The Long Term Stock Exchange

I’ve just spotted that Monzo’s CEO Tom has his eyes on the Long Term Stock Exchange, which sounds like a great idea in theory, although it’s still a while away from launching.

One idea Blomfield has spotted that appeals is a long-term stock market, where investors have to hold stock for multiple years, for example. “It has attractions, and encourages long-term stable thinking,” he says, pointing to the newly founded Long-Term Stock Exchange launched in San Francisco in May. Such ideas could have merit, as the intense focus on short-term results doesn’t help society nor financial outcomes, says Bianchi. “It doesn’t make sense,” she says, calling for pressure to be put on “both asset owners and fund managers to change the way they are rewarding the value of businesses on the market.”

quote from this story

Maybe it will be one of the current generation of startups that helps it get going.

There’s a good interview with the LTSE’s founder here -

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I’ll have to vote down on this. The number one attraction of a stock exchange ought to be liquidity in my view.

However I do think companies can have some special share class which gives long term shareholders more rights once they meet some sort of qualifications such as holding period.

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It might be the most important thing to some investors but there’s a difficult trade off here isn’t there - I’m not sure if CEOs feel the same way.

We’ve seen that exposure to investors who may think in the short term make some some tech companies reluctant to go public, which takes away the opportunity for investors like us to gain from these company’s growth. They’ve compromised by using things like dual-class share structures instead and arguably that’s not not great for investors either.

So it looks like this is an attempt to create a ‘safe’ place for companies to go public, which is good for investors & the company. But maybe the extra rights (& protection that long term investors get from short term investors’ behaviour), don’t outweigh the downsides? Perhaps they can come up with a system that works better than the current markets for both parties..

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Me either hence:

This LTSE idea doesn’t really allow those who lost faith in their investments to exit, does it?

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LTSE requires that companies reward their executives based on long-term goals over short-term profits and to disclose long-term plans and investments. They also reward investors with voting power that increases the longer they hold onto their shares.

Although I’m deeply skeptical of how this will work in practice, their ideas do make sense conceptually and would solve a lot of the problems caused by investor short-termism - particularly in the US.

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I’m not sure to be honest & their website doesn’t go into a lot of detail about exactly how the exchange works. I’d hope that they’ll stick to focusing on incentivising long term investing, without putting restrictions on that sort of thing.

Here’s the LTSE’s rules requiring companies to publish long-term policies

That the Exchange believes will facilitate long-term focus and value creation

Including their:

  • Long-term stakeholder policy
  • Long-term strategy policy
  • Long-term compensation policy
  • Long-term board policy
  • Long-term investor policy

there’s details on what each policy should consist of in the document.

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I imagine that pension / annuity fund companies and life insurance companies will probably dominate the market if this does take off.

I think though any investor, institutional or otherwise will want some sort of yield certainty so it may become more of a pref share market

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