Although overshadowed by all things ESG and SPAC related, a new Wall Street backed national exchange, the Members Exchange (MEMX), launched in Q4 2020 with ambitions to rival the NYSE and Nasdaq. In the same month, the long-anticipated launch of the Silicon Valley backed Long-Term Stock Exchange (LTSE) came to fruition. The MEMX, founded as a lower cost alternative to Nasdaq and the NYSE, started small, initially only trading the securities of 7 large cap companies including Alphabet and Exxon Mobil, but has since opened to all exchange traded securities.
The MEMX was backed by Blackrock, Charles Schwab, Citadel, Goldman Sachs, Bank of America, JP Morgan, E-Trade and Virtu, among others. These financial giants invested over $135 million into the platform and as such, have a vested interest in its success. They also have the power to direct significant trading activity onto the MEMX, where others will likely follow. In the 6 months since it went live, the MEMX has already locked in over 1% of the U.S. market share.
Just as retail trading activity has been forced to reduce its fees with the likes of Robinhood and E-Trade offering low-cost electronic alternatives, Wall Street expects the exchanges to reduce fees for market data and other services and is apparently forcing the issue with competition. The MEMX plans to undercut the big exchanges on price, initially giving away its data. Going further, the MEMX will pay out rebates that exceed its transaction fees, forgoing early profits in hopes of building a liquid marketplace.
Founded in 2012 by Silicon Valley heavyweights, the LTSE launched for all companies in Q3 2020. The LTSE is designed to support a longer-term vision for listed companies. All listed companies are required to maintain a series of policies that are designed to provide shareholders and other stakeholders with insight into their long-term strategies, practices, plans and measures. Although the Exchange Act still requires quarterly reporting, the LTSE concentrates on yearly and multi-year performance.
The MEMX and LTSE are not the only new exchanges. Also in Q4 2020, the new Miami based options exchange, the MIAX Pearl Equities, kicked off. The MIAX is a low-cost platform marketing itself as a tech savvy competitor to the NYSE and Nasdaq.
Even though new exchanges are a rarity, those that have developed in the past often fail because it is simply very difficult to move volume and participation from the NYSE or Nasdaq. Simply put, traders want to trade where they have the most counter-party choices. Even the Cboe Global Markets, which owns and operates the former BATS markets and is the third largest U.S. exchange, concentrates on ETF’s and ETP’s, thereby creating a niche for itself. Although the BATS does route approximately 15% of the NYSE/Nasdaq equities trading, it is not an equities IPO competitor. Keep in mind that regardless of what exchange an equity is listed on, Regulation NMS requires best execution and a single market structure for all US securities (see HERE).
The timing could be right for new exchanges as we see huge market shifts and expectations moving away from traditional Wall Street. Investors are frustrated with the existing system and feel it is time for competition, technological innovation and more efficiency. The rise of FinTech-based trading platforms such as Robinhood, social media driven stock picks (Reddit and GameStop), the current focus on all things ESG and the enormous shift into digital currency (Bitcoin) investing, together with the fact that the new exchanges are backed by big players, signals that the street is open to more options.
Laura Anthony, Esq.
Anthony L.G., PLLC
A Corporate Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including siting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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