This exchange wants to compete with the NYSE, NASDAQ
LTSE Founder and CEO Eric Ries, joins Yahoo Finance to discuss LTSE's principles-based approach and the benefits of listing in the long-term stock exchange in a post-pandemic market.
Video Transcript
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- Well, the focus for many companies has changed, particularly during the pandemic. Brian was just talking about that with Eileen Murray a few moments ago. And our next guest is trying to make it easier for companies to communicate their longer term priorities. That's Eric Ries.
He is the founder and CEO of the Long Term Stock Exchange, which just signed its first two listing companies, Twilio and Asana, Eric, thank you so much for being here. You know, we talk a lot about these priorities and I think they've just gotten more attention, companies wanting to focus on the longer term future. Short termism has been sort of a persistent concern and complaint of companies within the market. Why is a Stock Exchange a good way to sort of manifest those priorities?
ERIC RIES: Yeah. Thanks for having me on. Thanks for the question. You know, stock exchanges have historically had two roles in our society. We think of them, of course, as platforms for liquidity.
That's the thing today we're all so obsessed with. But they've also had an important role in corporate governance, in governing the behavior of managers and investors by setting standards. And in this next generation of companies, employees, investors, you see it with the rise of ESG, you see it with the rise of employee activism. There's really a demand that companies be held to a higher standard. And we wanted to create financial infrastructure for those companies.
- Eric, what is it like doing battle for business against exchanges like the NASDAQ and the New York Stock Exchange?
ERIC RIES: That may be the most entrenched duopoly in business. And so everyone considers what we're doing impossible. There hasn't been the creation of a new listings venue for companies since the creation of NASDAQ. That's in the '70s.
So we're talking about five decades of this duopoly in place. But actually, we take a really non aggressive stance. We support dual listing of companies so they still get full access to the NYSE and NASDAQ liquidity when they're duelists in an LTSE. And we try not to call people villains and set things on fire.
Our view is that, you know, legacy companies need exchanges to be listed on to. That's OK. We're not anti liquidity, we're not anti the sell side. We think just that those companies and those investors that share this more enlightened perspective should be supported in the markets too. So, so far, it hasn't been too bad.
- And, you know, Eric, there have been some other exchanges that have come up in recent years with basically a different philosophy around how they want liquidity on their platform to function. Obviously, IEX, we all know the story of that. I'm just curious if it feels to you, I mean, we all remember.
What was that, five, six years ago? Book comes out. There's a lot of momentum behind that idea. Does that still seem in the market?
Like, does that momentum still seem to be there in the marketplace when you're having conversations with executives about a listing of their stock? Or what is the state of that? Because it just seemed like so much energy came into, we need to reform this, and then obviously, the pandemic changes some attention. But do you still have those constructive conversations with folks?
ERIC RIES: Yeah. Well, two things I'd say. One is, it's surprising to me how much for the executives who run companies, founders, CEOs, boards, these liquidity matters don't really matter. You know, the stock trading is more like tourists passing through. It's the employees and other stakeholders of the company, the long term investors, they're the citizens of the republic.
So these issues don't have as much traction in the boardroom as you would expect. Now for LTSE, we do have our own market structure that is optimized for investors and not speculators. So we have no hidden orders. Everything that happens on our exchange happens in the light, but that's not the primary purpose of our reform. We're really trying to focus on how companies are governed and how they can maintain that kind of generational perspective, not the quarterly perspective.
But I do think that there is hunger for reform. You see it, obviously, in the meme stocks, controversies payment for order flow. There's always the concern about who has differential access to different speed accesses. So our perspective is we do away with all that stuff.
If investors route orders to LTSE, they can be sure that nobody was paid for that. They can be sure that all of those transactions happened at the price that they specified. So that's not-- that's not our main concern. But I do think that we can bring some some motivation there. And we'll see-- we'll see if the market is finally ready to for some change on the microstructure side too.
- Yeah. And I'm also curious, Eric, you know, like the name, Long Term Stock Exchange, I think to me implies that there's a inherent short term termism in the market. I've thought a lot about this with COVID, where a lot of the economic damage was discounted quite quickly.
And I think the market this time last year was taking a longish term view on where the economy was headed. Does it seem like some of the short term narrative has maybe died out or how are you thinking about that? Of just the framing, I guess, of the question everybody asks the market, you know?
ERIC RIES: Yeah. You know, we're not criticizing the market. The market has many, many long term investors in it and always has and that's good. The question is, does the structure of the market support the long term thinking? Do people think long term because of the markets or in spite of the markets?
So yes, the markets were willing to reward those companies that had a long term perspective. But my question is really about pre pandemic. Which companies made the far sighted investments to be prepared not just for pandemics in particular, but to be more resilient? As you were talking about in an earlier segment, who made the investments in ESG?
Who made the investments in work from home and digital transformation? Those investments often, almost universally, do not pay off quarter by quarter, but they-- they perform over the long term. And when a crisis hits, those companies that have been thinking long term have the advantage.
So the question we got to ask ourselves is, how can we get more companies to think that way? To be more resilient, to be willing to make those investments? And what can investors do, what can the markets do to incentivize and encourage that behavior in this next generation of companies? That's the question.
- Brian, I have a lot more questions for you, but unfortunately we're out of time so we're going to have to have you back to continue this discussion very soon.
ERIC RIES: My pleasure.
- Brian Ries is the founder and CEO of the Long Term Stock Exchange. Thanks for your time. Appreciate it.
