01.23.2018
By John D'Antona

Aite Comments on NYSE’s New Trading-Only Exchange

Another trading day, another trading exchange…

That might be the case in the cryptocurrency markets but not so much the developed and mature U.S. equities market. Nevertheless, last week the New York Stock Exchange parent Intercontinental Exchange Inc (ICE) announced its plans to launch its fourth U.S. stock market, the NYSE National, in the second quarter, according to a recent regulatory filing.

NYSE National will be the 13th U.S. stock exchange and will differ from the NYSE, NYSE Arca, and NYSE American in that it will only be a trading venue and not a listing market, NYSE said in the Jan. 12 filing with the U.S. Securities and Exchange Commission.

But why add yet another exchange? Is it a grab for more market share? Or could it be that the exchange operator is looking to sell users more data and thus boost revenues from this lucrative business?

The NYSE has said it would seek input from the trading industry before finalizing operational plans for NYSE National’s launch.

In a recent conversation with Traders Magazine, Spencer Mindlin of Aite shared his thoughts with Editor John D’Antona Jr. on this new exchange and what NYSE hopes to achieve.

Traders Magazine: NYSE claims this will be a trading-only venue. But does the market need yet another exchange?

Spencer Mindlin: NYSE has not yet published its details about how NYSE National is going to differentiate from the other three exchanges — only the rule filings have been made public. For sure, the market doesn’t need another undifferentiated exchange and there’s been a general lull in exchange innovation. The exchanges and regulations have generally approached matching with a one-size-fits-all approach. But not all stocks trade the same and have the same liquidity profile. And not all investors trade the same way yet. So if a new exchange will deliver meaningful choice and improvements to market structure, I think that’s a good thing.

Spencer Mindlin, Aite

Traders Magazine: Why open a trading-only venue?

Mindlin:  It’s too early to say, but it might signal that this exchange may be used to introduce innovation to the trading process.

 

Traders Magazine: Given the commoditization of trading, one would’ve thought the real money would be in providing data or getting more listings?

Mindlin: ICE/NYSE has a fairly diversified revenue model and they’ve very much complimentary.  An additional exchange may result in more revenue from customers in need of the data from and access to that exchange. NYSE may utilize this venue to attract new types of traders or get creative by segmenting apart certain types of trading that is currently happening on the same exchange.

 

Traders Magazine: Does this new exchange signal that we back to moving towards fragmented marketplace? Or can we expect mergers to continue in the wake of Cboe and Bats?

Mindlin: Exchanges are generally a scale business. While I think it’s unlikely to see more fragmentation, if new exchange entrants emerge, I think more M&A is an inevitability.

 

 

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