Maybe Michael Lewis’s next book will anoint high-frequency traders as heroes. Mr Lewis’s best-seller Flash Boys made them the villains of the stock markets for using bleeding edge computing technology to exploit Main Street investors. However compelling that narrative, experts found the arguments in his book to be facile.

And there may be even darker figures in the stock trading ecosystem: the exchanges themselves. On Monday, a group of Wall Street investment firms announced they were forming a new stock exchange— MEMX — to take on the current exchange oligopoly where three firms control 12 of 13 US stock venues. The backers of MEMX include Citadel Securities and Virtu Financial, two well-known high-frequency traders. Another stock trading venue would be welcome, if for no other reason, to highlight the absurd profitability of a basic market infrastructure function.

Intercontinental Exchange, Nasdaq and CBOE are the companies that collectively control a dozen stock exchanges. Their collective enterprise value of $79bn underscores the profit opportunity in what was for most of the last several decades a not-for-profit industry. The US Securities and Exchange Commission in recent months has increased its scrutiny of the exchanges’ business models.

The most lucrative opportunity for the exchanges in recent years has become the data feeds they sell to broker-dealers. For example, ICE in its most recently reported quarter reported $530m in data revenue, nearly as much as it earned from trading and clearing. In October, the SEC declined to approve fee increases for data that Nasdaq and the NYSE sought.

The conceit of MEMX is that the principal-agent conflict is mitigated when it is owned by Citadel, Virtu, as well as several brokers like TD Ameritrade, UBS, BofA, Charles Schwab, Fidelity and others. MEMX is to be for-profit but says it will stand out because of lower costs and greater transparency. It naturally invites comparison to IEX, an exchange started by the heroes of Flash Boys, which famously has a “speed bump” to even the playing field between HFT and others. IEX’s trading volume has only been modest so far. The best hope for IEX and MEMX is not that they prosper for the benefit of their owners but that they create a fairer and cheaper stock market.

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