A group of top financial institutions are planning to launch a new, low-cost stock exchange in a bid to compete against industry heavyweights like the New York Stock Exchange and Nasdaq, firms that are facing increasing scrutiny from the Trump administration.
Among the coalition of nine companies involved in the creation of the Members Exchange, or MEMX, are Bank of America Merrill Lynch, Charles Schwab, Citadel Securities, E-Trade, and Morgan Stanley. The group’s mission is to “increase competition, improve operational transparency, further reduce fixed costs, and simplify the execution of equity trading in the U.S.,” they said in a statement.
“All types of investors could benefit from this simplified investing experience that will foster competition and promote practices that put the needs of investors first,” said Steve Quirk, executive vice president at TD Ameritrade, another founding member of MEMX.
MEMX plans to file for federal approval with the Securities and Exchange Commission in early 2019, a process that can take several months. The group has had initial conversations with senior members of the agency, but representatives declined to say if they’ve spoken directly with Chairman Jay Clayton.
The bulk of the ownership of the 13 stock exchanges in operation today is divided among three entities: the Intercontinental Exchange, or ICE; Nasdaq; and Cboe Global Markets Inc. MEMX representatives declined to rule out the possibility of an eventual sale to one of the larger exchanges, but they noted there were a number of possible options for the future of the new entity, including going public in the U.S.
The existing structure has faced criticism from federal officials, including from Democratic SEC Commissioner Robert Jackson, who recently said the agency has “stood on the sidelines while enormous market power has become concentrated in just a few players.”
“That’s how the stock exchanges that are a symbol of American capitalism have developed puzzling practices that look nothing like the competitive marketplaces investors deserve,” he said in a September speech.
The SEC in October ordered the NYSE and ICE to justify nearly 400 hikes in the cost they charge brokerage firms to access quicker and more detailed stock price data, information that can give those companies an edge over smaller investors and a key profit driver for the exchanges.
The move came amid a push from Clayton to increase protections for mom and pop investors. The agency also launched a pilot program to examine the transaction fees that exchanges charge investment firms to place orders, as well as the rebates they provide to incentives purchases.
