$15 million sought for planned Wilmington stock exchange

A new Delaware company led by prominent figures in national financial and political circles, including a former top aide to Vice President Joe Biden, is seeking a $15 million bond from New Castle County to create a stock exchange headquartered in Wilmington.

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 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 would be regulated by the Securities and Exchange Commission and Financial Industry Regulatory Authority. All transactions would be handled electronically.

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.

The bond would be repaid through revenues from the exchange and the company would assume the debt if it can't cover payments, he said.

"There is no risk to the county," Grimaldi said. "This helps us get back to the core of being a business-friendly state."

The exchange is expected to create about 100 jobs paying an average of $150,000 and contribute to the "ecosystem" of account and corporate services in the city, he said.

Company officials have been asked to present the proposal to the county Finance Committee and County Council on Tuesday.

Senior managers for the company include Nick Niehoff, a former Nasdaq executive and CEO of the Cincinnati Stock Exchange, and 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.

"I think it is great for Delaware because of jobs, jobs, jobs and it puts us on the map," Kelly said. "This is the corporate capital of the world. It is natural."

Delaware is the corporate home to 64 percent of Fortune 500 companies. Corporations are attracted to Delaware because of low taxes and advanced business laws. The state's key attraction is the Court of Chancery, considered to be the nation's preeminent business court.

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. The Division of Corporations also reported 89 percent of all 2014 U.S.-based initial public offerings were based in Delaware.

The company, in a planning document submitted to the county, said the exchange also will "grow Wilmington's recognition as a business center" by using "live broadcasts, social media and conference networking."

"We are going to have financial media here. We are going to have companies that want to raise money fly into Delaware, do the public relations thing and list on the exchange," Grimaldi said.

It would be the first alternative trading system in Delaware. Gov. Jack Markell and former Delaware Economic Development Office Director Alan Levin met with the representatives of the organization about the project in May, Markell spokeswoman Kelly Bachman said by email. It is unclear now what state regulatory approvals the project might require.

A spokeswoman for Wilmington Mayor Dennis P. Williams said they had not heard enough about the proposal to comment.

The stock 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.

Lawrence Hamermesh, a professor of corporate governance at Delaware Law School, said the previous system meant stakes in a company couldn't easily be sold or traded.

"Five million was trivial. Fifty million is not," he said. "This is the [regulation] that has the most potential to change the shape of the capital markets for small companies."

He said the company appears to be "trying to get on the ground floor and recognize that the regulatory situation has shifted with opportunities that were not here two years ago. It is plausible to take a step like this in light of the changed regulatory environment."

The exact format of the trading systems is unclear. The SEC says 85 alternative trading systems are operating. They have come to prominence in recent years, including so-called "dark pools" that match buyers with sellers and only provide data once the transaction is complete.

The other Wilmington trading system will cater to large international companies that want a U.S. listing without the costs and regulatory burdens of being listed on NYSE or NASDAQ exchanges, according to the planning document.

Kelly would not elaborate about specific companies that may take part, and company executives did not respond to interview requests. County Executive Tom Gordon said he expects details to be provided to the council on Tuesday.

"They are going to bring down the heavy-weights to explain it and we don't want to step on their toes," he said.

Gordon said company officials noted rail connections to New York and Philadelphia as well as Delaware's corporate laws as reasons why they wish to locate in Wilmington. The company wants local government tied to the project because it helps attract foreign investors to help back the exchange, he said.

The language of the resolution authorizing the bond was still being reviewed on Friday, according to County Council Policy Director James Boyle.

Councilman George Smiley, chairman of the Finance Committee, said he will support the measure if the county isn't at risk, but wanted to hear more details before voting.

Councilman Penrose Hollins, who will present the resolution authorizing the bond, said the council has approved other bond partnerships with schools that do not put the county's credit at risk. The county will receive a half of one percent of the principal as a financing fee.

"We are in constant competition with other jurisdictions for job creation and this is a tool we can use that doesn't cost us anything. I can see why we would want to do it," Hollins said.

Grimaldi said the project will be a win for the state.

"If you are a small business, you know you can come to Delaware and raise money for your project," Grimaldi said. "You can't underestimate the potential of this thing."

Jeff Mordock, of The News Journal, contributed to this report.

Contact Xerxes Wilson at (302) 324-2787 or xwilson@delawareonline.com . Follow @Ber_Xerxes on Twitter.

Delaware Board of Trade Inc.

Advisory Board

Dick Grasso: Chairman of the New York Stock Exchange from 1995 to 2003. He was the first CEO to come from inside the exchange starting his career as a floor clerk in 1968. His departure from the exchange was marred by court inquiry into his $187.5 million compensation package. In 2008, a New York appeals court dismissed the claims against him.

Joseph Grano, Jr.: CEO and Chairman of Centurion Holdings, LLC in New York. He was previously the Chairman and CEO of UBS Financial Services overseeing the company's merger with PainWebber in 2000.

Chairman

John F. Wallace: Served on the Philadelphia Stock Exchange Board of Governors from 1984 until 2008 ascending to CEO until the exchange was acquired by NASDAQ in 2008. He currently serves as President of Philadelphia Financial Services LLC.

President and CEO

K. Richard Niehoff: Founded the Nasdaq Trading and Markets Division. He also served as an officer of the Cincinnati Stock Exchange rising to CEO before his departure in 1990. He is credited with pioneering the exchange's computer-based trading system, one of the first of its time.

Senior management

Dennis J. Toner: Served as an aide to Joe Biden as a U.S. senator from Delaware and as vice president. Toner, of Rehoboth Beach, is a University of Delaware graduate and was also on the board of the U.S. Postal Service from 2010 to 2012.

Pike Powers: Head of Austin, Texas, office of the Fulbright & Jaworski LLP law firm for 28 years. He also led the Texas Technology Initiative and is credited for attracting major computing technology companies to Texas helping spur Ausitn's techonology boom.