need more information than the vague assertions provided in the article. Which is why our OP was trying to investigate the source documents.

(Also, doesn't it seem odd that a medium length article about an exchange's sole reason for existence contains almost no information about how that exchange intends to achieve the reasons for which if exists? Just assertions that it will do so with all language carefully qualified?)

I think I'd add that my concerns aren't just, or even primarily, that they are trying to do something nefarious.

Rather, I tend to view issues as having a certain amount of public mindshare, and the success or failure of initial attempts at a solution tend to have an outsized influence on public willingness to assign resources to a problem.

So I think that if this is a poorly implemented solution, and fails, we may not try again for some time, even if the actual idea is perfectly workable. Since I also agree that this short term...uh...ism...is a genuine problem, I would very much like to see a successful solution to the trouble.

And I do mean the traditional public: this problem of poor implementation scuttling perfectly good ideas also afflicts the efforts of for profit corporations as much as it does democratically controlled public servants or charitably beholden non-profits.

Thanks and wow... It's a lot. Looks like they have a set of commitments about owners declaring change of control, and some investigative powers to figure out if someone is circumventing rules. It's a really interesting idea but feels like it will need a decade of experiments to see what works.

"but feels like it will need a decade of experiments to see what works"

Well, Eric literally wrote the book on that approach, so I guess that's not a problem. Sure, $19MM seems like a lot to raise before your MVP.

Maybe they're looking for companies to list there who are trying to build value in the long term instead of the norm, which is short term vesting cashouts.

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's wait to IPO as long as possible, and HFT only accessible to huge companies. Retail is left with the scraps.

Retail is left with "the scraps" because it is much riskier to invest early on. Companies that fail early aren't heard about as much, because Joe Average's pension plan hasn't invested in them, but are still plentiful. And maybe Joe Average's pension plan shouldn't be investing in what are effectively PE-stage firms.

I don't know if I'm right about this, but it seems such an exchange might contribute to something like 2008. Then, it was the common man investing in over-heated real estate; now, it could become the common man investing in over-heated tech.

I feel like those who work in tech often forget that it can fail, have cycles of boom and bust, etc. like any other industry.

Of course, I do think it can serve a useful purpose, but there is reason early-stage, private investment is restricted to qualified investors.

A Joe Average is legally allowed to walk into a casino and lose all his money, pretty much guaranteed over long term.

A Joe Average is legally allowed to play all kinds of lotteries, pretty much guaranteed loss over long term.

A Joe Average is legally allowed to invest his 401k in the riskiest penny stock one can find.

This has nothing to do with risk, it's 100% gate keeping.

The reason investing is treated with greater scrutiny than gambling is because of the psychological factor. When you gamble, you're under no illusion that you're guaranteed to win. But it's easy to be fooled into thinking there's a way to hedge risk without putting in the time and effort to learn how.

Every single time I see democratized access to riskier financial markets actually make it to the public, I can hold my breath and wait for the news reports to come out about the scams and grifters that come out of the woodwork to take advantage of little old grandmas, who wouldn't ever think of pulling the cash out from under the mattress that she's saving for little Penny's college fund and going to Vegas, but can easily be talked into "investing" it in the brand new wave of "tech" sweeping the nation.

It's not Joe Average these laws protect. It's Joe Average's less cognitively-blessed parents. It's so easy to fool old people that if we don't take positive steps to stop it from happening, it becomes an industry.

You can't get rid of all of it, but you can at least push the wolves out to the periphery.

Yep, penny stocks, options and margin trading are all available to a retail investor. But hey, I want to invest in a new business? I want to buy Bitcoin? I want to participate in an ICO? Sorry. It's all about gatekeeping and not letting me do what I want with my money.

I don't like the gate keeping either but so called "entrepreneurs" would just go around washing people. The point is that you have enough money so no-one cares that the space mining company you invested in only hires website designers. Pumping penny stocks is illegal, but when it wasn't, salespeople were washing people.

