Regulation

SEC Approves New Silicon Valley Stock Exchange

The U.S. Securities and Exchange Commission (SEC) has approved the creation of the Long-Term Stock Exchange (LTSE).

Created by Silicon Valley entrepreneur Eric Ries, LTSE will be a national securities exchange using a different approach to governance and voting rights, with the goal of taking away the short-term pressures on public companies.

Ries, known as the bestselling author of “The Lean Startup,” proposed LTSE to the SEC in November, but has been working on the project as far back as 2016. At the time it was reported that he had gathered a team of 20 professionals – including engineers and finance executives, as well as venture capitalist standout Marc Andreessen — to work on his idea.

In addition, Ries raised $19 million from venture capitalists to fund LTSE, while a number of technology companies, foreign and U.S. investors and asset managers have already signed letters of intent to participate in the exchange. But all of that progress wouldn’t mean much without the approval from the SEC, which was crucial to launch the project.

One thing LTSE wants to change is the public market’s focus on short-term results, which Ries believes negatively impacts innovation.

“Everyone is incentivized to make the numbers quarter to quarter,” Ries said in a recent interview with Reuters.

Instead, LTSE would have rules to encourage companies to focus on long-term innovation instead of quarterly earnings reports. Not only would the exchange request limits on executive bonuses for meeting short-term goals, but it would require additional disclosure to investors about key milestones and plans. It would also reward long-term shareholders with more voting power the longer they hold on to stock.

And while the median age of tech startups going public is now at 12 years, Ries wants to see companies go public sooner. He added that LTSE would also allow companies to dual-list their stock on other exchanges.

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