What Impact Will the Three New US Equities Exchanges Have on the Trading Landscape?

What Impact Will the Three New US Equities Exchanges Have on the Trading Landscape?

September 30th, 2020 - Financial, Global Connectivity

By Jeff Mezger, Director of Product Management, TNS

In such uncertain times, when global stock exchanges have experienced unprecedented trading volumes and intense volatility, three new US equities exchanges have emerged. With the intent to shake up the status quo and promote competition with the incumbent US stock exchanges.

The three new equity exchange entrants MIAX PEARL Equities (MIAX), The Long-Term Stock Exchange (LTSE) and Members Exchange (MEMX) have all launched this fall, each with their own unique methodology, but will their approaches facilitate long term sustainability or will they be gobbled up by the big three?

First to launch, LTSE’s offers a simple market model that will appeal to investors who share a long-term vision. The Silicon Valley based start-up is concerned by the way that current equities stock exchanges operate, viewing them as too short sighted. Companies listed on the LTSE exchange will be required to publish a series of policies that focus on long term value creation.

MEMX is a new equities exchange owned entirely by its founding members, which includes some of America’s largest banks and online brokers. It plans to lower exchange trading fees by leveraging modern technologies. MEMX has designed its platform to reduce performance degradation, especially when handling heavy traffic. This architecture could lead to large market data volumes.

MIAX is last to the starting gate and currently operates three U.S. based options exchanges and has partnered with several industry-leading liquidity providers and market makers. MIAX has targeted the cash equities space and strives to become the transparent, low-cost venue with competitive pricing that many firms have long sought.

These new launches bring the total of US stock exchanges to 16 and I’m of the belief that rivalry among exchanges benefits everyone in the industry. This extra competition could have the desired effect of driving change and creating value among the 13 incumbent US stock exchanges. Hopefully this competition will be the driving force needed to drive down fees. At TNS, we have seen huge interest in these new exchanges and we now have live connections in place to all three at their primary and disaster recovery (DR) locations.

Traders have raised concerns for a long time that exchanges are able to exert monopoly pricing control as a result of Reg NMS requirements. All three new exchanges have voiced the same opinion that the fees charged by existing exchanges are too high, from market data fees to connectivity fees, and they promise to be more competitive.

Only time will tell what impact they will have on the market and whether they are able to carve out a solid future of their own. 2020 has seen a resurgence of exchange consolidation activities for traders to wrestle with across Europe (see my previous blog Outsourcing Helps Traders Overcome Mounting Exchange Consolidation Challenges) so perhaps consolidation activity in the US will ignite in the next six months as these exchanges settle in.

In the interim, traders would be wise to use a single-source provider, like TNS, to overcome the added complexity of obtaining market data from these new exchanges. We provide turnkey hosting solutions that deliver everything from hardware and project management through to system installation and testing. Combine this with the ultra-low latency of Layer 1 and our ability to offer up to 4 terabit fiber bandwidth between the exchanges we truly are one of the leading infrastructure-as-a-service partners for US equities traders. Global market data, high touch local support and lower cost of ownership than DIY models, creates a compelling proposition that also helps simplify compliance with Reg NMS requirements.

The next 12 months will be an exciting time as we watch how the markets fare with the added competition of the three new exchanges, coupled with the unpredictability that COVID-19 is bringing to the market. The traders that demonstrate the most flexibility and responsiveness will stand to gain the most from whichever direction the US equities market takes.

Jeff Mezger is Director of Product Management at TNS with responsibility for its managed services for the financial industry. He oversees product development and strategy for market data, online and data center services.

 

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