It could also merely be convenience - as a startup you want to raise a few millions or whatever, and you want it all to come from a few sources, not too many. If you opened this up to an average investor, it will be a headache consolidating all of them. Also, there are offerings by banks for wealthy clients who can invest in the banks' PE or VC arm, this allows access to the clients, and since it's one bank providing liquidity the people obtaining it don't have to manage anything.

> A Joe Average is legally allowed to invest his 401k in the riskiest penny stock one can find.

Most 401ks do not allow individual stocks. Some do, but often with only a small % of total account value.

IRAs typically act more like a general equity account, but by that point I would argue a person is already a bit more financially savvy. If they have taken the time to either open an additional retirement account or roll a 401k over from a prior job, then they have some idea about penny stock risk.

> Of course, I do think it can serve a useful purpose, but there is reason early-stage, private investment is restricted to qualified investors.

The expected value of early stage investing is certainly higher than lotteries in the US. Every poor Joe can spend thousands on lottery tickets that expire worthless, but cannot invest thousands in real companies that Joe believes will do very well in the future. Shouldn't Joe have access to companies earlier, if he currently can access lottery games?

Yes, and he can become an accredited investor which has regulations tied around it. Safeguards are needed so your Average Joe doesn't squander his family's $500k retirement and become dependent on the govt's teat.

Wouldn't those safeguards be at least as necessary for lottery tickets?

Only degenerates throw $500k away at lottery tix, while significant amounts of the population invest their entire $500k in funds as found in 401k's or IRAs (or whatever). So yeah, I'd rather shield most of the country from the volatility of early stage shitfests, and make that bar high to climb if they really truly want to invest in early-stage.

Then you can do marginal accredidation based on income and/or net worth rather than nothing or anything at 200k income/2MM net worth.

It would be easy to regulate for anyone that makes, or is worth, less than "accredited" levels can only put in X% of their net worth. Doesn't need to have this arbitrary cutoff. I'd wager there are quite a few dumb people making over 200k.

An aside: Income as a method of determining "accredited"-ness is quite arbitrary. Many SWE in the valley easily qualify, where an equivalent SWE in Midwest US would not qualify, just because cost of living/wages are lower.

Most mutual funds available at retail are borderline scams as-is. It is highly unlikely you will find one that has a true ROI / Sharpe Ratio above investing in basic Vanguard Index Fund ETFs, yet the public is still allowed to throw away 2% per year in management funds + loads + fees for buying garbage mutual funds and ETFs from enormous companies that sell at retail.

There is still a significant difference between earning less than you could in your retirement savings and wiping half of them because you put them in a bad investment though.

Not if you aggregate the amounts stolen. Im sure that 2% is a staggering amount of money, maybe more than all the cash robberies that are reported to the police yearly.

Then make them take some tests to get accredited rather than an arbitrary income barrier, or net worth gatekeeping. According to that logic, someone with $2M net worth is just as likely to lose their shirt as someone with $50k net worth if they put their entire worth into a losing fund.

It’s not about knowledge, it’s about the amount of risk and the amount at risk.

Two equally skilled investors each looking to invest $10,000 in the same company. Investor A is worth $10,000,000 while Investor B is worth $100,000.

Those two investments look the same on paper but the risk for each investor is wildly different. A test won’t solve for that.

I don't think you have a good sense of who's buying how many lottery tickets. By your measure here, amount invested as percentage of net worth, the lottery should definitely be illegal.

If lottery tickets were intended to be investments instead of a tax on poor people who can’t do math, yes.

But the revenue from Joe would then go to early-stage companies, not the government.

I think what you'd find is that Joe's money would go to shysters who are today turned off by the prospect by forfeiting their money and sitting the rest of their lives in federal prison (so they become telemarkets, roofing repair dudes that follow hurricanes around, or late-night TV hucksters).

> The expected value of early stage investing is certainly higher than lotteries in the US.

That’s arguable.

