Big US stock traders get SEC OK to start own exchange

Heavyweights backing Members Exchange, which include Morgan Stanley, hope the venture will reduce the cost of market data

Some of the biggest U.S. stock traders just got the green light to open their own exchange.

Members Exchange, which backed by equities heavyweights including Citadel Securities, Virtu Financial Inc. and Morgan Stanley, won approval from the Securities and Exchange Commission to open the new venue, MEMX said in a statement Tuesday.

While the approval is a key milestone, MEMX still faces challenges in building a technology-heavy business during a coronavirus pandemic that’s forced staff and clients to work remotely.

After scrapping its original July 24 launch date, MEMX still plans to start trading in the third quarter, Chief Executive Jonathan Kellner said last month. But that depends on industry conditions and the lifting of government stay-at-home orders.

“We’ve moving aggressively toward a 3Q launch,” Kellner said in an interview, without specifying a date. “We are continuing to focus on onboarding members, and our next big date is starting to get members to test” platforms later this quarter, he said.

The firm submitted its application to become a stock exchange to the SEC in October. It was created by investors who were frustrated with fees charged by major exchange operators, particularly for market data. The company’s board of investors, many of whom compete with one another, said they remain united behind it.

“MEMX is the right idea at the right time,” the investor board said in the statement. The company will bring “innovation and reduced costs to the U.S. equities market.”

The firm has grown to more than 40 people, including senior staff who previously worked at Nasdaq Inc., the New York Stock Exchange and Cboe Global Markets Inc. Those venues posted record revenue in the first quarter, with operations running smoothly even as market volatility and volumes surged.

“There’s a big need for what we’re doing,” Kellner said. “We still can bring competition to put pressure on fees” and represent members’ stances on equity-market structure issues, he said.