I am pleased to write about a significant milestone in our journey to make the Members Exchange (MEMX) a reality. Today, the SEC published the MEMX Form 1 application, including the proposed MEMX rulebook; the Form 1 application can be found on the SEC’s website.
Since announcing the formation of MEMX at the beginning of the year, we have been putting together a team of talented, experienced, and passionate capital markets professionals. We’ve talked with and listened to a comprehensive cross section of market participants to learn what’s important to the investing public. And we’ve spent a great deal of time developing a plan to reduce complexity, promote transparency, and deliver exciting technical innovation to create a better marketplace. The result of this work is demonstrated in our exchange application and will be materialized in the development and operation of our technology solution.
Our objectives
MEMX was formed as a result of industry demand for competition, meaningful technical innovation, and increased operational transparency. We believe that execution on this charter will deliver needed improvement, catalyze change, and drive better outcomes for the investing public. To realize this, we are focused on the following:
Increased Competition
Competition in the marketplace benefits all investors by lowering costs, promoting transparency, and stimulating the development of new products and services. Increasing the diversity of exchanges improves overall market robustness and brings new points of view into the market structure conversation.
Innovation
Creating a new exchange allows MEMX to maximize the ingenuity of its engineering staff and leverage advances in technology to drive process and product innovation. This greenfield opportunity empowers us to deliver a new option to investors with a modern, less expensive model, a simpler and more efficient platform, and features that will benefit all participants.
Transparency
MEMX supports greater operational transparency through simple and fair pricing of its products and services and clear and concise reporting of use, which will help participants understand the costs associated with exchange connectivity and market data delivery. Further, MEMX will provide dynamic operational visualizations for its participants, which will allow them to better observe their own interactions and behavior on the exchange during the trading day.
Highlights
As evidenced in our filing, MEMX will deliver a simplified, innovative, and imaginative set of concepts, capabilities, and features to the industry. Below is an overview of some of these items:
Unified Order Entry Messaging Standard
Participants will electronically access the exchange using Classic FIX (ASCII Tag/Value) and/or a native binary protocol called MEMO (MEMbers Orders). A common message standard and data schema is used for both. These protocols will allow members to submit, modify, and cancel orders, receive acknowledgments and execution reports, and be notified of exchange trading status.
Simplified Market Data Structure and Distribution Model
The MEMOIR (MEMber’s Order Information Record) data products, which include Depth, Top of Book, and Last Sale, as well as historical versions of each, will be available through a simple and concise subscription model using fundamental delivery mechanisms. Participants will be able to consume these products via a streaming protocol as well as through the use of modern APIs in the cloud.
Significant Reduction and Simplification of Order Types and Modifiers
MEMX is reducing complexity by simplifying order types to promote fair, transparent, and efficient client interactions. Based on industry feedback, we have selected a limited set of order types that are broadly used in the market today. Specifically, MEMX will accept three order types: Market (for time-sensitive traders), Limit (for price-sensitive traders), and Pegged (including Midpoint Peg and Primary Peg orders that will automatically adjust with changes in the National Best Bid and Offer for traders sensitive to periods of market volatility). A limited set of modifiers are supported, including Intermarket Sweep Orders, Reserve Quantity (with multiple replenishment options including randomized size and time), Non-Displayed, Minimum Quantity, Post Only, Book Only, and simplified Re-Pricing to comply with Reg NMS and Reg SHO. In addition, several Time-In-Force (TIF) instructions are available to allow participants to select the period of time during which an order is available for execution: Immediate-or-Cancel, Fill-or-Kill, Day, Regular Hours Only, and Good ‘til Time.
Integrated Risk Controls
Both the FIX and MEMO order entry protocols will contain an integrated pre-trade risk management service which includes a mandatory set of configurable controls designed to protect investors and ensure market integrity by preventing erroneous orders from passing through to the matching engine for execution. Additionally, MEMX will offer a configurable batch cancel function, allowing participants to cancel all or a subset of orders in one or more symbols with a single command to the exchange over any active session, irrespective of the session(s) over which the original order(s) was submitted.
Simplified Routing
MEMX Execution Services LLC, which will be a registered broker-dealer pending regulatory approval, will route orders to away markets displaying protected quotations to comply with Reg NMS. A combination of exchange proprietary data feeds and CQS/UQDF data feeds from the Securities Information Processors (SIPs) will be used for the handling, execution, and routing of orders.
Governance
Industry wide demand brought the founders of MEMX together as a consortium, made up of industry participants ranging from retail to bank to proprietary trading firm, to build an exchange that represents the needs of all members and investors. In order to support this key tenet, the MEMX corporate agreements set forth several controls to ensure that each major membership constituency is fairly represented. These controls, along with our experienced management team, provide an appropriate framework for MEMX to focus on building an exchange that is fair and equal for all participants.
What’s Next
Subject to SEC approval, we intend to launch our exchange in the middle of 2020. If you are interested in obtaining more detail on anything covered in this post, we encourage you to read our full filing or please feel free to reach out to info@memx.com with any questions. We will begin client connectivity testing later this quarter. If you are interested in participating, please register via our website to be kept informed.
