NYSE-owner ICE warms to new challenger as profits rise

(Reuters) - The New York Stock Exchange will not stand in the way of the creation of a new low-cost challenger recently proposed by some of its biggest clients, the head of NYSE-owner Intercontinental Exchange Inc said on Thursday after his company reported higher-than-expected earnings.

FILE PHOTO - Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., January 10, 2019. REUTERS/Brendan McDermid

In January, a group of nine major financial companies, tired of what they said are excessive trading and market data fees at most exchanges, said they plan to start a new bourse called the Members Exchange, or MEMX, to try to rein in costs. The would-be exchange’s backers include Citadel Securities, Virtu Financial, Bank of America , Charles Schwab Corp and TD Ameritrade .

While the announcement has put pressure on the shares of ICE and other existing exchange operators, ICE Chief Executive Jeffrey Sprecher said on Thursday he sees the development as positive for NYSE.

“We support what they’re doing and we’ll not fight what they are doing because we think it has spillover benefits of the New York Stock Exchange,” he said on a conference call with analysts on Thursday.

The MEMX news came just weeks after regulators approved a pilot program that will restrict the rebates exchanges pay brokers for stock orders. The program aims to shed light on whether those payments, collectively around $2.5 billion last year, lead brokers to send customer orders to the exchanges that pay the most, rather than to the exchanges that would obtain the best result for the end clients.

Many in the industry also expect regulators to curb direct payments by wholesale brokers, like Citadel Securities and Virtu, to retail brokers, like Schwab and TD Ameritrade, for the majority of the stock orders “mom and pop” investors make on their platforms, Sprecher said.

“We see that we may have an opportunity to compete for retail order flow,” Sprecher said.

He also said that the addition of a new U.S. stock exchange would mean more demand for the network capacity that NYSE provides, and that further, it would have the effect of better aligning the various interests within the overall industry.

In the fourth quarter, ICE said total revenue, excluding transaction-based expenses, rose 14.1 percent to $1.31 billion, helped by a spike in market volatility that boosted trading volumes.

Adjusted net income at ICE rose to 94 cents per share, or 2 cents above what analysts were expecting, according to IBES data from Refinitiv.

Reporting by John McCrank in New York and Bharath Manjesh in Bengaluru; Editing by James Emmanuel and Steve Orlofsky