And Then There Were 12 Stock Exchanges Again


And then there were 12 stock exchanges again.

It looks like we may be taking a step backwards in our hopes of defragmenting the equity market. This is because the National Stock Exchange (NSX) has just been granted permission by the SEC to be sold to a new owner.

If you recall, back on May 30, 2014, the NSX (which was owned by the CBOE) ceased trading operations  but “continued to be registered as a national securities exchange under Section 6 of the Securities Exchange Act (the “Act”) and remained a self-regulatory organization.”  The NSX was never really a major player in the equity market and once LavaFlow shifted their business from the NSX to FINRA’s ADF, the NSX had no choice but to shut it down.   But their national securities registration had some value (like a taxicab medallion) and they sold this “medallion” to a group called NSX Holdings last September.  That new group, NSX Holdings has just received SEC permission​ to restart operations.

While we’re not thrilled with the prospect of an exchange reopening since it will cause further fragmentation, there was a hint in the SEC filing that the new owners of the NSX may have something creative planned:

The Exchange states that it plans to reopen its trading operations as soon as practicable after the Closing and plans to operate the Exchange using its existing trading system pursuant to the rules of the Exchange currently in effect (the “Exchange Rules”).

However, the Exchange states that the re-opening of its marketplace will be subject to additional proposed rule changes filed by the Exchange with the Commission and such proposed rule changes being approved by the Commission.”

We’re curious about these proposed rule changes and are hoping that some new innovation designed to help institutional investors might be brought to the equity market.  We can’t imagine that the new owners of the NSX took a look at the US equity market and thought to themselves “Oh yeah, that’s how we are going to make a fortune.”

Back in October, the WSJ reported that a company called OpenMatch was the purchaser of the NSX from the CBOE.   OpenMatch has this description of themselves on their website which provides a hint of what they may be planning with the NSX:

“OpenMatch’s mission is to usher in the next evolutionary change in market structure that redefines the modern, global, multi-asset class exchange. We are a provider of a new venue for multi-asset trading that fosters size and price discovery, liquidity aggregation and reduce transaction costs for investors, and we intend to operate alternative market centers on a global basis and emerge as a new global standard for trading.”

“This new patented matching service provides a unique function, empowering participants with unprecedented control over liquidity management, as well as introducing new types of block trading services.​”

Sounds like the new owners are planning to compete on innovation and not just being a novelty like an inverted fee schedule stock exchange.