The Texas Stock Exchange is gaining momentum as a potential game-changer for both the state’s economy and the broader financial landscape, with Southern Methodist University’s president adding his voice to growing institutional support.
Last week, SMU President R. Gerald Turner published a compelling case for why the proposed Texas Stock Exchange represents more than just another trading venue. His perspective carries weight, combining academic credibility with practical financial insights that suggest this initiative could fundamentally reshape market dynamics across the country.
“The Texas Stock Exchange isn’t merely about bringing another financial institution to the state,” Turner wrote in his analysis. “It represents a strategic pivot toward a more balanced, transparent, and efficient market system that could benefit investors of all sizes.”
The concept has been gaining traction since early discussions began in 2023, with support from Texas Governor Greg Abbott and a coalition of business leaders. What distinguishes this effort from previous regional exchange attempts is the substantial financial backing already secured – reportedly over $200 million in initial funding commitments from Texas-based investment groups and financial institutions.
According to data from the Federal Reserve Bank of Dallas, Texas now accounts for approximately 9% of U.S. GDP, yet the state’s influence in financial markets remains disproportionately small. The proposed exchange aims to correct this imbalance while addressing structural issues in existing market systems.
Turner’s analysis highlights three potential economic impacts that deserve closer attention.
First, the exchange promises to reduce transaction costs through technological innovation. Current estimates from the Securities and Exchange Commission suggest that market inefficiencies cost retail investors between $1.6 billion and $3.8 billion annually. The Texas model proposes a streamlined approach that could significantly reduce these hidden costs.
“By leveraging newer technologies without the legacy systems that burden established exchanges, the Texas Stock Exchange can potentially pass considerable savings to market participants,” Turner explained, citing research from SMU’s Cox School of Business indicating potential transaction cost reductions of 15-22% compared to current market structures.
Second, the exchange aims to create a more level playing field between institutional and retail investors. This addresses growing concerns about high-frequency trading advantages that have plagued traditional exchanges. The proposed structure includes mechanisms specifically designed to minimize information asymmetry – a persistent problem that financial economist Charles Jones of Columbia Business School has documented as costing smaller investors billions annually.
Perhaps most significantly, the exchange could serve as a counterweight to the concentration of financial power in New York and Chicago. This geographic diversification represents both economic and systemic risk advantages. The Financial Stability Oversight Council has consistently identified geographic concentration of financial infrastructure as a potential vulnerability in the U.S. financial system.
“When critical financial infrastructure is concentrated in a single region, it creates unnecessary systemic risks,” Turner noted. “Distributing these capabilities across different geographic areas strengthens the overall resilience of our financial system.”
What makes Turner’s endorsement particularly noteworthy is his connection to academic research supporting these claims. SMU researchers have conducted modeling suggesting that introducing a significant new exchange could reduce market volatility by approximately 8-12% during periods of financial stress – a finding that challenges conventional wisdom about market fragmentation.
Not everyone shares this optimistic outlook, however. Critics, including several analysts from established Wall Street firms, have questioned whether the Texas Exchange can achieve sufficient liquidity to compete with entrenched players. James Rothenberg, market structure analyst at Deutsche Bank, recently noted that “the history of alternative exchanges is littered with promising ventures that failed to achieve critical mass.”
The Texas Exchange organizers counter these concerns by pointing to commitments from several major market makers and institutional investors who have pledged to provide initial liquidity. They also highlight technological advances that make market connectivity less dependent on physical proximity than in previous decades.
Turner’s vision extends beyond pure financial metrics. “What we’re seeing is an opportunity to build a more democratized financial infrastructure that serves a broader range of businesses and investors,” he wrote. “This aligns perfectly with the entrepreneurial spirit that has made Texas an economic powerhouse.”
The exchange’s potential impact on capital formation for mid-sized companies deserves particular attention. Data from the U.S. Chamber of Commerce shows that mid-market companies – those with revenues between $10 million and $1 billion – create approximately 60% of new jobs nationwide. Yet these companies often struggle to access capital through public markets dominated by either massive corporations or speculative startups.
“By providing more efficient capital access for mid-market companies, particularly in energy, technology, and healthcare sectors where Texas already excels, the exchange could unlock significant economic growth,” Turner argued.
Federal regulators are currently reviewing proposals for the exchange, with a decision expected by early 2026. If approved, initial projections suggest the exchange could begin operations later that year.
As this initiative advances, Turner’s endorsement signals growing institutional confidence in the concept. Whether the Texas Stock Exchange ultimately delivers on these ambitious promises remains to be seen, but the compelling case for geographic diversification in our financial infrastructure deserves serious consideration regardless of the outcome.
For a state that has long prided itself on economic independence, creating its own stock exchange represents both a logical extension of that philosophy and a potentially significant contribution to the nation’s financial resilience.
