7 ms·

Interesting idea, but seems impractical because it causes very weird incentives: * Can a company exist in both the "normal" exchange and the "long term" exchan

by cujic9 9y ago

Interesting idea, but seems impractical because it causes very weird incentives: * Can a company exist in both the "normal" exchange and the "long term" exchange at the same time? If so, can I short on the normal exchange and buy on the long term exchange for some free voting power that increases over time? * Many (most?) consumer-facing brokerages make a significant portion of their revenue by lending out their customers' securities. Voting rights transfer to the borrower of the security. Would this be the same in a long-term exchange? If yes, then this will break the existing revenue model. Online brokerages will need to make the money elsewhere (likely by charging higher trading fees), and this will push consumers back into existing exchanges with low cost trades. * How long until there is a secondary market for buying and selling voting rights?

jessriedel 9y ago
> Can a company exist in both the "normal" exchange and the "long term" exchange at the same time? The fact that a company is listed on multiple exchanges doesn't mean it has different sorts of stock for each exchange. This real subject of this article is tenure voting, which is an aspect of the stock (not the exchange). The reason exchanges are mentioned is that exchanges have rules about the sorts of stock they will list. But to have tenure voting, you only need one exchange to allow out (like the proposed long-term exchange). And most stocks aren't cross-listed to multiple exchanges anyways. > How long until there is a secondary market for buying and selling voting rights? Yes, this strikes me as the obvious problem. The equilibrium is for third party to buy and hold all the tenure-voting stock and then sell stakes in the dividends of the company plus allowing voting by proxy. Basically, the third party becomes an exchange, and all stock effectively has maximal tenure. This problem is so obvious that it must have been addressed by the people proposing this.
- conistonwater 9y ago
  > This problem is so obvious that it must have been addressed by the people proposing this. I think this is just optimism, it would be nice to have an actual reason to think this is the case.
  - hkmurakami 9y ago
    I looked at the people backing the exchange and as far as I can tell, no one actually has a proper finance background, let alone a background in exchanges (which is, from what I've read, a pretty esoteric and specialized area within finance). The idea of Eric Reis running a stock exchange is... strange to me.
    - eries 9y ago
      Me too! Luckily the rest of the team is way more qualified
      - hkmurakami 9y ago
        Hi Eric. I recall the times when making long term equity holdings tax advantaged (ex: 0% cap gains after holding for 10 years) as a path to achieve similar goals to what LTSE is trying to achieve. Details (and general HN cynicism) aside, we hope your venture is a success. As a greater man than I once said, your success is our success. We'll be rooting for you.
- Fomite 9y ago
  > This problem is so obvious that it must have been addressed by the people proposing this. I feel like this sentence could be found on the graves of many a failed startup.
  - eries 9y ago
    And also on many IPO tombstones :)
- hobbyjogger 9y ago
  >Yes, this strikes me as the obvious problem. The equilibrium is for third party to buy and hold all the tenure-voting stock and then sell stakes in the dividends of the company plus allowing voting by proxy. Basically, the third party becomes an exchange, and all stock effectively has maximal tenure. You've essentially just described the current system. Most shares on NASDAQ and NYSE etc. are technically held by Depository Trust Company via its nominee, Cede & Co. [1]. Through a complicated set of regulatory and contractual arrangements, public companies, the beneficial owners of their stock (i.e. the investor at the end of the chain) and each intermediary (banks and brokers, etc.) all maintain a sort of legal fiction that the shares are "owned" by Joe Schmoe, even though all he really has is an attenuated set of contractual rights that flow through the various intermediaries between him and "his" shares held by Cede. Joe Schmoe does not technically or legally own those shares. Cede does. Believe it or not, you were spot on in predicting that the third party would allow "voting by proxy." That's exactly how Joe Schmoe (i.e. all of us) must vote our shares if we want to participate in a stockholder vote. We can't just show up at the meeting (or fill out the company's proxy card). You send a "voting instruction form" telling your broker how you'd like to vote, and your broker then tells Cede & Co. how to vote your shares at the stockholder meeting.[2] To address your specific point, tenure voting would surely be based on the tenure of the beneficial owner (i.e. the person at the end of the chain who gets to vote) not the nominee holding the shares in "street name" on the beneficial owner's behalf. This might take some reworking of the arrangements between the brokers, DTC, clearinghouses, etc. (likely needing to be be built into the financial systems that log transfers and ownership, if not already provided for) but would not really pose a significant barrier. [1] https://www.bloomberg.com/view/articles/2015-07-14/banks-forgot-who-was-supposed-to-own-dell-shares https://www.bloomberg.com/view/articles/2015-07-14/banks-for... [2] https://www.sec.gov/spotlight/proxymatters/proxy_materials.shtml#what_is_registered_owner https://www.sec.gov/spotlight/proxymatters/proxy_materials.s...
