Miami International Holdings Inc. plans to open the 14th U.S. stock exchange after starting an options market next year, a company executive said.
MIAX Equities Exchange will focus on listing companies from Central and South America when the Miami-based venue begins sometime after next year, Shelly Brown, the Princeton, New Jersey-based company’s senior vice president for strategic planning and operations, said in a phone interview. Florida’s population in Miami-Dade County in 2010 was 65 percent Hispanic or Latino, according to U.S. Census Bureau data.
The U.S. equities marketplace includes 13 exchanges, several electronic communications networks and more than 40 dark pools, or private venues that trade stocks and exchange-traded funds. The system is knitted together by rules requiring venues to avoid trading at prices worse than the best available elsewhere. As competition among venues increased over the last dozen years, total volume surged and the share of trading by the New York Stock Exchange and Nasdaq Stock Market in the companies the list plunged.
“The cash equities and options market in the U.S. are quite crowded and extremely competitive,” Michael Wong, a Chicago-based capital-markets analyst at Morningstar Inc., said in a phone interview. “To get a foothold they’d have to differentiate themselves with a new product or niche. That’s the real driver for getting an exchange off the ground.”
‘No Real Reason’
While there’s room for another listing venue for companies that want to raise money, “there’s no real reason for more to exist,” he said. Bats Global Markets and Nasdaq OMX BX are planning new businesses this year to attract companies that want to list shares. “It’s difficult to see how they’ll get ahead of existing exchanges that are not resting on their laurels and that are extremely competitive,” Wong said.
The MIAX Options Exchange is scheduled to start trading in the second quarter, pending regulatory approval, Brown said. Draft rules for the MIAX market are under review by the Securities and Exchange Commission, he said. Heather Seidel, an associate director in the agency’s division of trading and markets, declined to comment on the status of the exchange application at a conference yesterday in New York sponsored by the Futures Industry Association and Options Industry Council.
“The majority of our efforts are focused on the options exchange right now,” Brown said. “We’re still working on the final structure of that exchange.”
MIAX’s senior management and technology development staff are “100 percent complete,” Brown said. The firm has about 60 employees, most in Princeton, up from about 25 in April. The executive chairman is Thomas P. Gallagher, a founding partner of Princeton-based law firm Gallagher, Briody & Butler, which helps companies raise money through debt and equity offerings. Brown declined to comment on the exchange operator’s funding.
Eight company executives out of 13, including Brown, worked at the Philadelphia Stock Exchange or Nasdaq OMX PHLX, the name of the options market after Nasdaq OMX Group Inc. (NDAQ) bought the country’s oldest securities exchange for $652 million in 2008. Brown left Nasdaq OMX in 2009 for a job at Peak6 Investments LP in Chicago. He joined MIAX in April.
There are nine options exchanges now, compared with four in 1999. CBOE Holdings Inc. (CBOE) in Chicago and Nasdaq OMX and NYSE Euronext (NYX), both in New York, each run two markets catering to different types of participants. Options volume rose 8 percent to 3.9 billion contracts last year for an eighth-straight annual record, according to Chicago-based OCC, which clears and settles all options trades on exchanges.
“There’s a cost as well as a benefit to having more competitors,” Steven Crutchfield, chief executive officer of NYSE Amex Options, said at the equity options conference in New York yesterday. While new markets may offer novel ways to trade, customers must connect to them and track their pricing, he said.
Sang Lee, managing partner at Boston-based Aite Group LLC, said in a phone interview that while innovation is often rewarded it’s unclear how MIAX will be able to draw orders away from existing options and equities markets. Lenexa, Kansas-based Bats and Direct Edge Holdings Inc. in Jersey City, New Jersey, pulled stock trading away from the incumbent exchanges at a time when there were fewer rivals of importance, he said.
“If it’s a me-too offering, the market’s already crowded,” Lee said. “A listings business for Latin American stocks could make sense but exchanges in Latin America are doing pretty well. I don’t know if a Miami-based exchange could take away business from those markets.”
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