Ex-NYSE, PHLX chairs seek $15MM for penny-IPO Delaware stock market

The 1990s-era chairmen of the New York and Philadelphia Stock Exchanges and a former longtime aide to Vice President Joe Biden are asking New Castle County, Delaware to help finance a new stock exchange focused on newly-legal small-company IPOs, reports Xerxes Wilson in the Wilmington News Journal here. Highlights:

"County Council on Tuesday is scheduled to review a proposal from Delaware Board of Trade Holdings Inc., which was incorporated in June and is led by John F. Wallace, former CEO of the Philadelphia Stock Exchange. Dick Grasso, former chairman and CEO of the New York Stock Exchange, and Joseph J. Grano, former chairman and CEO of UBS Capital Markets, are listed as advisers for the company."

The proposed exchange "is seeking to capture a share of business created by the Jumpstart Our Business Startups Act passed by U.S. Congress in 2012, which sought to make it easier for small companies to raise capital. Small companies can now sell up to $50 million in shares in a 12-month period without the full reporting requirements of going public. Previous rules capped such offerings at $5 million...

"The company wants to launch two alternative trading systems in Wilmington – one for trading of U.S. and foreign securities and the other for small and medium businesses that don't qualify for listing on Nasdaq or the New York Stock Exchange," both regulated by the SEC and FIRC.

"County Chief Administrative Officer David Grimaldi said the bond would pay for technology to set up the exchange and be combined with money from outside investors to cover financial requirements. He said officials approached county leaders about the project earlier this year."

Grimaldi told the paper that the exchange, not taxpayers, would be on the hook for bond repayments; that the county would collect a fee of one-half percent of bond proceeds in exchange for lending its low-cost borrowing authority to the project; and that the electronic market, one of dozens that have opened in the U.S. since the 1990s, could create 100 jobs.

"Senior managers for the company include Nick Niehoff, a former Nasdaq executive and CEO of the Cincinnati Stock Exchange," along with Pike Powers, former head of the Texas office of Washington law firm Fulbright & Jaworski, plus "Dennis Toner, an aide to Biden for more than three decades in the U.S. Senate and later as vice president. Toner, of Rehoboth Beach, was also on the board of the U.S. Postal Service from 2010 to 2012.

"Wilmington attorney Michael Kelly, who is representing the company, said they are deciding between locations on the riverfront and on King Street downtown. Kelly said the company hopes to be running 90-120 days after the bond deal is approved."

Delaware, with its business-friendly Chancery courts of appointed judges who specialize in resolving equity ownership disputes, lack of income taxes on "passive" intellectual-property payments and profits, and mix of local, New York and Philadelphia corporate law firm offices, is the legal home to more than half the Fortune 500 and New York Stock Exchange companies.

Wilson writes that "Delaware set a record for business formation in 2014, with 169,000 new entities forming under the Delaware General Corporation Law. That beat the old record of 162,000 set in 2000," and included most companies that conducted initial public stock offerings, according to the state Division of Corporations office.