Now That TXSE Is Open, Can It Compete with NYSE, Nasdaq?

Throw your cowboy hats in the air.

With the Texas Stock Exchange opening for business last week, years of hype give way to the real test: Can it become a genuine competitor to the New York Stock Exchange and Nasdaq, which together dominate US listings and have already established their own Texas operations? “The Texas Stock Exchange is not even the first mover in its own backyard,” said Clayton Allison, a portfolio manager at Prime Capital Management.

For TXSE to carve out a meaningful niche, it will need to win exclusive listings rather than simply host securities already trading elsewhere. “The question is what companies will they be able to attract?” Allison told Advisor Upside. “Will it be small caps that find the environment more friendly? Because there’s almost no chance they’ll convince the mega-caps to switch their primary listings.” It’s important to note that hundreds of billions of shares are traded on the NYSE and Nasdaq each year, so TXSE has some pretty big cowboy boots to fill.

The Lone Star State

TXSE isn’t starting from scratch. The exchange is backed by major financial firms including BlackRock, Citadel, Charles Schwab and JPMorgan. It’s also hoping to capitalize on Texas’ growing appeal as a corporate hub, with companies such as Chevron, Hewlett Packard Enterprise and Elon Musk’s Tesla and SpaceX all expanding or relocating operations to the state.

The exchange is marketing itself as a lower-cost, less burdensome alternative to the NYSE and Nasdaq, promising potentially cheaper listing fees and a more issuer-friendly philosophy. For example, companies listing on the exchange don’t have to meet board diversity requirements. But Allison questioned whether those advantages are enough. “Listing costs are already so compressed, I don’t know if that’s going to be a driving factor,” he said. Instead, he suggested, listing on TXSE could become more of a branding decision for companies and fund issuers that want to align themselves with the exchange’s governance philosophy and Texas’ pro-business reputation.

Cowboys’ Playbook. One way in which TXSE could differentiate itself is by becoming a home for more niche investment products. James Seyffart, senior ETF analyst at Bloomberg Intelligence, said the exchange may attract funds that struggle to gain approval on larger exchanges, pointing to products like the Tuttle Capital Government Grift ETF (GRFT), which invests in companies with perceived ties to political insiders.

“Cboe got its start by currying favor with ETF issuers, so I can see Texas following a similar playbook,” Seyffart told Advisor Upside. “It takes a long time for exchanges to build up liquidity. I don’t expect us to have an answer on how successful TXSE is anytime soon.”