Wall Street Firms Plan Exchange to Challenge NYSE, Nasdaq
Par Alexander Osipovich | The Wall Street Journal
Morgan Stanley, Fidelity and Citadel Securities among backers of new 'Members Exchange'
A launch would inject new competition into the heavily concentrated stock-exchange business.
A group of financial heavyweights including Morgan Stanley, Fidelity Investments and Citadel Securities LLC plans to launch a new low-cost stock exchange to challenge the New York Stock Exchange and Nasdaq Inc., the companies said.
The creation of the new venue, called Members Exchange or MEMX, comes after years of frustration among Wall Street brokers and traders with the fees charged by U.S. stock exchanges.
MEMX will be controlled by the nine banks, brokerages and high-frequency trading firms funding it, according to a news release.
Such an arrangement harks back to the era when exchanges were owned by their members, typically stockbrokers.
A 12 months or longer process. MEMX investors also include investment banks Bank of America Merrill Lynch and UBS Group AG, high-speed trader Virtu Financial Inc. and retail brokers Charles Schwab Corp., E*Trade Financial Corp. and TD Ameritrade Holding Corp., according to the news release.
New York-based MEMX made its plans public on Monday. Representatives of the investor group said they would seek to apply for exchange status with the Securities and Exchange Commission early this year.
SEC approval for a new exchange is a drawn-out process that can take 12 months or longer, meaning it may be 2020 or later before MEMX is up and running.
Today, all but one of the 13 active U.S. stock exchanges is owned by three corporations: NYSE parent Intercontinental Exchange Inc., known as ICE for short, Nasdaq and Cboe Global Markets Inc. Between them they handle more than three-fifths of U.S. equities trading volume.
Shares of ICE sank 3% on Monday, while the broader S&P 500 index rose 0.7%. Nasdaq and Cboe fell 2.6% and 1.8%, respectively.
Nasdaq spokesman Joe Christinat said his company welcomes competition. "However, with dozens of trading venues already in operation in the U.S., we're keen to learn more about the value proposition," he added.
Bryan Harkins, co-head of the markets division at Cboe, said in an emailed statement that "healthy competition ups the game for all of us and we welcome new entrants into the space."
The NYSE welcomes "additional voices" in advocating for positive changes to U.S. equity market structure, a company spokeswoman said.
Despite its prominent backers, there is no guarantee that MEMX will succeed. New exchanges often struggle to attract trading activity away from established markets. IEX Group Inc., a startup that was founded in 2012 and now runs the only independent exchange not owned by the big three, handles 2.5% of U.S. equities trading volume.
The MEMX initiative shows that "market participants can no longer tolerate the abuses of power" of the exchange business, IEX Chief Executive Brad Katsuyama said in an emailed statement.
Raising fees. But brokers looking to save costs could be drawn to MEMX's low fees. ICE, Nasdaq and Cboe have faced criticism for raising fees for services such as the data feeds that brokers use to monitor moves in stock prices. The three big exchange groups say their prices are fair.
"We think with the right team we could run an exchange at a fraction of the cost of what the incumbents are offering," said Virtu Chief Executive Officer Douglas Cifu. MEMX hasn't yet said how much its fees will be.
The involvement of Citadel Securities and Virtu could benefit the project if they become big buyers and sellers of shares on MEMX. The firms are the country's two biggest stock traders, each handling around 20% of U.S. equities volume.
However, their involvement could also prompt some skepticism because many investors still view high-speed traders warily.
Critics such as "Flash Boys" author Michael Lewis have accused ultrafast traders of exploiting ordinary investors. The firms reject these allegations.
Jamil Nazarali, global head of business development for Citadel Securities, said MEMX's design would ensure it represents a broad cross-section of the stock market, from individual investors to banks to electronic traders. "A lot of past exchange startups focused on one group of participants or another," he said. "This exchange is for everyone."
MEMX raised $70 million in its initial funding round and expects to bring other investors on board later, people involved in the project said.
The announcement comes when the big three exchange groups are facing increased scrutiny from regulators.
In September, a Democratic commissioner at the SEC, Robert J. Jackson Jr., said in a speech that "the SEC has stood on the sidelines while enormous market power has become concentrated in just a few players." In October, the SEC ruled against NYSE and Nasdaq in a long-running dispute over data fees, in a decision that may restrain exchanges' ability to keep increasing such fees in the future. NYSE and Nasdaq are appealing the decision in federal court.
Despite being member-owned, MEMX will still be a for-profit company. Exchanges throughout much of the 20th century were nonprofit organizations.
U.S. stock exchanges abandoned their old model starting in the 1990s.
The NYSE, which traces its history to a pact signed by two dozen stockbrokers in 1792, only converted into a publicly traded, for-profit corporation in 2006.
Mots clés: New York Stock ExchangeDow JonesNasdaqBourseEtats-Unis (USA)