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New stock exchange to be based in Dallas

A new stock exchange headquartered in Dallas will launch next year aimed at competing with New York City’s exchanges, whose rules and regulations some companies have found onerous.

TXSE Group Inc. is founded and operated by James Lee, who says the company has already raised $120 million for the project — the largest backers of which are BlackRock and Citadel Securities.

The plan was first reported by the Wall Street Journal. TXSE Group intends to register with the Securities and Exchange Commission (SEC) later this year. It will operate virtually but also eventually establish a physical presence in Dallas.

“Changes in equities trading markets are driving more volume to exchanges and more choices for issuers and sponsors,” Lee said in a press release.

“TXSE will ultimately create more competition around quote activity, liquidity and transparency, resulting in more consistent and reliable markets that benefit investors, global issuers and liquidity providers alike.”

Lee added, “Texas and the other states in the southeast quadrant have become economic powerhouses. Combined with the demand we are seeing from investors and corporations for expanded alternatives to trade and list equities, this is an opportune time to build a major, national stock exchange in Texas.”

TXSE sees Nasdaq’s and NYSE’s approaches to compliance and non-financial regulations, such as diversity targets, as heavy-handed and onerous.

“BlackRock is proud to be a founding investor in the Texas Stock Exchange to increase liquidity and improve market efficiency for BlackRock’s clients and other investors in the U.S. capital markets,” BlackRock Vice Chairman Mark McCombe told The Texan in a statement.

“TXSE is well positioned to capitalize on the Texas economy and strength of the state’s business environment. We look forward to engaging with the other investors on the benefits of the TXSE’s unique value proposition.”

This follows other similarly aimed projects that BlackRock and others have partaken in over the last decade — a list that includes things like Members Exchange, RFQ Hub, and Luminex Trading. Given the state's growth and regulatory posture, those backing this new project see a unique investment opportunity.

The WSJ wrote of the project, “For months, talk has been swirling in trading communities about an upstart, ‘anti-woke’ exchange launching in Texas. Lee says the exchange is apolitical.”

Over the last handful of years, the fight over capital has ramped up as red states increasingly band together to force behavioral changes among the nation’s asset managers and other financial institutions.

During the pandemic, massive gains were made by climate groups obtaining commitments from global corporations on net-zero carbon emissions goals and establishing socially progressive internal policies. This push has become known as the Environmental, Social, and Governance (ESG) movement.

Texas is among the largest states trying to counter that movement in the world of capital, creating law that prohibits state dollars from going to companies found to be “boycotting” oil and gas companies and gun manufacturers and forbids insurance companies from considering ESG factors when setting rates.

Last year, Attorney General Ken Paxton issued a directive to governmental entities in the state stating they must be more “actively vigilant” in self-evaluating potential violations of those laws.

BlackRock has become the face of the ESG movement, particularly among Texas officials critical of it — though the company has maintained it doesn’t boycott the oil and gas industry, pointing to the billions in Texas oil and gas holdings it manages. The company also allowed Texas pension systems to vote their shares differently than its proxy service recommends following outcry about certain ESG-focused votes cast.

In March, the Texas Permanent School Fund terminated its relationship with the world’s largest asset manager, pulling $8.5 billion in investments from the company.

But the company has mended bridges with some in the state, particularly Lt. Gov. Dan Patrick, who hosted a February summit in Houston alongside BlackRock CEO Larry Fink pitching investors on building new natural gas power plants in the Electric Reliability Council of Texas (ERCOT) region.

The new stock exchange will provide another way to attract capital to Texas, a process that’s already well underway as the state’s business footprint booms with more Fortune 500 company headquarters than any other state.

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