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Members Exchange Increases Early Volumes

As of Sept. 25, volumes at Members Exchange were about doubling every day since it launched on 21 September and 32 clients have traded.

MEMX became the fifteenth US equity exchange when it debuted with the trading of seven symbols. Jonathan Kellner, chief executive of MEMX took part in a webinar last week with Shane Swanson, senior analyst at consultancy Greenwich Associates.

Kellner said: “We are excited about progress.”

The chief executive said in a blog that MEMX’s first trade was executed at 7:48:43 AM, 100 shares of ED at $73.90.  On the first day  MEMX traded 60,957 shares on 857 executions with 25 firms executing trades.

Swanson said MEMX volumes had doubled each day since launch and volumes yesterday were around 80,000 shares for the seven symbols.

More than 40 clients had connected and 32 had traded ahead of all National Market System listings trading next week according to Kellner. He continued that the exchange wants to attract diverse liquidity providers and expects close to  50 clients to be connected shortly.

Kellner described the experience of going live during the Covid-19 pandemic as “challenging” due to some supply issues and integrating with vendors during the lockdown.

However, the exchange has been built in the cloud, hired experience personnel and staff already used communication technology such as Zoom and Slack.

“We have hired 30% of our staff since March 11 on Zoom,” added Kellner. “In the last month it has been harder to work remotely as people needed to go into data centres but the team has done incredibly well.”

The exchange had tested remote working on March 11 and since then staff worked from home as restrictions were put in place to combat the pandemic.

“You can do testing but there is nothing like real thing,” Kellner added. “In testing it is hard to run all the strategies together and see how interact with one another.”

MEMX was formed last year by a group of financial firms.

Kellner said the exchange did not believe the US equity market was broken, but needs more competition. He added: “Nearly all, 97% of exchange flow goes to three companies. There could also be more technological innovation and by building from scratch we can put pressure on other exchanges.”

He continued that the new exchange could also put pressure on market data and connectivity fees.

“The most important reason we were formed is for engagement,” Kellner added. “Our members desired to have a voice in market structure debate.”

This month MEMX unveiled its inaugural fee structure with no pricing tiers or charges for market data or connectivity. Members pay 25 cents per 100 shares to remove liquidity. Liquidity adders will be rebated 29 cents per 100 shares for displayed volume and 20 cents per 100 shares for non-displayed, including mid-point, volume.

“There is introductory aggressive pricing to attract flow,” said Kellner. “We will eventually move to normalized pricing and hope to retain share due to our technology and member experience as we were formed as a for-profit company.”

Jonathan Kellner, MEMX

He added that MEMX is not competing in the arms race to be the fastest exchange but is battling over determinism and consistency, while using technology to reduce costs. As result MEMX has a limited number of order types.

“We want to simplify the market and use technology to make it more efficient,” said Kellner. “We do not intend to increase the number of order types but we would never say never.”

Kellner continued that MEMX can be judged a success in three years time if the exchange has “meaningful” market share so members’ voices are  heard.

“We are competing in 45% of the market so success varies between 5% and a double digit share,” he added. “It is likely to be in the middle of the range and we do not have a time horizon. We are currently just trying to get to the end of the week.”

Exchange revenues

US exchanges are expected to have record equity-related revenues of $2.2bn (€1.9bn) this year, up 12.9% from 2019, according to new research by Burton-Taylor International Consulting, part of TP ICAP’s data & analytics division.

The study said net transaction fee revenues are projected to total $906m in 2020, an increase of 33.6% from 2019.

US equity exchange market data revenues from proprietary products and SIP shared tape revenues are projected to be 4% higher at $652.6m.

Andy Nybo, managing director at Burton-Taylor, said in a statement that the entrance of three new exchanges into the already crowded marketplace will have significant impacts on market structure and exchange economics.

“Although incumbent exchanges are well-positioned to fend off competitive threats posed by these new entrants, the new exchanges will have a considerable impact on equity market structure resulting in shifting market shares, greater structural complexity, and changes in industry governance practices,” he added.