State lotteries are highly regulated and transparent and typically return 50% of their capital to participants.

That’s fair. For the overall game you can expect to lose 50% though, with a handful of outsized windfalls going to 1/1000000 people.

In principle it’s more about why a poor person can access lotteries but not private investments, not the exact math on E[X]

2008 wasn't about the common man making poor investment choices. It was about banks extending credit to people who weren't credit worthy, but pretending to their investment customers that they were.

You can already do this, it's called crowd-funding!

If by "crowdfunding" you mean Kickstarter, then no, that's not like investing at all. Putting money into a Kickstarter project doesn't entitle you to any future profits.

However, equity crowdfunding platforms do exist. One example is CrowdCube.

To be a company that's operationally mature enough to list on an exchange they're likely of the size of a company that could IPO on NYSE or Nasdaq. I don't think this will suddenly allow a flurry of startups to suddenly become public on a different exchange.

What is a flurry startup and what is a mature company is relative.

For example, Amazon originally IPO'ed in 1999 after raising only 10M USD.

Especially since the last financial crisis over regulation has hindered SMEs access to the public markets. Being a public company means that you can often raise money on better terms. If only large enterprises can access good money, then SMEs and indirectly innovation is hurt.

EU has realized this and is now trying to make SME listing easier (mostly through de-regulation).

> Currently, out of the 20 million SMEs in Europe, only 3,000 are listed on stock-exchanges. "We want to change this," said Valdis Dombrovskis, EC vice-president responsible for financial services: "We propose rules that will make it easier for SMEs to access to a wide range of funding at all stages of their development and to raise capital on public markets."



> For example, Amazon originally IPO'ed in 1999 after raising only 10M USD.

Small correction, Amazon's IPO was in May 1997. The $10m in venture capital is correct though ($2m common, $8.2m preferred).

They of course had a relatively small business, which matches with the $10m in VC and times. $15.7m in sales for fiscal 1996. Their sales ramp is impressive considering the Web at the time: $875k in 1Q96, $2.2m in 2Q96, $4.1m in 3Q96, $8.5m in 4Q96, $16m in 1Q97.

They raised $50x million in the IPO, and had a $560 million valuation at the end of the first day of trading.

Their S1:


I cite this fact all the time when talking to people about how capital markets have changed dramatically. But even I find it hard to remember the actual numbers. They are so mind boggling by modern standards. It wasn’t that long ago!

Thank you! This was long long time ago and I did not fact check my memories.

I meant operationally mature as in they have the financial controls, auditing and reporting to be public. That's not trivial for a company to do, especially a startup.

It is not trivial, but it is not unheard of. There is a fixed minimum cost on the compliance and it must offset the better price you get from public money or reputational benefits of being public. The trick is make sure that this cost is low as possible, but still ensuring the markets' integrity and fairness.

* Quality information is available for investors to make rational investment decisions

* Information is available fairly - no insider trading

> still ensuring the markets' integrity and fairness.

Existing reporting requirements does not ensure markets' integrity and fairness in much of the world, US included.

I think, to some extend, the presumption of truthfulness in financial reporting is even giving edge to bad players, and penalises "boring" businesses that have nothing to show but dividends, and a track record paying them.

It is much easier to "pool the wool" with some fancy paid off analyst reporting for a tech business with dubious repute than say a concrete factory.

There were times in India and Pakistan when every major city had a stock exchange. Pakistan held to tradition longer than India, and owners of 3 largest stock exchanges merged them into Karachi stock exchange, and later PSX only in 2016.

In Pakistan, most listed businesses are much more "boring" than ones in US. Concrete factories, brick makers, seedling producers, farms. Regulations on disclosure are near nil, but locals care not for that as few buy shares for anything but dividends and a good track record paying them.

I myself vehemently oppose the idea of collective ownership of means of production, which public companies embody, but I do think that there is a visible "skew" in US with regards to business liquidity: all kinds of pets.com have a go, while clearly not bad businesses reliably making money have to be sold at discounts that will be considered big even by developing countries standards.

