WILMINGTON, Del. (AP) - More than two years after plans for a stock exchange in Wilmington were announced with a controversial proposal for government backing, officials behind the upstart exchange say their focus has finally turned from getting initial buy-in and licensing to actually growing the business.
The Delaware Board of Trade is now executing about 50 trades a day. Officials are targeting 8 million shares trading daily to break even, but say they are making strides toward growing that volume and making good on promises to foster new business in Delaware.
Today, the exchange lists symbols for about 750 companies including everything from mortgage giants Fannie Mae and Freddie Mac to technology and banking companies to upstart marijuana businesses. The group is working to onboard more banks and investment groups that will drive trading traffic, said Dennis Toner, director for the organization, in a recent interview.
“Every day our volume is increasing,” Toner said. “What we are doing is turning away from depending on investments to begin to focus on revenue.”
It’s been a long road for those behind the exchange.
Plans for the exchange were first reported by The News Journal in June 2015 as organizers for the upstart partnered with former New Castle County Executive Thomas P. Gordon for government funding of the venture. Eventually, the county government issued a controversial $3 million loan to the upstart with Gordon saying the venture would be operational around the end of 2015.
That pitch also came with big dreams for the exchange employing up to 125 workers making an average of $86,000, putting Wilmington on the map as a place for small companies to raise capital within five years of its founding.
Today, the fledgling operation employs about 14 people, split between its largely empty executive suite in the Hercules Plaza office building in Wilmington and offices in New York and New Jersey, Toner said.
He added that initial targets for launching the exchange were not met because of the time involved getting licenses from federal regulators as well as a host of state governments, Toner said.
“It has taken longer than what we had hoped,” Toner said.
Toner said the group’s employees have taken two separate salary cuts but are now looking forward.
“Now we are on much better footing with our investments,” Toner said. “We are beginning to travel in the crowd where they are becoming more aware of the opportunities here with the Delaware Board of Trade.”
The exchange hopes to grow what’s known as the over-the-counter market. That market is home to trading everything from established companies that don’t have the revenue or don’t want the expense of listing on a major exchange to so-called penny stocks.
Organizers say the platform will not be home to companies trading below $1 per share. The goal of the new exchange is to introduce new transparency and automation into trading on the over-the-counter space, said John F. Wallace, a former chief executive of the Philadelphia Stock Exchange.
Eventually, the group wants to be the destination for companies with less than $50 million in revenue looking to raise capital through a public offering, a platform for foreign companies to raise American capital and introduce new ways of crowdfunding upstart ventures.
It’s an area ripe for innovation because upstart companies have tended in recent years to rely more heavily on venture capital firms to raise equity, said Bruce Weber, dean of the Lerner College of Business and Economics at the University of Delaware.
“Growth companies, small and growing today, are much less tempted to go public than they would have been 25 years ago because you have private equity firms, venture capital firms that give you an alternative to issuing stock and trading,” Weber said.
The pitch being made to upstart companies is to shun the call of venture capital outfits for more control.
“Venture capital takes a significant piece of whatever you are doing,” Wallace said. “They make significant changes from what you believe is the best plan. We don’t get into that.”
The biggest player in the over-the-counter market is the OTC Markets Groups in New York. That exchange also lists stocks on a three-tiered system that the Delaware Board of Trade is built around.
Wallace said the Delaware Board of Trade will have a more transparent pricing and trading system. He said they also have higher standards for companies that will be listed. He said his system will move more traders to the over-the-counter space.
“You get a new breed of customers,” Wallace said. “Customers now have a confidence that they can post an order, there is transparency on it, daylight on it.”
The biggest challenge for companies operating in the over-the-counter space and trading smaller companies is liquidity, or having enough trading activity where a willing buyer and seller are regularly available, Weber said.
“There are not enough investors out there who feel comfortable that if they buy this stock today and want to sell it in a year, that there will be a liquid market tomorrow,” Weber said.
Wallace said the group is working to onboard major traders and so-called order flow providers with a setup that incentivizes activity and liquidity.
He added that the Delaware Board of Trade is working to onboard companies that trade in Asia that are not currently available in the U.S. While declining to discuss specifics, he said such “new products” will also drive activity.
“There is a lot of pent-up demand for these products,” Wallace said.
Since the controversy over New Castle County government’s loan to the group, officials have been reticent to discuss what funding the venture has aside from taxpayer money.
They have gone public with one investor, S.S. Lootah Holdings, as an example of how the exchange can follow through on its goal of attracting foreign companies to raise capital and benefit business here.
Lootah is a conglomerate with ventures in everything from construction to technology to health care owned by a prominent Dubai family. The group has operations in several countries outside the Middle East and recently expanded its reach into the United States, said Jose Albert Guadalupe, director of U.S. operations for Atlantic Bridge Holdings, a subsidiary of Lootah.
Guadalupe said Lootah bought a percentage of the Delaware Board of Trade but declined to provide specifics. He said Lootah sees the exchange itself as an investment but also an avenue the group can use to raise investment capital for companies under the Lootah umbrella.
“The relationship is not just going to be shareholder and investors,” Guadalupe said. “We want to help them grow.”
That includes striking investment deals with local companies as well as using the Delaware Board of Trade as a place to raise investment capital for companies that will introduce new products they want to manufacture and sell in the United States, he said, declining to provide any specific details or examples.
“We are going to make Delaware our headquarters,” Guadalupe said. “Slowly but surely we will build a presence here. We see a lot of things we want to do.”
Weber said despite the challenges, the space for new exchanges has been “exciting” with new technology opening up space for upstart players.
“The financial markets overall are growing. I think it is wise for the state of Delaware to look into how to participate,” Weber said. “I’d caution people who are instantly cynical or negative.”
The Delaware Board of Trade made its first interest payment on the government loan last fall with another installment due later this year. For now, County Council members are hoping the venture will grow to return the government funds.
“There is no guarantee that if you build it they will come,” said Councilman George Smiley, chair of council’s Finance Committee. “They are still not generating the revenue they need to self-sustain, but I’m cautiously optimistic that it will continue to grow and we will get every cent back.”
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Information from: The News Journal of Wilmington, Del., https://www.delawareonline.com
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