[ M A R K E T
R E V I E W
Alasdair Haynes, a veteran
exchange executive who has first-
hand experience of challenging
incumbent exchanges as a leader of
Chi-X and, more recently, founder
of Aquis Exchange with its unique
subscription-based pricing model,
believes that MEMX must make its
mission clearer.
“There needs to be a good reason
for setting up a new exchange,”
Haynes explains. “You have to
be able to offer something that is
substantially different and better
than the status quo. Just doing the
same thing for a lower price isn’t
necessarily going to be enough to
get people to switch.
“We simply don’t know yet what
MEMX plans to do that’s original.
So far they have only talked about
offering lower fees and that won’t
be a paradigm shift like Chi-X was
with fast pan-European trading, or
Aquis with subscription pricing.”
Haynes added that the only
realistic way for MEMX to get to
market quickly and to be genuinely
low-cost is to bring in an efficient
and independent technology pro-
vider. If it takes the in-house route
the consortium risks being subject
to internal politics, while buying
its technology from a rival such
as Nasdaq could see the venture
become a non-starter. Projects like
MEMX also have a bad reputation,
in that they are notorious for being
expensive to run and slow to make
progress.
“There is a long history of groups
of rivals forming consortia to
launch ventures for the ‘good of
the market’. These don’t often
succeed as the constituent firms
continue to be rivals in every
other aspect of their business and
don’t easily adapt to co-operative
mode,” said Haynes. “Also, in the
case of MEMX, many of the firms
52 // TheTrade // Spring 2019
|
E X C H A N G E S ]
have strongly contrasting ways of
trading and finding a formula that
will suit all the participants won’t
be easy.”
Potential success
Despite the challenges ahead,
many in the industry are relatively
bullish on MEMX’s future success
considering the reach and market
share that the founding members
have.
Aite Group’s Mindlin said that he
believes MEMX has a good chance
of winning market share from the
likes of NYSE, Nasdaq and Cboe.
The consortium-owned exchange
is largely being led by Virtu Finan-
cial and Citadel Securities, which
together hold around 40% of order
flow in US markets.
“He who controls the market’s
liquidity controls the market,”
Mindlin said. “With the members
retail wholesalers, four of the larg-
est online brokerages, three of the
largest retail warehouses, and three
of the largest institutional brokers.
Or, in other words, you have firms
that quote, firms that execute for
retail and institutional firms, and
the major retail brokers them-
selves, Tabb told The TRADE.
“It’s a very impressive line-up
of firms, but that said, unless you
can post very aggressive quotes, it
becomes difficult to send market
orders to an exchange,” Tabb said.
“You can’t send an order to an
exchange that can’t give you best
execution, so you need to create
a conducive environment to post,
and then the liquidity takers will
appear.
“Once you get the order flow,
then it creates competition for the
other exchanges to better their
pricing and trading environment.
“It’s a very impressive line-up of firms, but that
said, unless you can post very aggressive quotes,
it becomes difficult to send market orders to an
exchange.”
LARRY TABB, CHAIRMAN, TABB GROUP
as owners of MEMX, the exchange
should be able to build the market
and fee structures in their image.
On the surface, it seems like the
owners are in good positions: Start
a new exchange, route your order
flow to it; maybe you exit, and
maybe you don’t.”
Larry Tabb, Tabb Group’s re-
search chairman and founder, also
believes MEMX has a good proba-
bility of success, but warns that it
isn’t a ‘slam dunk’.
The founding members include
two of the largest proprietary
market makers, three of the largest
So will this be easy? No, but it
certainly is doable and fairly likely
given the firms involved and the
orders that they execute.”
Others in the industry believe
that MEMX could be a ploy or
bluff to bring the fight on market
data and access to the exchanges.
But some say that regardless of
this, and if successful, MEMX
could have a positive impact on
markets in terms of the battle for
lower costs.
Liquidnet’s global head of market
structure, Adam Sussman, wrote in
a blog post that the argument the