> I myself vehemently oppose the idea of collective ownership of means of production, which public companies embody

I wouldn't call this "public" ownership, as the "public" does not own a company. Investors own a company, the pool of investors is simply enlarged such that the public may invest.

In my understanding, collective ownership !== public ownership and is just anything where the amount of owners is > 1

I've always taken "public ownership" to imply "publicly-traded company", which means John Q. Public can call up his broker and buy some shares in the company.

This in contrast to privately-held companies, which can and do have many owners, but whose owners are acquired through partnership, investment, key employees within the company, and M&A - but not through the sale of securities.

Does that mean you oppose all companies or business which are owned by more than a single person?


No that's still private ownership. Amazon, for example, is not collectively owned, even though it's owned by more than just Jeff Bezos.

There's a huge narrative to the contrary, saying that companies like Uber are waiting to IPO until long after they are operationally mature.

Just to note, Uber just IPO'd today.

Your comment assumes that all investors are the same and all companies share the same goal.

> And the Council of Institutional Investors has argued (pdf) that LTSE’s voting mechanism could hurt shareholders by giving too much power to founders.

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't think it's a big change other than truly standardizing it.

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.

And what are those rules? Nowhere in the article does it actually say what this actually is.

Stay tuned. This initial approval is for the base set of listing standards that are similar to other exchanges (that’s just how the process works). Over time we will add more, but we can’t share the details until we get further in the regulatory process.

The title of the story is “U.S. regulators approve new Silicon Valley stock exchange”

Despite the actual name of the exchange, the title of the article seems much closer to how the exchange is described:

> 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.

From the HN guidelines:

> Otherwise please use the original title, unless it is misleading or linkbait; don'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.

HFT and front running is a plague upon the markets, but there are already effective ways to stop it (order batching, and time delays like IEX does). The only reason it even exists is because the exchanges make tons of $$$ from selling access to the HFTs.

On the other hand, day traders provide valuable liquidity to the markets, making them more efficient and better for everyone. They ability to operate would be severely harmed with even a 1% fee on every trade. And more fees also harm normal people like me, who conduct trades that generally last from a few days to a few weeks each. For the most part, we're not harming other people, and we make the markets more efficient and legitimate.

The weird market effects are enabled by what is basically corruption by large entities involved with the markets, and by the ineffectiveness of the SEC at fighting a wide range of anticompetitive practices. They are caused by people who are making a small amount on every trade, but not all of the people making a small amount on every trade are bad.

Personally I think that there is such a thing as too much liquidity, and we are at that point now. It certainly undercuts the power of the workers in a region if its that easy to pull money out, but the people can’t leave. So the holders of the capital have all kinds of leverage (they can pull their money out in a nanosecond) but the people have none (they are stuck where they are and must take what they can get).

Even 0.1% would probably be enough to tamp down most HFT.

Unfortunately, this exchange doesn't seem to be aimed at that:

> The LTSE is a bid to build a stock exchange... that appeals to hot startups, particularly those that are money-losing...

> ... giving retail investors a chance to cash in on high-growth startups.

That sounds like a private lottery at best, and a scam at worst. Maybe it wouldn't seem so bad if I read through the full SEC document, but I'll steer clear of this until plenty of other people have tried it out.

Or just add a category of capital gains--super short-term capital gains--for holding something for minutes or hours, and tax it at 50%.

> 5% tax on every stock trade

I am not sure you've done the math on this when it comes to your basic person socking away $5000/year in index funds in a simple Roth IRA trying to save for retirement, and what signal it sends towards saving money / planning for the future, which is already at its lowest point in this country.

Actually that accomplishes the opposite of what you’re saying and results in a more scammy market. Read about CFDs in UK.

A 1 penny tax would be very effective too without the subsequent damage to liquidity.

