Intercontinental Exchange (ICE), owner of 12 regulated exchanges and marketplaces, including the New York Stock Exchange, and founder of Bakkt, the upcoming cryptocurrency ecosystem, is facing a formidable group of leading retail broker-dealers, banks, financial services firms and global market makers that are planning to launch an equities exchange. Members Exchange (MEMX), which is scheduled to launch in 2019, will compete directly with ICE. Its nine members include Bank of America Merrill Lynch, Charles Schwab, Citadel Securities, E*TRADE, Fidelity Investments, Morgan Stanley, TD Ameritrade, UBS and Virtu Financial.
MEMX aims to increase competition, improve operational transparency and lower costs – while wresting power away from ICE.
Clash of the Titans
Wall Street insiders claim major frustrations with the existing power structure have been mounting for years. Alleged monopolistic tendencies have allowed the dominant exchanges to charge high fees for trades as well as vital data feeds that track stocks.
Increased competition among exchanges is expected to relieve the pain.
Vlad Khandros, global head of market structure and liquidity strategy at UBS, told CNN Business,
“The level of frustration was just so high for many of us that we had to do something more proactive for us and our clients. There’s this massive burden on us and our clients.”
The pressure for Wall Street institutions to remain lean and competitive is in overdrive. Buzzwords such as “low to zero-fee trades” are increasingly popular thanks to fintech startups like Robinhood. “Transparency” is another big buzzword that has gained traction, thanks to blockchain tech and cryptocurrencies. For traditional operations cloaked in secrecy, flashlights are burning.
The scrutiny has created Wall Street’s latest existential crisis – eroding confidence in its aging infrastructure and business models. In the face of rapid technological change, legacy companies are trying to figure out how to adapt by making transactions faster, cheaper and more transparent.
Enter Bakkt.
The new platform has just raised $182 million in its first round of funding.
It’s a pivot for ICE, parent company of the New York Stock Exchange. As competitors pile on in the equities market, targeting its bread and butter, ICE is expanding into cryptocurrencies. Assuming the Bakkt’s architects can satisfy regulators, the platform will launch in the near future, with alternative digital assets generating enough trading volatility for big profits.
Global interest in cryptocurrencies turned Malta-based exchange Binance into a billion-dollar company within a single year of its launch in July 2017, and made Hong Kong-based exchange BitMEX the global leader in crypto derivatives.
Rebalancing Power
While developing an entirely new business in the cryptocurrency markets, ICE will have to keep its eye on a vastly changing stock exchange landscape, as its competitors promise a battle on all fronts.
The new exchange, which will be owned entirely by its founding members, is targeting retail and institutional investors alike.
Steve Quirk, executive vice president of trading & education at TD Ameritrade, says,
“As a founding member of MEMX, we look forward to being part of an initiative we believe will transform markets for the better. 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.”
Despite the consortium’s efforts to rewrite the balance of power on Wall Street, Brad Katsuyama, CEO and co-founder of equities exchange IEX, questions the validity of a new exchange that’s being owned and operated by leading retail broker-dealers and banks.
After founding IEX in 2012, which launched as a national securities exchange in September 2016, Katsuyama has been challenging the status quo of high-frequency traders ever since. Instead of disrupting their advantages, MEMX appears to concentrate the existing power structure in yet another small set of highly influential hands.
Katsuyama said in a statement,
“This is the latest affirmation that the exchange business is rife with conflicts of interest and market participants can no longer tolerate the abuses of power.”
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