  - jessriedel 9y ago
    > tenure voting would surely be based on the tenure of the beneficial owner This only works if the intermediate holder of the stocks is coordinating with the exchange and/or company. The problem is that there is a financial incentive for someone else who is not working with them to buy up the stock, immediately resell it with the normal guarantees (that they will pass on dividends, allow voting by proxy etc.), but not pass on such re-sell information to the exchange/company. Does the exchange/company have some sort of a right to prevent resale unless tenure information is tracked? Naively Id guess that they can't, or otherwise they's try to prevent stuff like short-selling too.
ThrustVectoring 9y ago
Even if there isn't a normal exchange, there's usually a market in options and futures. And if it isn't a full market, there are players who can make bespoke deals. Someone who holds on the "long term" exchange along with a costless collar (long OTM put / short OTM call) has much less economic exposure to the stock but has "held" it for the same amount of time.
adventured 9y ago
> can I short on the normal exchange and buy on the long term exchange for some free voting power that increases over time? Buying voting power on the long-term exchange isn't free, your capital is allocated. You have finite capital. Your cost for each unit of voting power declines perpetually so long as you hold it, it never goes to zero (free). You can view the shorting as paying for your purchase in the long-term position, however you could view it that way for shorting any other company just as well. It's meaningless as a premise or issue.
- cujic9 9y ago
  Contrived? Yes. Meaningless? No. Voting rights are powerful. That's the point of the long-term exchange. In existing exchanges, going long and short in equal amounts on the same stock simply cancel each other out. But in a "long-term exchange", taking this same position (or lack thereof) gives me a valuable asset: voting power that grows over time.
  - stale2002 9y ago
    Sure, but the price of the stock probably reflects that voting power. For example, right now there are different share types that you can buy from the same company that have different voting rights.
    - cujic9 9y ago
      Yes, but... the article suggests that in the long-term exchange, the voting power resets with a change in ownership. So while a share that has accumulated a lot of voting power is valuable to me, you wouldn't necessarily pay any more for it, since the power doesn't transfer to you.
      - hkmurakami 9y ago
        this is reminding me of LLCs holding real estate in California, where the LLC and bought and sold but not the real estate, thereby preserving the low tax basis for prop13 purposes.
JumpCrisscross 9y ago
> Can a company exist in both the "normal" exchange and the "long term" exchange at the same time? Strictly speaking, nobody needs an exchange to implement a corporate voting regime where one's vote per share increases as a function of holding time. You just amend your certificate of incorporation and/or bylaws and, assuming the state in which you're incorporate allows it, it happens. The trouble is most stock exchanges have rules about voting rights. If you aren't compliant, you can't list with them. A big-ticket IPO, e.g. Uber, Airbnb or Saudi Aramco, might be able to convince an exchange to change its rules. This is an exchange pre-empting that negotiation. If a quality company listed with these voting rights, there would be nowhere you could buy its shares where voting rights would be different because they'd all trace to the same corporate charter. There might just, at least for some time, fewer places where one could buy them. (Stock lending would have to be dealt with. It doesn't strike me as a particularly challenging issue to solve, and not everyone has to solve it the same way. The bigger issue is where to sever legal and beneficial ownership. If I have a bunch of LLCs who have held a company's stock since IPO, it might make more sense to sell the LLCs with their voting rights intact than sell out of them. This torpedoes most of the benefits of public over private markets.)
- taurath 9y ago
  That all but guarantees a lower stock price over time for the company, as newer shares are literally less valuable than older shares. If you have “high priority” voting shares worth $100, they could be worth $90 or less to the investor that is buying them because they decrease in value on every trade.
  - JumpCrisscross 9y ago
    > That all but guarantees a lower stock price over time for the company, as newer shares are literally less valuable than older shares Which is why you see private companies experimenting with all manner of super-voting classes of stock (usually for founders) but never with this idea. New money would be reticent to invest. Devil's advocate: investors didn't seem to care about Snaps' zero-vote stock.

