Wall Street-Backed Exchange Launches as Rival to NYSE, Nasdaq
September 21 2020 - 9:58AM
Dow Jones News
By Alexander Osipovich
A new exchange backed by Wall Street banks, electronic-trading
firms and asset-management giant BlackRock Inc. launched Monday,
introducing a new, low-cost competitor to the New York Stock
Exchange and Nasdaq Inc.
Members Exchange, or MEMX, executed its first trade at 7:48 a.m.
ET, with 100 shares of Consolidated Edison Inc. changing hands for
$73.90 a share. Initially the exchange will handle trades in seven
stocks, including Alphabet Inc. and Exxon Mobil Corp. On Sept. 29,
MEMX plans to extend trading to all U.S. exchange-listed
securities.
Traders and analysts expect MEMX to be a formidable competitor
to the incumbent exchanges. The New Jersey-based startup has raised
more than $135 million from firms including Charles Schwab Corp.,
Citadel Securities, Goldman Sachs Group Inc. and Virtu Financial
Inc. Backers of MEMX are expected to direct some of their trading
activity to MEMX, helping it get off the ground.
"There hasn't been a launch of a new market in U.S. equities for
a long time that's had as good a chance of success," said Matthew
Andresen, founder of Headlands Technologies LLC, a trading firm
that isn't involved in the MEMX launch.
Nearly 60% of U.S. equities trading volume is handled by three
exchange groups: NYSE, owned by Intercontinental Exchange Inc.,
Nasdaq and Cboe Global Markets Inc.
The consortium behind MEMX came together after years of
frustration among banks and trading firms with the fees charged by
the major exchanges. Many Wall Street firms say the exchanges abuse
their dominant position in the marketplace to overcharge for market
data and other key services. The big three exchange operators say
their fees are reasonable and deny abusing their market power.
MEMX plans to undercut the big exchanges on price, initially
giving away its data.
New exchanges often fail because traders gravitate toward
markets where there are already many other participants to trade
with -- a powerful factor in favor of incumbents. MEMX hopes to
attract trading activity with a lavish promotional-pricing scheme.
Drawing on its cash hoard, it will pay out more in rebates than it
collects in transaction fees. Such a strategy means MEMX will lose
money, at least initially, as it tries to build a liquid
marketplace.
"We're prepared to be aggressive and lose money on every
transaction to get people to participate," MEMX Chief Executive
Jonathan Kellner said in an interview.
MEMX will also use new technology built from scratch to provide
a better trading platform than those offered by the established
exchanges, Mr. Kellner said. MEMX's tech team includes veterans of
Nasdaq and Virtu.
Initial discussions among MEMX's founding firms began more than
two years ago. Since then, it has brought on an array of investors
that reads like a who's who of Wall Street. Other backers include
Bank of America Corp., Citigroup Inc., E*Trade Financial Corp.,
Fidelity Investments, JPMorgan Chase & Co., Morgan Stanley, TD
Ameritrade Holding Corp., UBS Group AG, Wells Fargo & Co. and
high-tech trading firm Jane Street Group LLC.
Still, there's no guarantee MEMX will succeed. Incumbents like
NYSE and Nasdaq may respond with aggressive rebates and price
schemes of their own to avoid losing market share, said Shane
Swanson, senior analyst at research firm Greenwich Associates.
"It's a highly competitive environment," Mr. Swanson said. "The
other exchanges aren't going to just sit there."
MEMX's rollout comes amid a flurry of launches of new U.S. stock
exchanges.
These include the Long-Term Stock Exchange, which went live in
late August. LTSE, which is backed by an array of Silicon Valley
entrepreneurs and venture-capital firms, plans to list companies
that favor long-term strategic thinking over hitting short-term
financial targets.
On Friday, options-exchange operator Miami International
Holdings Inc. plans to kick off trading at its first U.S. stock
exchange, called MIAX Pearl Equities, which is being positioned as
a low-cost, tech-savvy competitor to the NYSE and Nasdaq.
Yet another startup, called Dream Exchange, plans to apply for
stock-exchange status with the Securities and Exchange Commission
next year, according to its founder and CEO, Joe Cecala. Dream
Exchange aspires to be a listing venue for early-stage companies,
with an emphasis on minority-owned businesses.
Write to Alexander Osipovich at
alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
September 21, 2020 09:43 ET (13:43 GMT)
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