Probably also kill the dollar as global reserve currency

> emphasize governance standards like sustainability, executive pay, and diversity

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't complain too much about quarterly profit objectives?

And a group of investors who don't complain about founders retaining majority voting power.

Which probably isn't an issue for retail investors. Retail investors are already unlikely to have much actual power and I would bet a majority of them never actually participate in any voting. I can't speak for everyone in that situation, but I know I would be perfectly happy to forfeit my stockholder voting rights if it meant I got some more assurances that a company was being held to some higher ethical standard.

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

I am happy for LTSE.

The article doesn't explains what makes LTSE different than NYSE? How will it actually encourage looking beyond the next quarter? Where can one learn about that?

The only concrete(ish) thing I could find was this quote:

> ...and reward long-term shareholders by giving them more voting power the longer they hold the stock.

I'm not sure how that would affect the behavior of traders in any particular stock. Seems like it would allow a "committed minority" of shareholders the ability to control the company, without having different classes of stock determined upfront?

In any case, Matt Levine's article on it is a good read: https://www.bloomberg.com/opinion/articles/2017-10-16/the-lo...

If this exchange is mostly for value investing, as it sounds like, what barriers will LTSE set to prevent high frequency trading and other byproducts of access focused trading?

Reading the title, I was excited expecting something like a round-based stock exchange, only evaluating orders and publishing information every hour.

It's designed for long term investing. Not a place for day traders, high frequency trading and all sorts of sharks and piranhas that like to eat up pensions and 401k funds...

How exactly do you believe high-frequency traders "eat up" pension funds?

The only time any limit order gets executed is when it is the best price available. From the other perspective, the price a market order is matched at is the price of the best limit order available.

In the absence of high-frequency traders, the best price available will be worse, not better.

Example of how HFTs would "eat up" money, at least in the past: many instruments trade on multiple exchanges. So when a trader wants to execute what is conceptually a single large order, in practice this order may need to be split and routed to multiple exchanges.

HFTs will see the first order executing on one exchange, and will then jump in front of the rest on the other exchanges. For the trader it looks like large orders don't work; he can't buy every offer that's on his screen. Only part of his order works, and a price rise prevents the rest from executing.

Nowadays this may be less of a problem, because large traders now probably all use software that tunes injected latency to make all related orders arrive simultaneously at their different destinations. But I would still be careful about assuming that HFTs can't do any damage anymore.

The HFT can't just know that you're going to place a market order, and then jump in front of all of the other limit orders that you're going to match with, without offering a better price than the other limit orders.

The only way that could work is if the lowest price you can buy on exchange A is $100, and the HFT knows that you're about to submit a market order, so he buys up the $100 orders until the best price is $101, and then he lists what he bought for sale at $100.99, which your market order matches against. OK, in theory this works.

To avoid this, you can just submit a limit order at $100 instead of a market order. You should always use limit orders for exactly this reason, anyway: even in the absence of foul play, the order you're trying to match against might get matched by someone else in the mean time and you could get a worse price than you expect.


Please do not post in the flamewar style to HN. It's against the rules here.


Pensions and 401k funds are not required to do any sort of short-run trading, and the asymptotic value of a security on each exchange will be the same. It won't meaningfully impact any sort of long run value of a pension fund or 401k (that is passively managed)

What exactly stops them from investing anyways

HFT get special trading codes they use to their advantage. They can see when a large order is being placed by an institutional investor and use it to their advantage to skim off a little bit.

Even if true, that's not an inherent property of HFT, that's just standard corruption: some traders get unfair access to private information about other traders' future plans.

Getting rid of HFT wouldn't get rid of that kind of corruption, and getting rid of that corruption wouldn't get rid of HFT.

This approval is just a first step; we intend to augment (subject to SEC approval) the exchange's listing rules with those innovations.

This gives zero detail about how LTSE will actually be meaningfully different.

Indeed there is very little. Just some mumble mouthing about "intentions."

