(Bloomberg) -- A stock exchange backed by some of Wall Street’s biggest players is making its official entry into options as investor interest in the asset class surges to all-time highs.
The Members Exchange, or MEMX, will offer options trading on its new venue starting Wednesday, bringing the total number of US options exchanges to 17. Backers of the platform include a suite of legacy financial institutions, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., as well as market makers Citadel Securities and Virtu Financial Inc.
The launch comes amid surging options volumes. Derivatives, which bet on where a stock price might go, were once seen as instruments for only institutional players, but the pandemic’s day-trading-frenzy morphed the speculative assets into the playthings of retail investors too. The boom in interest made the move a natural one for MEMX, the firm said.
“Options was a logical next step given the growth in the asset class and the adjacencies with our existing equities-exchange business, including our member and investor base,” Chief Executive Officer Jonathan Kellner said. “Our decision was also driven by market demand from options participants who were enthusiastic about MEMX expanding upon our equities track record and fostering more positive competition in options.”
Founded in 2019, MEMX started as a protest by banks and market makers against the rising data and connectivity fees charged by US stock exchanges. It readied its own equities exchange, which now accounts for roughly 3% of the US equities market, making it the sixth-largest in the country, according to Bloomberg Intelligence data. Last year, the company ventured into cryptocurrencies, providing the technology for crypto exchange EDX Markets.
In options, MEMX will compete in a crowded market, populated by heavyweights such as Cboe Global Markets Inc., Nasdaq Inc. and the New York Stock Exchange. MEMX hopes to differentiate itself from competitors via more active risk management, resulting in better quotes for the price of options.
“As Virtu’s strategic footprint in options continues to grow, we see increasing market-making opportunities from the fresh competition that MEMX brings to the options landscape,” Virtu CEO Douglas Cifu said.
MEMX’s investors don’t have to send orders to the exchange. Parties involved in options transactions generally engage with the exchange that offers the best execution or price for a given trade.
For other market participants, it’s unlikely options traders will even notice MEMX is there: The exchanges serve as the marketplace, matching up buyers and sellers of contracts. The same lockdown angst that piqued retail traders’ curiosity in digital assets and meme stocks also pumped up options trading, with the derivatives’ volumes now more than double what they were in 2019, according to Options Clearing Corp.
MEMX will add more stocks and exchange-traded funds, with trading of Starbucks Corp., ImmunoGen Inc. and SPDR Gold Trust options available starting Wednesday.
An added exchange could elevate quality across the options industry, according to John McGinn, an analyst at Laffer Tengler Investments.
“Another options exchange will likely just provide additional liquidity and opportunity for market makers to compete on pricing,” he said. “This will create a lower cost for both institutional and retail investors.”
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