Trader Talk

There's a new exchange launching today

A new stock exchange is launching today, or, more accurately, an old one is re-launching.

The National Stock Exchange (NSX) is re-launching today to trade equities and ETFs.

It was one of the oldest stock exchanges in the country, founded in Cincinnati as the Cincinnati Stock Exchange in 1885. It existed as a small regional exchange until it became an all-electronic stock market in 1976. They moved to Chicago in 1995 and changed their name to the National Stock Exchange, then moved again to Jersey City, New Jersey. After being acquired by the CBOE Stock Exchange in 2011, the NSX ceased trading in May, 2014.

It was bought by a small group of investors and is re-launching today in a partial or "soft" rollout that should be completed by December 31, 2015.

Do we really need another stock exchange? There are three stock exchange holding companies that each own several exchanges: ICE owns three exchanges (NYSE, NYSE Arca, and NYSE Amex), BATS has 4 (DirectEdge A, DirectEdgeX, BATS BYX, BATS), NASDAQ has 3 (NASDAQ, NASDAQ BX, NASDAQ PSX), and then there's a couple very small ones, including the Chicago Stock Exchange, and now the National Stock Exchange.

On the surface, the answer seems to be no. But CEO Mark Sulavaka told me last night he thinks there is room for more, particularly on the issue of access fees.

There's been a lot of debate around access fees, which are fees exchanges charge to execute trades. In general, they charge a lower fee to "provide" liquidity (post bids or offers) than for "taking" liquidity (hitting the bid or offer). Brokers will often go to great lengths to avoid paying those fees, including internalizing orders or routing them to dark pools that charge lower fees.

Jeff Sprecher from ICE has said he wants to greatly reduce access fees, but there has not been much progress. There's a groundswell that thinks rebates distort the markets.

Sulavaka thinks the lack of action on these access fees is a big opportunity for him. He is dramatically slashing the fees, essentially charging nothing to post liquidity and a fraction of what other exchanges charge to "take" liquidity.

He's hopeful this will give his fledgling exchange a leg up with the competition.

"Our goal is to be the low-cost provider in the space," Suvlaka told me.

It's certainly true reducing access fees will reduce the cost for brokers to trade on an exchange. What's not clear is whether brokers will pass those savings on to their clients.

Suvlaka also has ideas on expanding the exchange business. Down the road, he sees opportunity as a regulator to build a system for regulating market dealers involved in crowdfunding, which has now been greatly expanded for general investors thanks to the JOBS Act.

The ownership of the NSX, according to documents filed with the SEC, consists of two categories of shareholders. One group consists of 12 individuals who own approximately 64 percent of the outstanding shares, described as "securities industry and technology professionals with senior executive managerial experience in areas including capital markets and investment management, management, exchange

operations, electronic trading, and systems architecture and development." The second category of shareholders consist of two affiliated entities: Thor Investment Holding LLC, which owns approximately 16 percent, and TIP-1 LLC, which owns approximately 20 percent.

No individuals are directly named as owners, however, former Lehman Brothers CEO Dick Fuld has been identified as a part-owner.

As for the other exchange waiting to get out...IEX, whose application is still in front of the SEC, Suvlaka had little to say, other than to note the somewhat intense commentary from the other exchanges.