An upstart exchange looking to elbow in on NYSE and Nasdaq just nabbed big buy-in from JPMorgan, Goldman Sachs, and Jane Street and set a go-live date

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An upstart exchange looking to elbow in on NYSE and Nasdaq just nabbed big buy-in from JPMorgan, Goldman Sachs, and Jane Street and set a go-live date
JPMorgan CEO Jamie Dimon

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JPMorgan CEO Jamie Dimon

  • JPMorgan, Goldman Sachs, and Jane Street Capital all made strategic investments in the Members Exchange, the upstart exchange announced on Thursday.
  • The trio join a group of some of the biggest players on Wall Street already backing MEMX, including Morgan Stanley, Citadel Securities, Virtu Financial and Charles Schwab.
  • MEMX CEO Jonathan Kellner told Business Insider the goal of adding the new strategic investors, all of whom will sit on MEMX's board, was to "maintain the balance as best we could."
  • MEMX also disclosed in the announcement it plans to launch its exchange July 24, pending regulatory approval.
  • Click her for more BI Prime stories.

Three Wall Street giants are joining what is already a formidable group of industry players aimed at taking on NYSE and Nasdaq.

JPMorgan, Goldman Sachs, and quantitative trading firm Jane Street Capital have all made strategic investments in the Members Exchange, the startup announced on Thursday.

The three join some of the largest banks (Bank of America, Morgan Stanley, and UBS), market-makers (Citadel Securities and Virtu Financial) and retail brokers (Charles Schwab, E-Trade, TD Ameritrade, and Fidelity) in the industry in backing the hopeful exchange.

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Jason Sippel, global head of equities and prime services at JPMorgan, told Business Insider that MEMX was attractive because it represents a great investment opportunity, fills the need for a disruptive partner in the exchange space, and gives the bank another voice when it comes to the debate over data fees.

"We typically look for opportunities where: One, we think the idea is attractive. Two, we think we can, in effect, put our finger on the scale and help make the entity that we are investing in more successful," Sippel said. "The exchange space is highly concentrated. We think that this entity has the potential to generate meaningful flow."

The initial nine firms raised $70 million when the project was first announced in January 2019. MEMX CEO Jonathan Kellner declined to disclose how much the three new backers put in.

All 12 board members have an equal vote, Kellner told Business Insider, with the exception of UBS, which chose to have an observer seat with no voting rights.

Maintaining a balance between banks, market makers, and retail brokerages was important when adding new strategics, Kellner said. While the firm didn't seek to add from a specific group when it began seriously looking for additional strategic investors in the fall of 2019, he said, it did want to ensure all groups were equally represented.

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"The goal really was to maintain the balance as best we could, but also bring in important players in the market so that we had as many strategic investors around the table as possible," Kellner said. "We didn't set out to say, 'Hey, we want to make sure we get two more banks so we can have five banks as investors.' It was more we actually just wanted to make sure that we weren't really going to be underweight or overweight any one group."

Having a balanced, powerful group of backers will be important for MEMX as it looks to break into a market dominated by a handful of players. Of the 13 national exchanges all but one, IEX, are operated by either Nasdaq, Cboe Global Markets, or Intercontinental Exchange, parent company of NYSE.

Kellner told Business Insider in November 2019 the equities market could immediately stand to benefit in two areas from having additional competition: market data fees and regulatory market-structure issues.

Data fees have long been a sore spot for industry participants who are unhappy with what's charged by exchange operators for information they feel is essentially mandatory to do their job. MEMX has pledged to not charge for market data initially, with reduced fees to eventually kick in at a later date.

"It just shows further commitment from the Street and further support from the Street of what we've set out to build," Kellner said. "The message that we are delivering is resonating."

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In addition to naming the new strategic investors, Thursday's announcement also came with a go-live date. Pending regulatory approval, which MEMX expects to achieve in the second quarter, the exchange hopes to be operational July 24.

Firms are typically coy when it comes to giving deadlines on when a product or tool can expected to be launched, lest they fall short.

However, Kellner said it was important for the exchange to be as clear as possible about its timeline to make it easy for potential customers to know what needs to be done when to be ready in time for launch.

"For us it's really important that day one we want to maximize our chances of having as many people connected and as diverse a pool of liquidity on day one as possible," Kellner said. "So, as much as it puts a little bit of pressure on us to deliver that day, we felt like it was important to provide that transparency to potential members so we could maximize our chances of having as many people connect with as possible and having a better diversity of liquidity as possible."

Get the latest Goldman Sachs stock price here.

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