March 1, 2021
How do you build a stock exchange that’s not designed solely to promote the buying and selling of shares? That’s among the questions we confront in building the only U.S. national securities exchange designed primarily for long term-focused companies and like-minded investors.
Today we are sharing the first of what we anticipate will be several specifics of a model for the buying and selling of shares on the Long-Term Stock Exchange that we think begins to answer the question. Among its attributes, the Exchange will feature fully displayed prices; that is, trading on the Exchange will occur exclusively at prices displayed to all participants.
Buyers and sellers of shares on the Exchange will be able to place either a market order or a limit order. The price they trade at will always be a price that was fully displayed. Our model, which we call Very Simple Market (VSM™), comports with what we believe to be the function of a stock exchange as a marketplace where companies raise capital and investors display their interest.
In a marketplace, the only way to know the price is if someone states it. Of course, you can imagine a series of private two-way messages between a buyer and seller (or vice versa). But in our national market system, even that negotiation would be bounded by displayed prices.
Of course, sometimes a seller doesn’t want to reveal their price. For example, suppose you want to sell a large block of shares in a company that because of the sale’s sheer size would drive the price down if everyone knew your intentions. Or maybe you want to reveal you’re selling slowly. In those instances, you might prefer a market that displays prices partially or not at all.
As the examples suggest, hidden liquidity has a place in the public capital markets. You can find it at dozens of exchange and private-trading platforms that form the national market system. Though the Long-Term Stock Exchange belongs to the national market system, we will require members to display prices fully.
As it happens, we think the VSM™ model holds the potential to benefit even those investors who aim to sell big blocks of stock. As noted, hidden orders can’t match and execute without a public quote. What’s more, investors who can take their time to transact stand to benefit from the ability to rely on a price that’s displayed fully.
If you’re wondering why parties would not default to an exchange that offers some opportunity to get a price that may be better than the one that’s displayed, note that the opportunity also can come with a cost. By the time you learn that there’s no party who is willing to improve on the price, the price displayed marketwide can change.
As you may have inferred by now, ours is not a model that looks to profit from the ups and downs of the market or to squeeze every tenth of a penny from trading. Though, in an irony of our business, the greater the volatility in the market, the greater the urgency of buyers and sellers to know the price clearly. The Long-Term Stock Exchange, with its Very Simple Market, will welcome their trades. In a storm, it helps to see the lighthouse.
In short, we have learned that market participants can benefit from an exchange that enhances the universe of public quotes. But we think companies and long-term investors, above all, stand to gain from innovations such as the Long-Term Stock Exchange and its commitment to displayed prices.