List once, trade everywhere

Why every major US stock exchange can brag about liquidity

Occasionally we witness the spectacle of someone sharing a photo or link that the sharer claims will break the internet. Fifty years ago this summer, the demand among investors to buy and sell stocks actually broke Wall Street.

For more than a year starting in 1968, a wave of trading in shares surged and swept forward, spurring an avalanche of orders to brokerage firms. In the pileup of paper that ensued, processing those orders slowed and then stalled. The brokerages houses simply could not keep up.

Congress called on the Securities and Exchange Commission to examine the crisis, which legislators (or lobbyists for Wall Street) believed to be precipitated by institutional investors. The SEC came to a different conclusion. As the regulators saw it, the nation needed to tie together all of its exchanges in a central system that would promote competition among securities dealers for order flow and help to ensure the fairest price for all investors.

Congress agreed and in 1975 directed the SEC to facilitate what ultimately became the national market system, which links together the multiple markets that trade securities. Today the national market system connects all major U.S. exchanges. Stocks of roughly 4,400 companies trade simultaneously across all those exchanges, alternative trading systems and platforms operated by securities dealers.

For companies deciding where to list their shares for sale to the public, the national market system means at least four things:

1. That regardless of where you choose to list your company’s stock, the shares will trade everywhere. In this case, everywhere means across every one of the 14 U.S. exchanges that constitute the national market system. (That expands to roughly 32 venues if you include private trading platforms.)
2. That your stock will trade under the same symbol on every U.S. market.
3. That the latest price of your shares will display simultaneously and in real time on every exchange in the national market system.
4. That orders to buy or sell securities will be filled at the best price. Which means that investors — on both Main Street and Wall Street — can count on being treated fairly.

In short, the national market system creates interoperability among exchanges. Where a company lists has nothing to do with where it continuously trades. We’ve seen an analogy in networking. Thanks to internet protocol, you can email someone from your MacBook without the need to know or care about the operating system that the recipient may be running.

So if your stock will trade everywhere regardless of which U.S. exchange your company lists on, what informs a company’s decision where to list? In my experience, there are several reasons, none of which have anything to do with liquidity.

Alignment with the company’s mission. Companies may value a particular focus of an exchange. For example, we are building the Long-Term Stock Exchange primarily for companies and investors who measure success over years and decades and who prioritize decision-making accordingly. A company that designs and builds products that, for example, aim to minimize impact on the environment also may attract capital from a generation of investors who aim to align their investments with their values.

Branding. Companies may perceive value for their brand from listing on a particular exchange. For example, a company that lists with the Long-Term Stock Exchange may want to position itself as long-term focused. (Our proposed listing requirements are designed to ensure that the commitment is backed by action.) Or maybe a company wants to list with a traditional exchange because the exchange is dangling a blizzard of advertising in return.

Commercial considerations. Some companies will list with an exchange that offers to do business with the company. For example, if your company sells servers, and an exchange promises to buy a bunch of them in return for your listing, that could be an enticement. Exchanges also may offer to throw in subscriptions to software or services as an inducement to list.

Of course, I have a bias, but if I were a company deciding where to list, I would ask an exchange how it can help me build my business and advance my vision over time. Because wherever you list, your stock will trade freely in a national pool of liquidity.