by cujic9 9y ago

jessriedel 9y ago

> Can a company exist in both the "normal" exchange and the "long term" exchange at the same time? The fact that a company is listed on multiple exchanges doesn't mean it has different sorts of stock for each exchange. This real subject of this article is tenure voting, which is an aspect of the stock (not the exchange). The reason exchanges are mentioned is that exchanges have rules about the sorts of stock they will list. But to have tenure voting, you only need one exchange to allow out (like the proposed long-term exchange). And most stocks aren't cross-listed to multiple exchanges anyways. > How long until there is a secondary market for buying and selling voting rights? Yes, this strikes me as the obvious problem. The equilibrium is for third party to buy and hold all the tenure-voting stock and then sell stakes in the dividends of the company plus allowing voting by proxy. Basically, the third party becomes an exchange, and all stock effectively has maximal tenure. This problem is so obvious that it must have been addressed by the people proposing this.

conistonwater 9y ago
> This problem is so obvious that it must have been addressed by the people proposing this. I think this is just optimism, it would be nice to have an actual reason to think this is the case.
- hkmurakami 9y ago
  I looked at the people backing the exchange and as far as I can tell, no one actually has a proper finance background, let alone a background in exchanges (which is, from what I've read, a pretty esoteric and specialized area within finance). The idea of Eric Reis running a stock exchange is... strange to me.
  - eries 9y ago
    Me too! Luckily the rest of the team is way more qualified
    - hkmurakami 9y ago
      Hi Eric. I recall the times when making long term equity holdings tax advantaged (ex: 0% cap gains after holding for 10 years) as a path to achieve similar goals to what LTSE is trying to achieve. Details (and general HN cynicism) aside, we hope your venture is a success. As a greater man than I once said, your success is our success. We'll be rooting for you.
Fomite 9y ago
> This problem is so obvious that it must have been addressed by the people proposing this. I feel like this sentence could be found on the graves of many a failed startup.
- eries 9y ago
  And also on many IPO tombstones :)
hobbyjogger 9y ago
>Yes, this strikes me as the obvious problem. The equilibrium is for third party to buy and hold all the tenure-voting stock and then sell stakes in the dividends of the company plus allowing voting by proxy. Basically, the third party becomes an exchange, and all stock effectively has maximal tenure. You've essentially just described the current system. Most shares on NASDAQ and NYSE etc. are technically held by Depository Trust Company via its nominee, Cede & Co. [1]. Through a complicated set of regulatory and contractual arrangements, public companies, the beneficial owners of their stock (i.e. the investor at the end of the chain) and each intermediary (banks and brokers, etc.) all maintain a sort of legal fiction that the shares are "owned" by Joe Schmoe, even though all he really has is an attenuated set of contractual rights that flow through the various intermediaries between him and "his" shares held by Cede. Joe Schmoe does not technically or legally own those shares. Cede does. Believe it or not, you were spot on in predicting that the third party would allow "voting by proxy." That's exactly how Joe Schmoe (i.e. all of us) must vote our shares if we want to participate in a stockholder vote. We can't just show up at the meeting (or fill out the company's proxy card). You send a "voting instruction form" telling your broker how you'd like to vote, and your broker then tells Cede & Co. how to vote your shares at the stockholder meeting.[2] To address your specific point, tenure voting would surely be based on the tenure of the beneficial owner (i.e. the person at the end of the chain who gets to vote) not the nominee holding the shares in "street name" on the beneficial owner's behalf. This might take some reworking of the arrangements between the brokers, DTC, clearinghouses, etc. (likely needing to be be built into the financial systems that log transfers and ownership, if not already provided for) but would not really pose a significant barrier. [1] https://www.bloomberg.com/view/articles/2015-07-14/banks-forgot-who-was-supposed-to-own-dell-shares https://www.bloomberg.com/view/articles/2015-07-14/banks-for... [2] https://www.sec.gov/spotlight/proxymatters/proxy_materials.shtml#what_is_registered_owner https://www.sec.gov/spotlight/proxymatters/proxy_materials.s...
- jessriedel 9y ago
  > tenure voting would surely be based on the tenure of the beneficial owner This only works if the intermediate holder of the stocks is coordinating with the exchange and/or company. The problem is that there is a financial incentive for someone else who is not working with them to buy up the stock, immediately resell it with the normal guarantees (that they will pass on dividends, allow voting by proxy etc.), but not pass on such re-sell information to the exchange/company. Does the exchange/company have some sort of a right to prevent resale unless tenure information is tracked? Naively Id guess that they can't, or otherwise they's try to prevent stuff like short-selling too.

