Wall Street powerhouses look to shake up stock exchange monopoly with their own version

The new exchange is an answer to the current industry, where more than 90 percent of U.S. stock exchanges are either owned by Nasdaq, NYSE’s parent company Intercontinental Exchange, or Cboe Global Markets. A lower cost alternative could be enticing to brokers who are attempting to cut costs.

In the case of UBS, demand for a new, lower-cost option came from every corner of the investment bank.

“There’s been a lot of frustration when it comes to the exchange landscape, and an increased focused on cost of execution,” Vlad Khandros, managing director and global head of market structure and liquidity strategy at UBS, told CNBC. “We’re convinced there’s a lot more room for improvement, which is the main reason we got behind this.”

The only U.S. venue not owned by the main three is the “Investors Exchange,” or IEX, founded in 2012 in response to high-frequency trading, off-exchange trading in dark pools and payments firms make to other firms to handle their trades.

High-frequency trading has gotten its fair share of criticism on Wall Street. IEX was established to slow down such trading. But MEMX’s founding members Citadel Securities and Virtu Financial are two of the largest automated market-makers, a clue the new exchange will not likely attempt to slow the practice. MEMX members told CNBC that the venue will support executions “like any other venue.”

Shares of NYSE parent company Intercontinental Exchange and Nasdaq both dropped more than 2 percent Monday following the news.

“We welcome competition to our transparent, highly regulated equity markets. However, with more than 40 equity trading venues already in operation in the United States, we are keen to learn more about the value proposition of a new exchange,” Nasdaq told CNBC in a statement.

The Securities Industry and Financial Markets Association, or Sifma, a key financial-industry trade group, has also accused exchanges of over-charging and “exploiting the opportunity to exert monopoly pricing power.” In October, the SEC ended a 12-year legal dispute by denying a request from the Nasdaq and NYSE to raise fees on certain data. Stock exchanges also charge public companies listing fees and other annual fees.

As exchange fees have risen, Steve Quirk, executive vice president of trading and education at TD Ameritrade, pointed to the falling cost of trading commissions over the past two decades.

“We are not seeing these technological advances leading to the same cost reductions in areas such as market data,” Quirk told CNBC.

— CNBC’s Bob Pisani contributed to this report.