JPM JP Morgan Chase and Co

By Alexander Osipovich 

Goldman Sachs Group Inc. and JPMorgan Chase & Co. agreed to back a new low-cost stock exchange that plans to launch this summer to challenge the New York Stock Exchange and Nasdaq Inc.

The two banks, along with high-speed trading firm Jane Street Capital LLC, led a new round of funding for Members Exchange, or MEMX, the startup exchange said in a news release Thursday.

Goldman's and JPMorgan's investment provides an additional boost to MEMX from two of Wall Street's most prominent institutions. MEMX, which unveiled its plans in January 2019, already had the backing of nine financial heavyweights, including banks, retail brokers and electronic trading firms.

MEMX was created after years of frustration among brokers and traders with the fees charged by the big U.S. exchange groups, particularly for market-data feeds that many financial firms regard as essential for their business. MEMX's backers have expressed hope that by charging rock-bottom fees, the new exchange will pressure the incumbents to keep their own fees low.

"We've been quite vocal about the rising cost of data," Jason Sippel, global head of equities and prime services at JPMorgan, said in an interview. "Lowering data costs will benefit all of our clients."

About 60% of U.S. stock-trading volume takes place on exchanges run by three companies: NYSE, owned by Intercontinental Exchange Inc.; Nasdaq; and Cboe Global Markets Inc., the country's No. 3 stock-exchange group by market share.

Brokers and trading firms say the big three exchange groups behave in an oligopolistic fashion and charge too much for services such as market-data feeds. NYSE, Nasdaq and Cboe reject such criticisms and say their fees are reasonable.

Electronic-trading giants Virtu Financial Inc. and Citadel Securities, which together trade about 40% of the shares that change hands in the U.S. stock market, are both in MEMX's founding consortium. They are expected to support MEMX by quoting prices and executing trades at the new exchange.

MEMX's other investors are Bank of America Corp., Charles Schwab Corp., E*Trade Financial Corp., Fidelity Investments, Morgan Stanley, TD Ameritrade Holding Corp. and UBS Group AG.

In an interview, MEMX Chief Executive Jonathan Kellner declined to say how much money the startup exchange had raised in the new funding round. MEMX, which is based in Jersey City, N.J., raised $70 million in its initial funding round last year.

MEMX said in Thursday's news release that its marketplace would go live on July 24, pending regulatory approval from the Securities and Exchange Commission.

NYSE has criticized MEMX's application to register as an exchange. In a Jan. 15 letter to the SEC, the Big Board warned that MEMX's owners could glean unfair advantages over rival market participants through access to the new exchange's trading data.

"NYSE Group believes that this apparent unfettered access to the records and facilities of MEMX by [members of the consortium]...could pose significant conflicts of interest," the Big Board said in its letter.

Last week, MEMX responded in a letter to the SEC that NYSE's conclusions were wrong. It said that confidentiality provisions in MEMX's governance documents would ensure that only authorized people, such as MEMX's in-house market regulators, would have access to sensitive trading data.

MEMX's name harks back to the era when stock exchanges were nonprofit cooperatives owned by their "members," which were generally brokerage firms that traded at the exchanges.

U.S. exchanges converted into investor-owned, for-profit companies starting in the 2000s. Since that shift, tensions have grown between brokers and exchanges, largely because of the cost of data feeds and related services that the exchanges sell to their customers.

Write to Alexander Osipovich at alexander.osipovich@dowjones.com

(END) Dow Jones Newswires

February 20, 2020 08:14 ET (13:14 GMT)

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