New Stock Exchanges on the Block
The Members Exchange (MEMX) is making noise on Wall Street. Begun as a disruptor to the “big three” exchanges, it expects to move its first share in July, and everyone’s got something to say about it!
After you press the buy or sell button, your broker talks to a ‘market maker’ like Citadel Securities or Virtu. The market maker then talks to one of three leading stock exchanges, making sure your trade is facilitated efficiently.
Those exchanges are the real power brokers, the Intercontinental Exchange (ICE), which owns the New York Stock Exchange (NYSE), the CBOE, and the Nasdaq. They sit atop of this funnel with almost no competition, greedy, powerful, and even willing to sue their regulator for regulating them. Wall Street has had enough.
Along with nine banks, major broker-dealers and market makers are kick-starting a new, transparent competitor called MEMX. The Member’s Exchange is set to offer lower prices to the industry, which could be passed down to millions of investors in cheaper per-trade commissions.
And it’s also worth mentioning Silicon Valley’s shot at this, the Long-Term Stock Exchange (LTSE) founded by lean start-up guru, Eric Ries. If a company goes public there, it reports more than just revenue and profit every quarter. It reports on its “intrapreneurship” efforts, and it gets to see who owns its stock (which is deliberately more expensive in commisions fees to discourage day trading).
Some have thrown shade on Eric Ries for starting a “we’ll pay you back later” stock index that’s likely to be full of unprofitable companies with big promises. However, one thing it does have is approval from the Securities and Exchange Commission (SEC). MEMX is still waiting, and it also needs to coax over the companies that investors actually want to trade!
MEMX will have to prove that it’s not just creating “fragmentation for fragmentation’s sake,” as claimed by the CBOE. It needs to provide extra amenities to companies that help them interact with their shareholders. It needs to command some “prestige,” with college graduates salivating over the NYSE’s constituents, and it also needs to attract order flow. Unless the exchange pulls liquidity from the entrenched “big three,” it’s dead in the water!
The savings benefits of the Members Exchange would trickle down to investors automatically. There’s no need to worry about manually reshuffling your portfolio. Don’t be surprised if the MEMX receives SEC approval sooner rather than later, and keep an eye on blue-chip approval, too. Shares in ICE and the Nasdaq fell 2% when the Member’s Exchange was announced. Imagine how much further these stocks could drop if some big names decide to list where there’s greener grass!
