Why BlackRock and Citadel Securities are backing a Texas stock exchange – DL News

BlackRock and speed trading firm Citadel Securities are backing a new stock exchange in Texas designed to challenge giants such as the New York Stock Exchange.

Founder and CEO of TXSE Group James Lee, who posted the plans on LinkedIn, said the companies are among the deep-pocketed backers of the Texas Stock Exchange, to be based in Dallas.

The new bourse’s $120 million in fundraising makes it the most well-capitalised exchange to file a registration with the Securities and Exchange Commission, he said.

“Investors behind it mean to pressure exchanges on fees and seek to disintermediate them too, if they can, as they hold themselves to be a large source of liquidity and flows in their own right,” Xavier Rolet, former CEO of the London Stock Exchange, told DL News.

Sean Stein Smith, a professor at the City University of New York and board member at the Wall Street Blockchain Alliance, agreed. The move sends a message that Blackrock and Citadel want to compete with New York exchanges, he said.

TXSE will list public companies and facilitate trading in what it calls “the growing universe” of exchange-traded products. These are cheap and accessible offerings that typically index a basket of securities.

BlackRock, the world’s biggest money manager with $10 trillion in assets, has already shaken up one industry this year: crypto.

‘Monopolistic behaviour was always the exchange industry’s Achilles heel’

—  Xavier Rolet, ex LSE CEO

Its introduction of Bitcoin and most recently Ethereum ETFs has loosened the crypto industry’s grip on retail investors.

CEO Larry Fink has said he wants to bring costs of trading down for ordinary investors — indeed, his Bitcoin ETF costs a fraction of the fees that rivals such as Grayscale charge.

Fink has also set his sights on tokenisation — the digital trading of stocks and bonds — in what could be an opportunity worth trillions.

US dominance

Rolet said the new Texas exchange also highlights the dominance of US exchanges in the global capital markets.

London companies are jumping ship to the US to list their shares publicly. UK chip designer Arm shunned the London Stock Exchange and last year chose instead to list on the Nasdaq.

The IPO valued the company at about $55 billion, the biggest US stock debut since 2021.

The US overwhelmingly dominates in stocks — about 60% of the total value of global equities is on US exchanges.

Rolet said that’s some 10 times the daily liquidity of UK and European equity markets.

“Monopolistic behaviour was always the exchange industry’s Achilles heel,” Rolet said. “They can afford some fragmentation.”

Sean Tuffy, a market structure expert and former Citigroup executive, told DL News that BlackRock’s and Citadel Securities’ reasoning is simple:

“Two of the biggest players in US capital markets are looking to disrupt the existing exchanges because it could be good for their existing businesses to do so.”