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Members Exchange Set to Open But is it Needed?
Traders Magazine Online News, January 8, 2019
With the New Year upon the equities market, there will also be a new equities marketplace.
Members Exchange, or MEMX, has been announced by a consortium of nine financial services firms, including retail-focused powerhouses Fidelity, Charles Schwab and TD Ameritrade. The U.S.-based MEMX will be owned entirely by its founders: Bank of America Merrill Lynch, Charles Schwab, Citadel Securities, E*TRADE, Fidelity Investments, Morgan Stanley, TD Ameritrade, UBS and Virtu Financial.
"The founding members of MEMX represent leading retail brokers, global banks and financial service firms, and market makers – a diverse array of market participants organizing for the common goal of improving markets for retail and institutional investors," said Douglas Cifu, CEO of Virtu Financial, in a released comment. "The launching of MEMX is a testament to the market-wide demand for competition, innovation, and transparency."
The new exchange looks to crack into a market already dominated by the U.S.: Intercontinental Exchange (ICE), Nasdaq and CBOE as well as IEX.
MEMX will file for SEC approval in early 2019, the press release said.
In a statement, Members Exchange said its goals include lowering costs, increasing competition, boosting transparency and simplifying the trading process. In its announcement, MEMX said it will offer a “simple” trading model and a “low-cost” fee structure.
But does the equities market need yet another exchange?
In this era of fragmentation, internalization, off board trading and dark pools totaling over 40 venues in which to trade, can MEMX add something to the current market structure?
Aite Group capital markets analyst Spencer Mindlin recounted that over the past 20 years the market has been through two major arcs of modern market fragmentation and consolidation in the U.S. exchange industry. Demutualization kicked it off by thrusting exchanges at odds with their members. The first round was fought in the late 1990s and early 2000s, and pitted ECNs with electronic markets like Island against the incumbent exchanges.
Then, in the mid- to late-2000s, BATS and DirectEdge gained significant market share by offering market models that catered to the next generation of market makers, high frequency trading firms. Each time a new entrant was successful, it was in part because its interests were in line with their members and also because they had members represented in their cap table. The market has now consolidated itself down to three major exchange groups, with one independent exchange and a load of ATS and dark pools, all competing for market share.
So, is it déjà vu all over again?
Given the IEX exchange application approval, the introduction of a new exchange application should be no surprise. Faced with declining trading revenues and increased competition, exchanges have turned to price gouging the costs of data and technology.
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