Equities in Dallas: How the Liar's Poker Insult Became the Texas Finance Hub

Transcript

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Announcer: Y'all Street Law is here to help you thrive in the Lone Star State.

Brian Elliott: What's going on there, Chuck? How times have changed.

Chuck Kraus: It's a fantastic reference to, as you may know, a Michael Lewis book, Liar's Poker, I think, 1989, back in the days of Solomon Brothers. And it's a reference to an assignment no banker wanted. Then everybody wanted to trade bonds, and he wanted to be located in New York, where all the action was. And equities in Dallas was kind of a double insult. First, you didn't get to trade bonds. And second, you had to live outside of New York in Dallas, of all places. So you see it in headlines because you fast forward to today, and the sentiment is changing. And I think the stigma is going away.

Chuck Kraus: You've got data from the Bureau of Labor Statistics showing that Texas investment banking and securities employment has gone up over 100% in the last 20 years, 27% just since the pandemic, compared with single-digit growth on Wall Street in New York. And the number of people employed in finance overall has gone up like 13% in Texas since 2019. So Dallas and Dallas-Fort Worth now ranks second to New York City among metro areas and number of workers that are in finance-related industries. And other cities, including, you know, in the Sun Belt, have seen similar growth. So Dallas is now a key destination for financial services, investment, with companies like J.P.

Chuck Kraus: Morgan building a huge campus. Charles Schwab moved here a few years ago. Goldman Sachs is expanding their campus, all of this sort of in the north Dallas area. And Texas is really no longer just oil and cattle. It's a diverse economy, a real financial powerhouse. So it's funny. I mean, equities in Dallas used to be derogatory. Now it's often the proper and respectable answer to the what do you do question. at the barbecue.

Brian Elliott: Yeah, I get it. I mean, the Texas story, though, is even bigger than Dallas.

Chuck Kraus: Absolutely. As you can confirm, Brian, you know, things are boosting, booming, excuse me, things are booming in Austin. And there's lots of activity in Houston, San Antonio, across the state. I saw a recent stat that said that the Texas workforce is now close to 15 million people. And half of those workers are employed by small business across the state. So this is one of the reasons things have been so busy for Team Texas at scale. And that's not just in Dallas. It's not in Austin. It's all over the place.

Brian Elliott: Well, and Chuck, you've worked on both sides of the border. So you're somewhat uniquely positioned to comment on this. Can you tell us a little bit about your background?

Chuck Kraus: Yeah. So I, you know, I spent 15 years living and working in Alberta. There were lots of connections to Texas, just given the energy industry. I was a part time resident of Texas for over a decade now here full time for more than five years, you know, and at scale, we have a cross border practice. And one of the things I do as part of that group is help Canadian companies navigate their expansion into the United States, whether that's the M&A or Greenfield or just, you know, equity markets here. And I can tell you that there's been a lot of interest in Texas in particular recently, just the market is so big.

Chuck Kraus: In fact, the population, you know, of the state rivals, maybe even bigger, slightly bigger, slightly smaller than the entire population of Canada Canada, and just a huge economy. So a lot of the Canadian companies that we represent are eyeing Texas as a place to expand and calling for that advice.

Brian Elliott: Texas brought it up a little bit earlier. Chuck, why are so many businesses choosing Texas?

Chuck Kraus: Yeah, it's a good question. If I gave you bullet points, I think it would be a couple of things. Number one, from a tax perspective, there's no corporate income tax, no personal income tax. It's a huge difference for companies looking to grow their business. Beyond that, I think the biggest factor is the skilled, diverse, and growing workforce. You know, it's just been affordable for housing. Companies can attract talented people. The housing market has been, you know, quite competitive with places that these businesses are moving from. So they can offer compensation that gives people, you know, a very competitive cost of living. But at the same time, you know, they're able to secure long-term real estate deals in places like Plano, other areas of expansion where it makes a lot of sense for companies to relocate.

Brian Elliott: You mentioned, you know, some big names, you know, JP Morgan, Goldman, Schwab, you know, these big companies are moving to the DFW area. You just mentioned California. There are all these companies, including, you know, all of Elon Musk's empire, all the X's are moving to Texas and Chevron and others. What are the driving factors behind this? What's attracting them all to Texas?

Chuck Kraus: Yeah, again, I think it's a combination of the business-friendly policies, the state's sort of overall economic strength, you know, 11 deep water ports. So there's a huge export market. We already talked about taxes. We talked about regulation. You know, we had a whole podcast episode on the Texas business courts. I think there's a level of sophistication and predictability that's coming along with those things. You know, on top of that, cost of living is just, you know, a lot lower than some of these other incumbent jurisdictions. So I think all those things coming together are delivering some real advantages.

Brian Elliott: And you talked a bit about the cross-border practice. How do Canadian companies benefit?

Chuck Kraus: Yeah, there's some significant things. Number one, I think there's particularly between the western provinces of BC and Alberta, Alberta, where I practiced for a while, you know, it's a lot of energy business there. And, you know, most of those large companies have a footprint in both jurisdictions. There's a lot of pipelines connecting Alberta with the refineries in Texas. And I think similarly, you have that entrepreneurial spirit and just understanding of the technical aspects of that particular business. So I think that's one of the reasons that it's a friendly environment. It's a known environment. And that's leading companies to step out. And when they go to expand, this is an obvious place they need to consider.

Brian Elliott: Now, you've mentioned the Texas Stock Exchange a few times. Can you explain why this is such a big deal for Texas?

