MEMX: The Member-Owned Stock Exchange

Key Takeaways

• MEMX is a member-owned U.S. equities exchange that launched in September 2020.
• Its founders include large banks, brokers, and market makers seeking lower costs.
• It runs a maker-taker fee model with a deliberately simple order-type menu.
• MEMX exists to add competition, which can pressure data and connectivity fees market-wide.

What It Is

MEMX is a registered national securities exchange for U.S. stocks. Unlike the older exchange groups, it was created and is owned by market participants. The founding members were a group of large banks, retail brokers, and market makers, including firms such as Charles Schwab, Fidelity, Citadel Securities, Morgan Stanley, UBS, and Virtu Financial.

The group announced MEMX in January 2019, filed with the SEC, won approval in 2020, and the exchange began trading in September 2020. Its stated mission is to increase competition, improve transparency, reduce fixed costs, and simplify equity trading.

The Intuition

The founders argued that incumbent exchanges had grown expensive in two areas members care about: market data and connectivity. Those fixed costs hit trading firms regardless of how much they trade. Building their own exchange gave members a way to apply competitive pressure from the inside.

The design philosophy is simplicity. MEMX offers a basic set of order types rather than a sprawling menu, modern matching technology, and a low-cost fee structure. The bet is that a lean, member-aligned venue can win order flow and, just by existing, keep the rest of the industry's pricing in check.

How MEMX Works

MEMX matches orders on price-time priority and honors the national best bid and offer, like every U.S. exchange. It uses a maker-taker fee model: a trader who posts a resting order is the maker and earns a rebate when it fills, while a trader who removes liquidity is the taker and pays a fee.

Add liquidity (maker):    rebate, roughly 0.0015 to 0.0037 per share by tier
Remove liquidity (taker): fee, roughly 0.0029 to 0.0030 per share

Higher rebates are available to members who meet volume or quoting thresholds, a standard tiered approach. Where MEMX tries to stand apart is in keeping the order-type set small and pricing for market data and connectivity low, consistent with its cost-cutting mission. Because it is owned by the firms that route to it, its incentives are aligned with reducing the total cost of trading rather than maximizing exchange profit.

Worked Example

Suppose a stock is quoted 15.00 bid, 15.01 offer. A market maker posts a resting buy order at 15.00 for 5,000 shares on MEMX, acting as a maker.

A seller routes a marketable order that hits the bid. The 5,000 shares fill at 15.00, and the market maker earns the MEMX add rebate, which can be larger if the firm has met volume tiers. The seller, as the taker, pays the take fee.

Separately, consider the indirect benefit. Before MEMX existed, the seller's firm paid market data and connectivity fees only to incumbent exchanges. The arrival of a low-cost competitor gives firms an alternative and a bargaining lever, which is part of why the members built it in the first place.

Common Mistakes

1. Thinking MEMX shows better prices. It honors the national best bid and offer like all U.S. exchanges. It competes on cost, simplicity, and ownership alignment, not on a superior quote.

2. Assuming member ownership means special access. Being member-owned shapes governance and pricing incentives, but the exchange must still treat all participants fairly under SEC rules.

3. Expecting an exotic order menu. MEMX deliberately keeps order types simple. Traders who rely on niche order types may find fewer options than on older venues.

4. Overstating its market share. MEMX is one of many competing U.S. venues. Its influence comes partly from competitive pressure on fees, not from dominating volume.

5. Ignoring the data-cost angle. A large part of MEMX's purpose is pressuring market data and connectivity fees. Focusing only on trade rebates misses why the founders built it.

Frequently Asked Questions

What is MEMX in simple terms? MEMX is a U.S. stock exchange owned by the firms that trade on it. It launched in 2020 to push for lower costs, simpler trading, and more competition against the established exchanges.

How does MEMX affect investment decisions? For most individuals it is invisible because a broker routes the order, but MEMX's low-cost mission can reduce industry-wide trading and data costs over time. Brokers that own MEMX have an incentive to route flow there.

What is a real-world example of MEMX in action? A group of large brokers and market makers founded MEMX to counter rising market data and connectivity fees. Its arrival gave the industry a lower-cost alternative and a competitive benchmark.

How can investors use MEMX effectively? Most investors benefit indirectly through the cost pressure MEMX puts on the broader market. Active traders whose brokers expose routing can post liquidity on MEMX to earn its maker rebate.

How is MEMX different from Cboe BZX? Both are maker-taker venues that match on price-time priority, but MEMX is owned by its trading members and was built specifically to cut costs and keep order types simple, while BZX is part of the Cboe exchange group.

Sources

1. MEMX. "Introducing MEMX." https://memx.com/insights/introducing-memx
2. MEMX. "U.S. Equities Fee Schedule." https://info.memxtrading.com/equities-trading-resources/us-equities-fee-schedule/
3. MEMX. "U.S. Equities FAQ." https://info.memxtrading.com/equities-trading-resources/us-equities-faq/
4. MEMX. "Exchange Technology." https://memx.com/

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.