""But unlike those exchanges, ultimately our intention is that when companies list shares on LTSE for sale to the public, they will adopt a set of governing practices that are designed to help them build lasting businesses and empower long term-focused shareholders.""

Utterly indistinguishable from the Wooden Language heard from every such grandee.

I am not one to indulge the sort of naivety that might allow me to pretend that powerful investors are going to tolerate any more impediments to their desires than legally required, or at least enforceable, so unless there are concrete differences imposed by SEC et al. I expect this is -- or eventually will be -- simply Wall Street West.

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!

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've seen this work really well in France especially with companies like LVMH that investors are patient towards due to this tenure voting incentive.

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?

Will LTSE allow dual class or multi class share structures or only tenure voting among companies wanting to list on the exchange?

Also will all sorts of companies be able to do this or will LTSE only be open to tech companies?

I don't really see how the rules mentioned will change things that much.

> asking companies to limit executive bonuses that award short-term accomplishments.

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't this incentive trying to get quick increases in stock value.

> 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

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't a downside to short term deals.

>Why would I care as an investor? I still want the stock to go up quickly.

What you want to do is reinvest profit from short term gains into long term securities that beat inflation to leverage risk.

>Executives own stock and without a cash bonus wouldn't this incentive trying to get quick increases in stock value.

Equity is worthless without liquidity, and that's more important than massive growth down the road for the rank-and-file that hold options. Frankly equity isn't the motivator it used to be. If you don't plan on staying in one gig for more than 18-24 months, there is very little reason to sacrifice time and money for equity.

That said, executives' focus on short term growth to cash out is a problem in and of itself - notice how companies like Disney and Apple have skyrocketed under CEOs focused on long term stability and growth over cashing out 18-24 months after their hiring. And everyone made way more money because of it.

>As a minor stock holder I have no interest in voting power

And minor stockholders don't make a difference in the day-to-day operation of a business. The activist investors that hold board seats do, however, and their focus on short term growth has caused many mid sized shops to collapse under pressure to grow, sacrificing long term stability for their employees for the profits of vultures.

People worry that execs game the metrics investors use to evaluate stock. To give an example close to home, imagine if tech companies were evaluated by how many lines of code they produce per quarter. Now people are scared that execs will tell people to just write a bunch of whatever.

Making the company look good on paper (short term stock gains) but actually worse (perform worse in the long term as those lines don't translate to profit). But when these hidden faults are discovered the execs are long gone and their bonus checks already cashed.

I agree. I just don't understand how the rules described in the article actually incentive it. I get that they're small step towards it but they don't seem enough.

I don't care about my own votes but I do care about how voting power affects decision making. It affects it in good ways (it requires accountability from leadership) and bad (short term thinking to placate investors just looking for returns).

I'm hopeful this is a happy balance, cause I find the shares without voting rights to be almost scams.

I think the presumption underlying the LTSE is that short-term growth is at the expense of more valuable long-term growth, so it's structured to try and encourage long-term growth. If you don't hold that view, then you won't invest in those companies.

That certainly the goal, but I think the question being asked is whether these rule changes are sufficient to achieve it.

I do feel like that make a good point about voting power. If I own a stock, and it can go up 5% now, is the promise of additional voting power later on a valuable enough thing to make me not care about that 5%? It's possible I'm in it for the long term growth, so maybe I don't care about the 5%, but the voting power isn't the reason.

Exactly. To make it a long term stock market there needs to be some incentives that make it so and imo the ones stated don't seem enough to deter short term thinking. Maybe there are some other rules that aren't listed in the article.

Stay tuned

“Why would I care as an investor? I still want the stock to go up quickly.”

That is not what investors want; that’s what speculators want. I am saving for retirement in about 15-20 years; I want my investments to appreciate a reasonable amount over that period and show a stable pattern of generating good returns - I don’t really care what their prices are like in the next few months, except for that if they’re down in price for a while, I can buy more to enjoy later.