Chuck Kraus: Yeah, the Texas Stock Exchange is really an interesting development. You know, the group has raised a bunch of money from very sophisticated investors, and they're set to officially launch in 2026. The focus seems to be, based on what they put out, on listings for companies in the southeast quadrant. So that's Arkansas, Texas, Louisiana, Mississippi, Alabama, Tennessee, the Carolinas, and Florida, the whole southeastern U.S. And when you look at that region as an economic segment, they've added 3.5 million people in terms of immigration since 2020. So you have a huge inflow and contributed over 50% of the U.S. job growth. And the really interesting thing is Texas Stock Exchange has said that they believe there's more than 14,000 sponsor-backed private companies in that region alone that potentially an exit via a public listing on the Texas Stock Exchange could be appealing.

Chuck Kraus: So the Texas Stock Exchange is expected to officially file with the SEC by December of this year. That will give us a good glimpse into what they're proposing in terms of their listing standards. They did have a ceremony a couple of weeks ago at Governor Abbott's residence where they, in connection with that, announced that their qualitative standards for listing are going to be even tighter than those of NYSE or NASDAQ. And I think the release even said that a third of companies currently listed on the two incumbent exchanges would not qualify by their math on the Texas Stock Exchange standards. So that's interesting. I think there was some speculation that they would potentially lower the standards, try and attack that way, but they're clearly setting the bar that it's going to be higher standards qualitatively.

Chuck Kraus: They specifically mentioned penny stock rules, so perhaps a higher quoted price. That'll be interesting to see. So they have identified a market in the Southeast quadrant, and I think are trying to give those companies in particular another avenue for capital markets, and it'll be really interesting to see.

Brian Elliott: That's amazing. Speaking of other exchanges, should TSX listed companies also consider listing in Texas?

Chuck Kraus: Yeah, that's really interesting. I've spent, you know, a lot of time working in this space with dual listed companies. You know, a lot of the energy companies in Canada will get a listing in the U.S. as well, and there's some rules that allow them to basically use their Canadian reporting to satisfy, in large part, U.S. reporting requirements. And, you know, I think the majority of those companies will go to New York Stock Exchange. Some have gone to NASDAQ. What's really interesting, though, is if you look at how the Toronto Stock Exchange has positioned itself around the globe? It really was a place that had a deep expertise.

Chuck Kraus: piece of energy companies, whether it's on the mining side or the energy side. And the TSX is known around the world as kind of an exchange that is well-versed in that they have listing standards that are specific for energy companies. And so one possibility is that the Texas Stock Exchange, given we're in Texas, given the energy space here and the deep sophistication, I could see them making a similar play and developing a bit of a symbiotic relationship with the Toronto Stock Exchange and really encouraging some of those dual listed companies to perhaps transition their listing from New York to the Texas Stock Exchange. You've got deep expertise of investment bankers and lawyers here in Texas, and it could be really interesting to see some more collaboration between those two markets.

Brian Elliott: You think the Texas Stock Exchange is going to be a draw to get even more businesses located here? What do you think, what are your predictions on the impact to the Texas economy?

Chuck Kraus: Yeah, look, standing up a stock exchange is no easy thing. And I think there's been lots of skeptics who said, you know, lots of people have tried this, but it's hard. But I don't think this is for the group behind the Texas Stock Exchange really trying to take something from New York. I think this is about identifying a real opportunity with these companies in the Southeast quadrant and meeting that need first and foremost. So I think there's a lot of capital that continues to come in here. You look at where the investment is, you look at where real companies are spending money by relocating here.

Chuck Kraus: And I think all of that says it's not shifting from one location to another. It's really a sort of pie-expanding exercise where you're just seeing needs that are going unmet. And why not satisfy them this way in the state of Texas?

Brian Elliott: Any thoughts on roadblocks or issues that might come up as they start to roll out?

Chuck Kraus: Well, it's always interesting to see road proposals, you know, before the SEC. I think this is one of the things that the Texas Stock Exchange has identified as what they're going to focus on is more of the qualitative standards and not some of these other issues that have focused more on the social aspects of board governance. They've kind of signaled they're not going to wade into that as much. But in terms of roadblocks to your question, look, they've got to get their rule proposals through the SEC. And, you know, they have to develop a critical mass. Who those first few, you know, listings, the first 10, the first 100 are going to be, I think is going to be really interesting to see.

Chuck Kraus: So I think it's going to make for a very interesting 2025, 20... when we see, you know, companies signaling that they're making an initial application or that they're considering moving. It'll be very, very interesting to see what the makeup of those companies is.

Brian Elliott: One of the, we discussed previously the Texas Business Courts, one of the qualifiers to reach the threshold of the Texas Business Court is that you can be a publicly traded company. So the dollar amount thresholds don't apply if you're a public company. I wonder how the Texas stock exchange might play into that, you know, give, you know, Texas businesses another avenue, you know, to get access to these specialized, sophisticated courts, or maybe it's not that big of a deal.

Chuck Kraus: No, I think, I think it is important, you know, the other way that they can gain access to the Texas Business Courts, of course, to have a controversy under the TBOC. So there's been all sorts of conversation about redomestication, a couple of high profile cases this summer with Tesla redomesticating from Delaware to, to Texas, and you're seeing other announcements as well. So I think all of that is, is in the mix. And it's just fascinating to, to have conversations, you know, with, with clients and peers about the opportunity. And again, I think that the focus is, is not on, it's not a competitive one. It's, there's real opportunities here.

Chuck Kraus: How can I best position my company to take advantage of, of those opportunities?

Brian Elliott: That's great. I love it. Thanks, Chuck.

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