The stock market exchange: NASDAQ (NDAQ) and shares of New York Stock Exchange owner, Intercontinental Exchange Inc (ICE) were rocked on Monday. Not in the way you might think, however. We aren’t talking major stock market sell-offs or volatile post-trump tweet mayhem. We’re talking shares of the companies that own these exchanges.
NASDAQ shares dropped to lows of $78.70 during premarket trading on January 7. Shares of NYSE owner Intercontinental Exchange Inc dipped to lows of $71.50 during pre-market hours on Monday, locking in a new 2019 low.
Why Did Stock Market Exchange Owners Dip?
It just so happens that the institutions are challenging “the institution.” Some of Wall Streets top banks and investment firms are collaborating to create a new stock exchange. Bank of America Merrill Lynch (BAC), Charles Schwab (SCHW), Citadel Securities, E*TRADE (ETFC), Fidelity Investments (FNF), Morgan Stanley (MS), TD Ameritrade (AMTD), UBS (UBS), and Virtu Financial (VIRT) and other financial companies have agreed to jointly kick-start a new bourse that will compete with the New York Stock Exchange and Nasdaq but at a lower cost.
I’m sure that seeing the successes that platforms like Robinhood have had in the recent past have helped solidify the need for lower expenses and higher incentives for users. Assuming that the next generation of traders is the millennials, financial companies need to find a way to attract these critical players while they’re young. And nothing says millennial like “low cost.”
The New Stock Market Exchange Looks To Drive Value
In a joint statement, the companies said the new exchange would take aim at increasing competition and make operational transparency that much better. It should also be able to reduce fixed costs and allow equity trading in the United States to become more easily understood.
“MEMX’s mission is to increase competition, improve operational transparency, further reduce fixed costs, and simplify the execution of equity trading in the U.S.,” according to a press release announcing the exchange.
“In addition, MEMX will represent the interests of its founders’ collective client base, comprised of retail and institutional investors on U.S. market structure issues. MEMX will seek to offer a simple trading model with basic order types, the latest technology, and a simple, low-cost fee structure.”
NASDAQ appears ready for the battle, and this could get ugly. In a statement, Nasdaq said, “We welcome competition to our transparent, highly regulated equity markets. However, with more than 40 equity trading venues already in operation in the United States, we are keen to learn more about the value proposition of a new exchange.”
Are Millennials Already Shaping A New Stock Market Exchange?
Of the 4 million Robinhood traders, a large portion is millennials (22 to 37 years old). These investors have become accustomed to low to no cost options for placing market trades. They’ve also grown to know that sharing is caring. Robinhood was built on a strong referral basis where the referrer and the new user being referred would both receive free stock upon a new signup using an affiliate code.
This generation helped boost several important market areas in 2018. Most notably, marijuana stocks were a huge focus for this populous during the latter part of last year. They’ve also helped boost certain technology stocks that they, themselves had deemed “oversold.” Though this latest move by the big financial companies didn’t highlight a millennial cause and effect, the likelihood that this thought was in the back of their minds has a higher probability in my opinion.
Last year, Robinhood “pump faked” a new initiative that would have seriously upended the banking industry with higher rates on savings accounts and its own set of “low to no fee” perks. Even though the plan didn’t go as expected, the sheer threat has begun to echo through the ranks of financial institutions across the globe. All of this could signal a changing of the guard for banking and investing as we know it.