February 26, 2020

Stock Exchanges: All the Cool Kids Have One. . .

If you’re a trend chaser, forget about canned booze or intermittent fasting – all the cool kids are now getting their own stock exchange. This Axios article discusses The Members Exchange, or MEMX, which is backed by the likes of Goldman Sachs, BofA & Morgan Stanley. It’s expected to go live this summer & compete with the NYSE and Nasdaq based on lower fees.

Meanwhile, not to be outdone by Wall Street’s brahmins, Silicon Valley bigwigs are backing the Long Term Stock Exchange, or LTSE. We’ve blogged about this one before, but according to this Marker article, the LTSE’s backers include Andreessen Horowitz, Peter Thiel’s Founders Fund, LinkedIn co-founder Reid Hoffman, & AOL founder Steve Case. CEO Eric Ries & his backers have big ambitions for the exchange:

When it launches — sometime late in the first quarter of this year, Ries hopes — the LTSE will be the 14th U.S. exchange registered for trading securities, but only the third active exchange that is approved for both trading and listing of public companies. That means, instead of IPO’ing on the NYSE or Nasdaq, companies will now have the option of listing shares, aka “going public,” on the LTSE.

DFS: New York’s New Regulatory King Kong?

Armed with the formidable Martin Act, the NY Attorney General’s office has long been one the most powerful state regulators in the country – but this WilmerHale memo says that if legislation introduced by NY Gov. Andrew Cuomo is enacted, the AG won’t be The Empire State’s only regulatory colossus:

In legislative language accompanying his proposed budget, New York Governor Andrew M. Cuomo proposes to significantly expand the powers of the New York Department of Financial Services (DFS), the state’s banking and insurance regulator. The Governor’s proposal would enlarge the department’s mission beyond banking and insurance oversight, transforming DFS into perhaps the most powerful state regulator in the nation, with new and broad jurisdiction and substantial enforcement powers over consumer products and services, business to business arrangements, and securities and investment advice.

Though significant in its scope, the Cuomo proposal is in many respects unsurprising. The Governor created DFS in 2011 upon merging the state’s Banking Department and Insurance Department; he initially sought to give DFS powers under the Martin Act, the state’s broad “blue sky” securities statute, but the Legislature declined to do so. Governor Cuomo has, however, expanded DFS’s jurisdiction in other ways in the years since its creation, including by granting it powers to police the state’s student loan servicing industry.

Among other things, the proposal would amend New York’s Financial Services Law to add securities to the definition of “financial product or service” and give DFS the power to regulate the provision of investment advice. As a result, the memo says that the proposal would effectively make DFS another securities regulator. There are a number of other provisions that would enhance DFS’s power to protect consumers, and would also grant DFS jurisdiction over fraud or misconduct in business-to-business transactions.

Lease Accounting Impact: Holy Cow!

We’ve blogged several times in recent years about the implementation of the new FASB lease accounting standard. Now that the standard’s in place for public companies, a recent article from “Accounting Today” says that the balance sheet impact has been staggering:

The new lease accounting standard caused lease liabilities for the average company to increase a whopping 1,475%, skyrocketing from $4.4 million before the transition to $68.9 million post transition, as operating leases were recorded on the balance sheet for the first time, according to a new study.

The study, from the lease accounting software provider LeaseQuery, analyzed more than 400 companies in its customer base and found that the increase was particularly striking in certain industries, such as financial services, where the amount of the average lease liability increased 6,070%. Similarly, in the health care industry, average lease liability liabilities went up 1,817 %, in the restaurant industry 1,743%, in the energy industry 1,542%, in retail 1,012%, and in manufacturing 495%.

Not surprisingly, the article says that companies found the transition to the new standard more difficult and more time consuming than they initially thought. Feedback from public companies prompted FASB to delay the new standard’s application to private companies in order to give them an extra year to get their act together.

John Jenkins