BlackRock and Citadel's Texas Stock Exchange

Last month, BlackRock (NYSE: BLK), the world’s largest asset manager, and Citadel Securities, the world’s largest hedge fund, made a monumental announcement that could redefine the landscape of global financial markets.

These financial behemoths have decided to team up and create a new Wall Street in Texas, with the ambition to introduce a Texas-based stock exchange, headquartered in Dallas.

This initiative has already garnered substantial financial backing, having raised $120 million from individual investors with the aim of challenging the supremacy of the New York Stock Exchange (NYSE) and NASDAQ.

The announcement follows a series of events that unfolded after the implementation of T+1 settlement cycles in May.

A T+1 settlement cycle refers to the period between the transaction date (T) and the settlement date, which in this case is one business day after the transaction. Under this system, the transfer of assets and the corresponding payment occur within one business day following the trade.

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This change just subtracted one settlement day and represents a two-day reduction since 2017.

While the T+1 settlement cycle offers various benefits, it also presents several disadvantages that cannot be overlooked.

One of the primary concerns is the operational burden it places on brokerage firms and financial institutions. The expedited timeline requires significant system upgrades and process adjustments to ensure compliance and efficiency.

This can be particularly challenging for firms with extensive international transactions, as time zone differences and varying market regulations add layers of complexity to the settlement process.

Additionally, the increased pressure to settle trades within one business day may lead to errors and oversight, potentially increasing the risk of settlement failures. The swift turnaround may also strain back-office operations, necessitating more robust risk management and reconciliation processes to handle the accelerated cycle.

As is always the case, increased regulation results in increased hassle.

This is why a Texas Stock Exchange is a credible and enticing prospect.

Yet, one must question: Why Texas?

Known for its business-friendly environment and home to over 50 Fortune 500 companies, Texas offers pragmatic advantages like a central location between the East and West coasts and substantially lower regulatory hurdles compared to New York.

The NYSE and NASDAQ, though private entities, have thrived by providing secure platforms for trading public stocks and charging significant fees for listings, akin to charging vendors at a high-traffic market.

Despite the impressive legacy of New York-based exchanges, the allure of lighter regulations in Texas is drawing attention.

This new exchange aims to lessen the regulatory burden and costs associated with going public, which have been significant deterrents, thus coining it as an "anti-woke" exchange in some investor circles—a clear response to perceived regulatory overreach on issues like board diversity and governance.

The advent of the Texas Stock Exchange promises to offer a simpler, cheaper route to public listing, potentially reshaping financial markets and amplifying Texas’s appeal as a business hub.

A significant highlight of this development is the planned influx of high-paying jobs to Texas, further cementing its status as a destination for major corporations, following the footsteps of firms like Tesla (NASDAQ: TSLA)  and Hewlett Packard Enterprise (NYSE: HPQ).

This bold initiative by BlackRock and Citadel Securities is set to make waves, fostering a competitive environment that could reshape the national and global financial ecosystems. As Texas embarks on this financial venture, it carries a potential promise of transforming Dallas into a new epicenter for capital markets.

I believe this is all part of BlackRock's plan to tokenize everything, including the stock market, which will trade 24/7.

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By tokenizing assets, BlackRock aims to facilitate seamless trading around the clock, breaking away from traditional market hours and geographical constraints. This move promises to enhance liquidity, as assets can be traded at any time, providing investors with more flexibility and the ability to react swiftly to global market developments.

Additionally, the use of blockchain technology ensures transparency, reduces the risk of fraud, and minimizes settlement times, potentially shifting towards a real-time settlement environment.

Find out how we’re positioned to profit from this growing trend.

Keep coming back,

Chris Curl

Chris Curl
Editor, Daily Profit Cycle