They say everything is bigger in Texas, and that includes the state’s financial ambitions. The Texas Stock Exchange (TXSE) is set to hold its first broadcast bell ringing on Friday, marking the culmination of its successful trading launch. Regional exchanges used to be fairly common in the US, but the TXSE is something more ambitious than that. It has been a long-term project of the state’s political and business class to shift the center of gravity of American finance away from New York.
Jeb Hensarling is a former chairman of the US House Financial Services Committee who is a part of the TXSE’s Listing Standards and Governance Advisory Council. He answered questions earlier this year. Topics included the hurdles that the exchange had to clear, the vision and drive of CEO James “Jim” Lee and how TXSE wants to give the “NYSE-Nasdaq duopoly” a run for its money. The interview has been edited for length and clarity.
Statement: Whose idea was the Texas Stock Exchange? How long has it been marinating?
Jeb Hensarling: The idea for a Texas-based stock exchange is not new. In fact, the Texas legislature studied the feasibility of a state exchange back in the late 1960s. That idea gained new traction under Governor Greg Abbott, who has made it his mission for more than a decade to make Texas the premier jurisdiction to do business in the United States.
There was also a shared recognition that America's public markets were declining and too many companies were choosing not to go public. So a few years ago, Governor Abbott reached out to Jim Lee and brought together business and political leaders in the state and challenged them to build the Texas Stock Exchange. And now we're just several months away from that vision becoming reality. It's a really exciting project to be a part of.
How much money has it raised thus far?
TXSE has raised roughly $275m to date, making it by far the most well-capitalized exchange ever approved by the SEC. TXSE is backed by many of the world's leading financial institutions including Bank of America, BlackRock, Charles Schwab, Citadel Securities, Goldman Sachs and J.P. Morgan. This level of support is a major institutional validation of TXSE's mission to bring more innovation and competition to our capital markets.
What sorts of expenses does that startup capital pay for?
Our historic capital raise is allowing us to build a premier trading and listing venue from the ground up and invest in world-class talent. We have put together a team with about a millennium of exchange and capital markets experience, including some of the best technologists in the world. This has allowed us to do things like develop our own proprietary order matching engine, which will be a big part of the advantage that we have.
How hard was it to secure SEC approval?
TXSE was the first fully integrated national securities exchange to receive SEC approval in decades. Our staff spent roughly a year and a half working closely with the SEC throughout the approval and public comment process.
Did the current financial regulatory environment help speed the plow?
I think there is a strong recognition at the SEC of the need to revitalize our capital markets and to make it more attractive for companies to go and stay public. That has been helpful and we are grateful for Chairman Paul Atkins's leadership. At the state level, Texas was already the eighth-largest economy in the world, but now we've upped the ante by passing transformational capital markets legislation in the last two sessions of the legislature.
This policy foundation has made it possible for us to compete with New York to become a global financial powerhouse and create the conditions for the Texas Stock Exchange to succeed. Governor Abbott, the legislature, and business leaders in Texas and around the country who have banded together to get this done deserve a tremendous amount of credit.
What advantages will TXSE enjoy over the NYSE?
Companies have been at the mercy of the NYSE-Nasdaq duopoly for decades. We've been hearing from issuers that they have grown frustrated with the rising fees, cluttered markets and shifting rules of these legacy exchanges. TXSE is here to change that. TXSE is purpose-built to align with issuers, through transparent, predictable rules and a governance model designed to reduce friction. If you're a Fortune 100 company, this could translate into tens of millions of dollars in savings annually.
Another important edge we will have is with technology. We believe that when TXSE goes live, we will be the highest-performing exchange as to speed and latency available. The reason we will be able to do that is because we are building our own proprietary systems in-house, including our own custom order matching engine, using some of the best technology and minds in the world.
The other exchanges also don't have Jim Lee. Jim is one of the smartest, most tenacious people I have ever met – a fierce competitor. No one is going to outsmart or outwork Jim. TXSE has been a relentless and effective advocate for sound, pro-business policy, and we think that is also something that companies are going to want to associate with.
What will the different requirements for an IPO be like on the TXSE vs. the NYSE? What companies are likely to list on the TXSE?
We've been hearing from companies at all stages and sizes that they are looking for better value and greater alignment from their exchange. Countless businesses are already reevaluating where they list and many will take action. I think Walmart's decision to move to Nasdaq after 50 years being listed on NYSE is a good anecdotal sign that companies of all sizes are looking for better value with their listings.
TXSE will be anchored in rigorous listing standards and will provide one transparent set of rules for all issuers. By developing and enforcing some of the highest quantitative listing standards in the world, TXSE is designed to bring clarity, discipline and confidence back to the public markets.
There are about 4,700 public tickers in the United States, and under the listing standards we’ve adopted, more than a third would be ineligible. We’ve all read about these pump-and-dump schemes with foreign-owned, mainly Chinese, companies listed on the legacy exchanges. We’re not going to have that nonsense at TXSE.
What metrics are you looking at to measure success?
Right now, success starts with launching the exchange and standing up a fully functioning marketplace. Then, it’s attracting primary listings – both transfers and IPOs – as well as ETPs. If boards routinely evaluate TXSE as part of their listing strategy – and sometimes decide it’s the better fit – that’s success. Over time, we hope to contribute to more vibrant US public markets by helping increase the number of public companies and improve IPO outcomes.
How did you get involved in it?
TXSE is hands down the most exciting project I've been involved in since I left Congress – to be part of the first fully integrated stock exchange to come to America in two generations. And right here in Texas. As a lifelong Texan, I've watched the state grow from a blossoming regional economy into a global business powerhouse. To me, TXSE feels like the next chapter of that economic growth. Joining the team as a strategic advisor was a natural fit, an opportunity to put Texas even more on the map than we already are.
As you say, NYSE and Nasdaq essentially operate as a duopoly. Can you address how TXSE's entrance impacts that?
For years, issuers have had little meaningful choice in where they list as costs rise and rules grow more complex. TXSE's entry restores competition by offering a real, issuer-aligned alternative designed to improve capital formation and put public companies back at the center of the listing ecosystem. The annual cost savings for a Fortune 100 company could be in the tens of millions of dollars.