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Wall Street's biggest traders launching exchange to take on NYSE, Nasdaq, Cboe


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Wall Street's biggest traders launching exchange to take on NYSE, Nasdaq, Cboe

Wall Street's biggest traders are banding together to create a new stock exchange designed as a low-cost alternative to the New York Stock Exchange, Nasdaq Inc. and Cboe Global Markets Inc.

On Jan. 7, nine trading companies, retail broker/dealers and financial services companies — including Virtu Financial Inc., Charles Schwab Corp. and Morgan Stanley — unveiled plans for the Members Exchange, or MEMX. The companies plan to apply for a national securities exchange license with the SEC in early 2019.

The member-owned exchange will signal a throwback in the trading community, if approved. Until the early 2000s, stock exchanges were primarily owned and operated by the companies that facilitated trading on the venues. But major U.S. exchanges have since ditched that model in favor of becoming publicly traded entities that operate a variety of businesses outside of trading.

The major exchange operators have come under fire from Wall Street in recent years, potentially paving the way for MEMX. The trading community, as well as some regulators, have become increasingly skeptical about exchange-sold products such as market data feeds and connectivity services, which they say are unnecessarily costly and can create a burden of entry for smaller market participants.

MEMX will look to simplify U.S. equity trading through a model centered on "basic order types, the latest technology and a simple, low-cost fee structure," the exchanges' nine owners said in a press release.

The process of becoming and building up a national securities exchange may be a long and difficult path for MEMX, though.

IEX Group Inc. faced stark opposition from the major U.S. exchanges when it applied to become a national securities exchange in 2015. Since its approval in June 2016, IEX has expanded its market share from 1.6% to 2.5%, which still represents a fraction of the shares held by the Intercontinental Exchange Inc.-owned New York Stock Exchange, Nasdaq and Cboe. CME Group Inc.

MEMX will be entirely owned by the nine companies, which also includes Bank of America Merrill Lynch, Citadel Securities LLC, E*TRADE Financial Corp., Fidelity Investments, TD Ameritrade Holding Corp.and UBS Group AG.