A nascent Silicon Valley stock market that wants to nudge investors to think long-term took a step toward bringing its vision to Wall Street.
IEX Group Inc. filed for U.S. regulatory approval to let Long-Term Stock Exchange Inc. test a set of listings standards favoring buy-and-hold investors, according to a filing Monday. The experiment would take place on IEX’s Investors Exchange, allowing companies listed there to label themselves “LTSE Listings on IEX” and letting them transfer to LTSE once it opens.
LTSE could be years away from opening its own market. Securing this approval from the Securities and Exchange Commission would be a shortcut letting LTSE start experimenting with its unusual set of rules — but only once IEX actually opens its listings business. IEX had wanted to do that as early as last October, but has faced setbacks. One of the biggest public advocates of IEX, billionaire casino owner Steve Wynn, recently stepped down from his company Wynn Resorts Ltd. after sexual misconduct allegations against him were publicly reported. He’d signaled he wanted to move Wynn’s stock to IEX.
Eric Ries, LTSE’s chief executive officer, first floated the idea of a long-term stock exchange in the epilogue of his best-selling book “The Lean Startup” in 2011. He said the partnership with IEX is a step forward for the business.
“This is the culmination of years of work behind a theme so we’re insanely proud to get to this point,” Ries said in a phone interview.
LTSE says its ultimate vision is to create a new stock market that eschews quarter-to-quarter thinking, giving long-term investors more power and building trust between companies and their major stakeholders. The company’s early investors included venture capitalist Marc Andreessen, technology evangelist Tim O’Reilly and Aneesh Chopra, the former chief technology officer of the U.S. under President Barack Obama.
The filing marks the first time LTSE’s listing standards have been made public. The rules fall into five categories: requirements for the corporate board, special long-term disclosures, executive compensation standards, voting structure and other miscellaneous rules that focus on cultivating long-term share holders.
Companies would be required to have a board committee devoted to ensuring long-term growth. No less than 40 percent of director compensation needs to be stock-based and tied to long-term periods. A mandatory “Long-Term Growth Strategy” must be disclosed, defining what long-term means for each company’s own purposes. Companies must disclose how much they’re investing in research and development, and must adopt and publish policies on sustainability and diversity in their businesses.
Investors hold stocks for shorter periods now, according to a study cited in the filing, down to an average of about eight months in 2015 from about eight years in 1960. Another study said 80 percent of financial officers of public companies said they would give up long-term value creation initiatives like research and development to avoid missing quarterly targets. That climate makes it less attractive to go public, LTSE argues.
“We are excited to bring more choices to market for companies, and proud to ease the path for more innovation,” Brad Katsuyama, CEO of IEX, said in a statement.
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