There used to be a time in the distant past when growth companies were financed with ordinary people’s retirement savings for just this reason.

Sure. But how do these rules prevent speculation?

I remember when a bunch of nobel prize winning economists founded "Long-term Capital Management" on the theory that, because they only traded relative value arbitrage, they couldn'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's financial system. The only real similarity here is the "long-term" name, but I don't think that anyone with a true understanding of capital markets would name their firm "long-term" after that fiasco.

so, your argument is that using the phrase "long-term" is forever poisoned?

doesn't seem super strong.

The equivalent would be an architect naming their new building project 'the world trade center'. A lot of people just aren't going to touch it because of the image it evokes. LTCM nearly broke the world's financial system and I don't think that's an exaggeration. Naming a firm LTSE is a good way to make sure a lot of people won't want to work with you.

The name also reminded me of LTCM. I was working at Credit Suisse when that went down. I think if you were in the financial space during that time you'd also suggest steering clear of four word names starting with "Long Term..."

They did know that they could lose money. They just underestimated the amount of risk involved, as well as the level of correlation between their different trades. Fat tails, black swans, etc etc

Having been exposed to the shell games that go on at a large corporation, I think this could be really good.

If this is actually executed properly, I think this could be a good exchange for more than just tech start ups.

I think so too :)

I couldn'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't selling your shares you'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’t share our future plans until we file with the regulators. It won’t be exactly the same as what we filed and won staff approval for last year, but that filing can give you some sense of how possible rules could work: https://www.sec.gov/rules/sro/iex/2018/34-82948.pdf

Note that this particular system does not have either of the problems you raise as questions

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?

If you have to comply with SEC and the CEO can't post jokes on twitter, I dont really see what advantage there is over NYSE or NASDAQ.

The SEC has jurisdiction over all publicly-traded companies and exchanges and will have the same authority over LTSE as they do NASDAQ & NYSE.

And SarbOx has nothing to do with CEO tweets... a CEO can’t provide materially misleading information to shareholders or potential shareholders. Period. Not on twitter, not on TV. Not in the rain, not on a train.

Congrats Eric and the team!

What does the ideal LTSE "customer" 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's worth it to allow this but I fail to see it's true relevance. If companies don't innovate sufficiently for the long term they will die to other companies that do. Hence the market takes care of itself.

Shareholders aren’t incentivized to act in the company’s long-term interest; only to maximize apparent growth for as long as they hold the company’s shares. This leads to companies making shortsighted moves that aren’t in their long-term interest, due to shareholder influence.

It’s astonishing to me how clear this is in the research literature: https://corpgov.law.harvard.edu/2019/04/30/short-term-invest...

Kind of bad luck — naming anything in finance “long-term”. It attracts the attention of quite a few angry gods to smite you.

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.

Naming a financial entity “LTSE” is inviting trouble.

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

I think the idea is that capital wants to invest on stock of company X, which is listed on LTSE, so capital grudgingly accepts LTSE rule.

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.

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?

As the old saying goes, “very very carefully.”

Just kidding. We will make extensive filings on this subject, coming up soon.

Until then the best way to think about this is as a set of principles.

This next generation of companies believes in - defining success in generational terms, not beating the quarter or some transient competitor - considering their impact on multiple stakeholders: shareholders, yes, but also employees, partners, customers, communities - building products that are fundamentally healthy for humans and the societies they inhabit

Is this more than a Regulation ATS approval?

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.

nope this is a real national securities exchange approval: https://www.sec.gov/rules/other/2019/34-85828.pdf

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

Yes, they will be able to do so (this is called a transfer in Exchange parlance). We support this in addition to dual listing.

I think there is big potential value in a new exchange that optimizes for cheap IPO'ing rules. Something between Nasdaq and Wefunder.

I'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 "value"). But if only by competition they make listing cheaper and easier it could have a big impact.

