New entrants to heat up US stock exchange competition

September 20, 2019 11:20
Traders work on the floor of the New York Stock Exchange. The entry of new exchanges may lower trading costs as the upstarts try to take business from the incumbents. Photo: Reuters

At least three new US stock exchanges are expected in 2020, potentially lowering trading costs as the upstarts try to take business from the incumbents, while also adding complexity to the marketplace, Reuters reports.

There are currently 13 US stock exchanges, 12 of which are run by Intercontinental Exchange Inc.’s NYSE, Nasdaq Inc. and Cboe Global Markets. IEX Group runs the only independent exchange.

“I could see us getting to 20-plus,” Bryan Harkins, co-head of markets at Cboe, said of the potential for new exchanges, at a Securities Industry and Financial Markets Association conference on Thursday.

Next year, launches are planned for the Members Exchange, a new bourse backed by a group of large financial firms; a stock exchange run by options exchange operator Miami International Holdings that says it will eventually list companies from Latin America; and the Long Term Stock Exchange, a Silicon Valley-based startup aimed at promoting long-term growth ahead of short-term profits for the companies it lists.

The increased competition comes as NYSE, Nasdaq and Cboe sue the US Securities and Exchange Commission to prevent an experiment mandated by the regulator to test lowering exchange fees and curtailing payments to brokers for orders.

It also comes amid an intense debate between the large exchange operators and their customers over fees for things like market data and connectivity.

“We’re going to start out 40 percent cheaper than the lowest cost operator today,” said Thomas Gallagher, chief executive officer of Miami International Holdings. He said his exchange will launch in the second or third quarter next year.

The Members Exchange, which aims to go live in mid-2020 and is backed by financial heavyweights including Virtu Financial Inc., Morgan Stanley and TD Ameritrade, will also have lower fees while also giving its members a bigger voice in the fee debate, said chief executive Jonathan Kellner.

LTSE chief executive Zoran Perkov said his exchange will launch “soon”.

New exchanges can add value to the market, but also add complexity and may make illiquid stocks harder to trade, said Tal Cohen, head of Nasdaq’s North American market services.

MIAX’s Gallagher pointed to his firm’s success in the options market, where it has gained around 10 percent market share, opening three options exchanges in less than seven years.

“When you make a movie that does well, you do it again and you do it again and you do it again,” he said.

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