[eries]

Hey everyone, Eric Ries here, founder and CEO of LTSE (and also you may remember me from such roles as the Lean Startup guy). Day one of approval has been kind of exhausting with all the attention but I wanted to stop by this thread and say hello.

Have questions? Happy to answer as best I can. Keep in mind that this is a highly-regulated startup so we are sometimes limited in what we can say publicly. I’ll do my best to give you a straight answer if I can.

Thanks for all the support over the years, this project has been a true community effort,

Eric

[DennisP]

I like this plan a lot. One criticism that seems valid is that giving more voting power to people who've held stock longer gives a large advantage to founders. It also doesn't directly accomplish the goal of giving more power to people who intend to hold stock longer (though at least it tends to).

A more direct idea proposed by Vitalik Buterin: give people a vote in proportion to how long they're willing to commit to keeping their stock. Optionally, only enforce the commitment when the vote goes their way (though this probably only works for major decisions).

Would something like this be feasible for stocks? Would it be compatible with LTSE?

[eries]

Yes, that’s feasible and even today a company could adopt a system like that (instead of one where certain insiders automatically have complete voting control for life).

We are considering a range of proposals for future listing standards and I won’t be able to comment on those until we file them publicly.

But suffice to say we are thinking along these lines. To me, one key principle is that in order for companies to make long-term decisions, they have to know who their long-term investors are, and find ways to be aligned with them, including via rewards like you propose.

[divbzero]

Thank you for driving innovation in equity markets! We need more focus on long-term capital allocation, and less on the casino aspect of stock prices.

Have you considered incorporating some form of low-frequency trading? With an auction for shares held once a day, once a month, or even once a year?

(I have heard Warren Buffett say that, if it were possible, he would prefer if investors could buy or sell Berkshire Hathaway shares only once annually at a price close to intrinsic value. The low frequency would encourage investors to focus on understanding businesses instead of short-term price movements.)

[eries]

Yes

[jnordwick]

Equity auctions already happen at the open and close (and any restarts).

[NashidAli]

Eric, congrats on the SEC approval. I really love this idea. I'm an SEC RIA, developing a mobile app called Gainvest for investors to access private opportunity zone funds and I view it as evolving into a similar marketplace but for private funds. I have two questions if you have time :) 1. How do you see this ecosystem evolving over time re: mobile platform, global outreach/expansion, and access to foreign direct investment? 2) Do you anticipate private funds or investment banks themselves being able to list on the LTSE?

Again, congrats, best wishes.

Nashid

[tripcom]

Eric, great job on the SEC. Regarding large, long-term investors, ILPA might be a place of interest. I've gone to some of their conferences in New York. Good luck.

[crediblewitness]

Have you seen any interest from companies who are already traded on existing stock exchanges from delisting there and being listed on the LTSE?

[eries]

Yes. (Technically “delisting” is not the right verb to describe this, but you’re on the right track.) The rules also will allow companies to dual list across LTSE and other exchanges.

[rcMgD2BwE72F]

Will it be possible for listed companies to prohibit short-selling of their stocks?

Edit: If so, I'm pretty sure Tesla Inc. would be happy to participate in your beta program.

[eries]

No

Some of the standards we hope to file in the future could affect the volume of shares available for short activity, but that would be an indirect consequence of encouraging longer holding periods.

Edit: indeed. But we don’t do anything to help with CEO tweeting :)

[xiphias2]

Does the volume limitation mean that there would be an option for an investor to buy without allowing the brokerages to borrow the stock out to short sellers?

[eries]

There’s no volume limitation and the specific implementation you mention is not correct. But you’re on the right track, something like this is indeed possible.

[grey-area]

Great idea, congrats on the approval. I have a few questions after reading the article.

Broadly, what did you have to change to get SEC approval?

Have you considered supporting some sort of crowdfunding private model as well - like angel investing for the masses, before a company goes public?

Will you be available in all the big trading brokers for retail investors? I use freetrade (uk broker) and would love to see your stocks there.

Have you considered listings being asked to reward investors with long term dividends or bonds? I know this is usually up to the company, but the exchange could perhaps encourage it. Tech stocks often focus on growth but it’d be nice if there were more emphasis on sustainable long term growth. For most investors voting rights are pretty academic and a very blunt instrument.