ThrustVectoring 9y ago

Even if there isn't a normal exchange, there's usually a market in options and futures. And if it isn't a full market, there are players who can make bespoke deals. Someone who holds on the "long term" exchange along with a costless collar (long OTM put / short OTM call) has much less economic exposure to the stock but has "held" it for the same amount of time.

adventured 9y ago

> can I short on the normal exchange and buy on the long term exchange for some free voting power that increases over time? Buying voting power on the long-term exchange isn't free, your capital is allocated. You have finite capital. Your cost for each unit of voting power declines perpetually so long as you hold it, it never goes to zero (free). You can view the shorting as paying for your purchase in the long-term position, however you could view it that way for shorting any other company just as well. It's meaningless as a premise or issue.

cujic9 9y ago
Contrived? Yes. Meaningless? No. Voting rights are powerful. That's the point of the long-term exchange. In existing exchanges, going long and short in equal amounts on the same stock simply cancel each other out. But in a "long-term exchange", taking this same position (or lack thereof) gives me a valuable asset: voting power that grows over time.
- stale2002 9y ago
  Sure, but the price of the stock probably reflects that voting power. For example, right now there are different share types that you can buy from the same company that have different voting rights.
  - cujic9 9y ago
    Yes, but... the article suggests that in the long-term exchange, the voting power resets with a change in ownership. So while a share that has accumulated a lot of voting power is valuable to me, you wouldn't necessarily pay any more for it, since the power doesn't transfer to you.
    - hkmurakami 9y ago
      this is reminding me of LLCs holding real estate in California, where the LLC and bought and sold but not the real estate, thereby preserving the low tax basis for prop13 purposes.

JumpCrisscross 9y ago

> Can a company exist in both the "normal" exchange and the "long term" exchange at the same time? Strictly speaking, nobody needs an exchange to implement a corporate voting regime where one's vote per share increases as a function of holding time. You just amend your certificate of incorporation and/or bylaws and, assuming the state in which you're incorporate allows it, it happens. The trouble is most stock exchanges have rules about voting rights. If you aren't compliant, you can't list with them. A big-ticket IPO, e.g. Uber, Airbnb or Saudi Aramco, might be able to convince an exchange to change its rules. This is an exchange pre-empting that negotiation. If a quality company listed with these voting rights, there would be nowhere you could buy its shares where voting rights would be different because they'd all trace to the same corporate charter. There might just, at least for some time, fewer places where one could buy them. (Stock lending would have to be dealt with. It doesn't strike me as a particularly challenging issue to solve, and not everyone has to solve it the same way. The bigger issue is where to sever legal and beneficial ownership. If I have a bunch of LLCs who have held a company's stock since IPO, it might make more sense to sell the LLCs with their voting rights intact than sell out of them. This torpedoes most of the benefits of public over private markets.)

taurath 9y ago
That all but guarantees a lower stock price over time for the company, as newer shares are literally less valuable than older shares. If you have “high priority” voting shares worth $100, they could be worth $90 or less to the investor that is buying them because they decrease in value on every trade.
- JumpCrisscross 9y ago
  > That all but guarantees a lower stock price over time for the company, as newer shares are literally less valuable than older shares Which is why you see private companies experimenting with all manner of super-voting classes of stock (usually for founders) but never with this idea. New money would be reticent to invest. Devil's advocate: investors didn't seem to care about Snaps' zero-vote stock.