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Matt Levine

Traders Want Their Own Exchange Too

Also venture capital, stablecoins and closing dinners.

In the olden days a stock exchange was a group of people who met in a big building to trade stocks. You had to be a member of the exchange to get into the building and trade the stocks, and the exchange was self-evidently a collective enterprise of the people who traded the stocks there. The people wanted to trade a lot of stocks, because their job was to trade stocks, and so they wanted the exchange to be a good place to trade stocks. If the building was comfortable and impressive, that was nice, but the building was not the fundamental element of the exchange. The fundamental element was the group of people who met there to trade. If they liked meeting in the building to trade then they’d keep meeting there. If the building got really drafty, or if it burned down, or if someone started standing at the door charging everyone $100 to go inside, then the people could just walk across the street and meet somewhere else to trade. This would not be simple and costless — you’d have to find everyone and get them all to agree on a new place, etc. — but it was certainly possible. The point of the exchange was to serve its members, and if a particular building or set of rules no longer met their needs then they could get together and agree on something else.

These days a stock exchange is a big data center in New Jersey where algorithms meet to trade stocks. Also, in the U.S., 12 of the 13 exchanges are owned by one of three large for-profit public companies. The point of the exchange is to make money. This is a change! It leads to a certain amount of resentment: Basically, the exchanges charge the firms who trade there fees for data and access, and the trading firms complain about the fees and think they should be lower. The exchanges mostly have the upper hand, because each trading firm needs to be connected to every exchange more than each exchange needs to be connected to every trading firm. But not always. For instance, the Securities and Exchange Commission recently rejected proposed fee increases at some of the exchanges, after a lot of complaining from trading firms.