> (like adding diversity to their governing board, seems designed to be exclusive to tech-startups that already have a bias toward that "value")

I do not think the bias which you think exists is reflected by the actual makeup of the boards of these tech companies, i.e., who is actually on them.

I'm pretty sure it is more so in tech than say, Oil companies or Wall street.

Also in the end when you mention diversity you end up talking about quotas, because that's the most visible application of it. California already has already set board quotas for women, thus showing you that california companies are by law already "diverse".

Several studies[1] have found that gender diversity on boards is correlated with reduced risk of fraud.

[1] https://www.ft.com/content/cdb790f8-c33d-11e4-ac3d-00144feab...

If its strictly good there is no need to make it a requirement, companies (or investors) will apply this knowledge on their bets.

Also there is a body of research that says open offices suck: doesn't mean it has to be a company governing concept.

>I'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 "value").

What on Earth does this mean?

It means somebody is feeling so insecure about their masculinity they can read about a new stock exchange doing about a hundred things differently than the status quo, and hone in on what strikes me as the single most benign initiative to complain about.

I strongly suspect the parent is one who buys into the James Damore thing of companies adding diversity for the sake of it and the like...

I can see you preach tolerance.

I define a value as an idea or concept you will appreciate at the sacrifice of something else.

Most speeches about "diversity" are mostly quota-related and, as another comment said, imply is a good on its own: thus not a value.

I have plenty of other opinions about using diversity as a value, but what you can see objectively is that if you grabbed 100 companies that are sensitive to that language, most will be tech. Thus, the selection is gravitating.

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


here is the SEC filing:


question to LTSE employees: do you plan to host your matching engine in California?

We will share more details on the technical implementation soon.

This is a silicon valley exchange, silicon valley VCs can't compete with multi-billion dollar "vision funds" so they'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?

It looks like founders and VCs get the majority voting shares by default. It's not clear if it's good for the company or not, but it helps founders to pick it as the stock exchange to go to.

The slow vesting shedule makes a lot of sense though.

Which it should be noted happens in practice a lot with tech companies hitting exchanges already, so it's not a huge change from the norm.

Where did you read about the slow vesting schedule


The interview with Eric Ries is a bit clearer than the article, but it still misses a lot of details.

It could be a medium-sized waste of resources.

The central thesis is somewhere between "controversial" and "improbable".

To wit: current markets being too focussed on the short term does not align too well with Uber, a company bound to lose money for at least another three to five years under the best assumptions, being valued as it is.

opening up the opportunity to take money from a whole new source, by accepting money from unsophisticated investors who dont understand what they are getting into and losing liquidity on their investment at best and losing their money at worst

As long as investors don’t get bailed out, who cares? I would have loved to invest in Uber, Lyft, etc back in 2014 when I knew they were going to be big. It also would have sucked to invest in Yik Yak, but you win some you lose some. As long as they are selective enough to not list outright scams, I say let people take their own risks.

Any investor who limits themselves to the "long-term" is doing nothing more than allowing execs to get away with bad behavior.

There is absolutely zero evidence that current stock prices don'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's valuations over the past two decades.)

The only people calling for limiting investor ability to sell are executives of companies themselves, who are afraid of accountability from investors. Because sometimes CEO'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's just human nature.)

A "long-term stock exchange" 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.

Doesn’t that same accountability today result in execs selling out the long-term for short-term gains, also for their own benefit at the expense of shareholders?

That's certainly a tricky question which essentially is connected to their "insider information", but the answer certainly doesn't rely on limiting others' ability to sell.

Solutions to that generally involve long-term vesting periods for executive shares, e.g. executives can't sell their shares for some extended period of time that is sufficiently "long-term". If the board really made sure incentives were aligned, ideally it would be some period of years after they left the company, so they could never sell while they were in a position to influence the value of shares.

But again, there is absolutely zero reason that should ever apply to someone without insider information, i.e. investors generally.

I wish I could rate this comment up but HN, for some reason, had decided I can't and the is no arrow next to it.

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