A stock exchange for art

If Yassir Benjelloun-Touimi has his way, soon you'll be able to short Picassos and Modiglianis — or even a broad index of masterworks, each worth more than $50 million.

Why it matters: The art market has been characterized for centuries by its opacity and illiquidity. A new Liechtenstein-based stock exchange, Artex, hopes to change all that.

Driving the news: The exchange's first listing, a triptych by Francis Bacon, is now being offered for sale, with the final pricing set for February 29 (lucky!) and trading set to begin on March 8.

• The expected valuation is $55 million, slightly higher than the $51.7 million for which the work sold at Christie's in 2017.

What's next: After the Bacon comes to market, Artex intends to list another 10 artworks this year, per Benjelloun-Touimi, and eventually one every other week. At some point they will all be able to be aggregated into a single ETF.

• The costs of insuring and lending the artworks will be borne by Artex, which will charge a 3% listing fee, and then a 0.19% fee every time a share is traded.
• Artex has a market-maker lined up, Benjelloun-Touimi tells Axios, who's charged with ensuring a continuous bid-ask spread of no more than 0.1%.

How it works: The artworks can remain on the exchange in perpetuity, or anybody can make a takeover bid at any time, so long as the bid is at least 20% greater than the average trading price over the previous 20 days.

• At that point an auction process is triggered, and the piece ends up selling to the highest bidder. Shareholders then get paid out their share of the proceeds.

Reality check: Artex faces three big obstacles.

1. Inventory: It needs a pretty steady stream of sellers looking to sell their $50 million-plus paintings. Those sellers aren't easy to find, and they tend to be assiduously cultivated both by auction houses and private dealers. Breaking in to that world won't be easy.
2. Demand: Artex also needs a broad base of investors who are willing to buy a stock that pays no dividend and might never be acquired. Such outré investments tend to be sold rather than bought — and it remains to be seen whether Artex's relationships with Europe's private banks will be enough to drum up sufficient interest.
3. Liquidity: Artex needs its stocks to be reasonably actively traded — in the context of an art world rife with secrecy and inside information, where the probability is reasonably high that your counterparty knows something you don't. How many people will want to play that game?

The bottom line: Benjelloun-Touimi helped build the credit platform ITRAXX, when he worked for BNP Paribas, and has the financial nous to make this work. Still, a lot of stars are going to have to align in order for Artex to be a success.