Goldman, JPMorgan Back New Exchange Taking On NYSE and Nasdaq
February 20 2020 - 8:29AM
Dow Jones News
By Alexander Osipovich
Goldman Sachs Group Inc. and JPMorgan Chase & Co. agreed to
back a new low-cost stock exchange that plans to launch this summer
to challenge the New York Stock Exchange and Nasdaq Inc.
The two banks, along with high-speed trading firm Jane Street
Capital LLC, led a new round of funding for Members Exchange, or
MEMX, the startup exchange said in a news release Thursday.
Goldman's and JPMorgan's investment provides an additional boost
to MEMX from two of Wall Street's most prominent institutions.
MEMX, which unveiled its plans in January 2019, already had the
backing of nine financial heavyweights, including banks, retail
brokers and electronic trading firms.
MEMX was created after years of frustration among brokers and
traders with the fees charged by the big U.S. exchange groups,
particularly for market-data feeds that many financial firms regard
as essential for their business. MEMX's backers have expressed hope
that by charging rock-bottom fees, the new exchange will pressure
the incumbents to keep their own fees low.
"We've been quite vocal about the rising cost of data," Jason
Sippel, global head of equities and prime services at JPMorgan,
said in an interview. "Lowering data costs will benefit all of our
clients."
About 60% of U.S. stock-trading volume takes place on exchanges
run by three companies: NYSE, owned by Intercontinental Exchange
Inc.; Nasdaq; and Cboe Global Markets Inc., the country's No. 3
stock-exchange group by market share.
Brokers and trading firms say the big three exchange groups
behave in an oligopolistic fashion and charge too much for services
such as market-data feeds. NYSE, Nasdaq and Cboe reject such
criticisms and say their fees are reasonable.
Electronic-trading giants Virtu Financial Inc. and Citadel
Securities, which together trade about 40% of the shares that
change hands in the U.S. stock market, are both in MEMX's founding
consortium. They are expected to support MEMX by quoting prices and
executing trades at the new exchange.
MEMX's other investors are Bank of America Corp., Charles Schwab
Corp., E*Trade Financial Corp., Fidelity Investments, Morgan
Stanley, TD Ameritrade Holding Corp. and UBS Group AG.
In an interview, MEMX Chief Executive Jonathan Kellner declined
to say how much money the startup exchange had raised in the new
funding round. MEMX, which is based in Jersey City, N.J., raised
$70 million in its initial funding round last year.
MEMX said in Thursday's news release that its marketplace would
go live on July 24, pending regulatory approval from the Securities
and Exchange Commission.
NYSE has criticized MEMX's application to register as an
exchange. In a Jan. 15 letter to the SEC, the Big Board warned that
MEMX's owners could glean unfair advantages over rival market
participants through access to the new exchange's trading data.
"NYSE Group believes that this apparent unfettered access to the
records and facilities of MEMX by [members of the
consortium]...could pose significant conflicts of interest," the
Big Board said in its letter.
Last week, MEMX responded in a letter to the SEC that NYSE's
conclusions were wrong. It said that confidentiality provisions in
MEMX's governance documents would ensure that only authorized
people, such as MEMX's in-house market regulators, would have
access to sensitive trading data.
MEMX's name harks back to the era when stock exchanges were
nonprofit cooperatives owned by their "members," which were
generally brokerage firms that traded at the exchanges.
U.S. exchanges converted into investor-owned, for-profit
companies starting in the 2000s. Since that shift, tensions have
grown between brokers and exchanges, largely because of the cost of
data feeds and related services that the exchanges sell to their
customers.
Write to Alexander Osipovich at
alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
February 20, 2020 08:14 ET (13:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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