[eries]

Our application was just the first step. This is the base layer of rules and standards, very much akin to NASDAQ or NYSE. That’s not a change per se, it’s just where you have to start. We will make additional filings soon.

Crowdfunding and private markets. We have some ideas on how this could be done in an ethical and transparent way, but we would proceed cautiously if we go that way. Too much activity these days is quite dubious and we don’t want to profit from that.

Yes, all of our listing stocks will reads as part of the National Market System, which means you’ll be able to access them everywhere including at retail. It’s very important to use that everyday people are able to access the same features and benefits as larger holders.

On rewards for long-term holders, yes we have considered that and I think you’ll be pleased by what we eventually roll out.

[grey-area]

Sounds great, thank you for the informative responses in this thread. Re changes/revisions before acceptance by the SEC, I was referring to this part of the article:

Friday’s decision followed an uncertain fate for LTSE, which had faced SEC opposition before revising parts of its proposal.

[eries]

Yeah, I understand why they wrote that - this process is confusing. This is an entirely new proposal because we are applying under a different regulatory pathway (a “form one filing” instead of a “rules change” on a legacy exchange).

[DevX101]

Does this exchange have any plans in place to avoid front-running high frequency trading? Similar to IEX.

It seems the focus of this initiative is aimed at aligning long term voter control, but these front-running techniques don't really care about control.

[eries]

Our current filing is silent about these features and I can’t be specific with our future plans until we file with regulators. With this approval, we can now work with participants in the market and learn how we can best serve all stakeholders.

[vasilipupkin]

Can you explain why another exchange is needed for this? A company is free to issue a special share class and list it on one of existing exchanges, no problem. There is nothing stopping companies from doing this long term incentive thing now. If they aren't doing it on existing exchanges, why would they do it on your exchange?

[eries]

An analogy: any software company is free to build their own custom protocol, no problem. Nothing stops them from doing their own hyperlinking thing now. If they aren’t building it on existing applications, why do we need the WWW?

[vasilipupkin]

not a great analogy. There is no new protocol required to trade stocks, right? Companies already issue different classes of stocks with different rights. GOOG vs GOOGL or Viacom VIA vs VIAB. It's not a technology issue, it's a legal / regulatory issue. Because of Reg NMS, your exchange will get some volume but I don't see what value it creates beyond playing regulatory arbitrage.

[jonpaul]

1) What are some of things you did to validate this idea in accordance with the Lean Startup Methodology?

2) Do you think any approval of this by the regulators was an attempt to stay competitive to the rise of crypto crowdfunding / instant liquidity via crypto markets (ICOs, STOs, IEOs, etc)?

[eries]

1. We use it in a lot of ways big and small.

I’d say two notable examples are building our tools platform (http://LTSE.com/tools) for early stage companies which has allowed us to do exchange-like things long before being operational as a national securities exchange and our earlier attempt to build the exchange with a legacy partner. That partnership ultimately failed but in the process we learned a lot of essential lessons that set us up for success. Classic MVP.

2. Not really. They are obviously aware of those things and I have found them knowledgeable and conscientious in wanting to protect and serve the public. But the process to create a stock exchange is defined by law and they followed that to reach their decision. If you read their almost 50 page approval order, you’ll see how detailed their analysis is.

[defertoreptar]

What are the key differences between a LTSE and a regular one?

[eries]

We are the only stock exchange that was built from the ground up to serve companies and their long-term investors primarily. We have a different philosophy, business model, and eventually will have different market rules than the legacy exchanges.

We have nothing against those older institutions or against traders for that matter. We simply think the next generation of companies is looking for something different. It’s a strength of the American system that it supports competition and allows us to give people a choice.

We will publish additional details as we are able to.

[joshu]

why continuous auction and not discrete timed auctions? four times a day or every half hour or whatever would remove HFT from the equation.

[eries]

Stay tuned

[thatthatis]

Will LTSE support reg A+ early IPOs?

[eries]

The answer is unfortunately complicated and depends in part on the resolution of this issue: https://www.lexology.com/library/detail.aspx?g=96b76e1c-a54a...

But we would like to.