As is true of any startup, the Members Exchange (MEMX) is currently in the process of making buy-vs-build decisions as it looks to build out its infrastructure. At the same time, it is waiting on regulatory approval. While speaking on last week’s Waters Wavelength Podcast, Jonathan Kellner, MEMX’s chief executive, and Tom Fay, the company’s chief operating officer, discussed some of those decisions, the hires they’ve made, and what comes next from a regulatory perspective. (To hear the full podcast, which hits on a range of topics beyond what’s in this article, click here.)

Since the exchange was first proposed at the beginning of January 2019, it has been working toward regulatory approval. In September, MEMX filed its exchange license, which was put up on the SEC website on Halloween. On Nov. 6, it was published to the federal register, which opened a 45-day comment period. (Nasdaq and the New York Stock Exchange filed comments.) Now, the exchange is working with the SEC to answer any additional questions before their application is accepted or denied.

“We’re pretty confident that sometime over the next 30 to 90 days we will be able to get our exchange license approval,” Kellner says.

Additionally, because MEMX will conduct its own order routing, it has filed an application with the Financial Industry Regulatory Authority (Finra) to be a routing broker-dealer.

Assuming those applications go off without a hitch, Kellner says that they will look to launch “sometime in the summer.”

Currently, MEMX has hired 31 people. Kellner, who was previously CEO of Instinet, was announced as CEO last February. Fay joined in June from Nasdaq, where he worked as senior vice president of enterprise architecture. They’ve since filled out the management level, naming Dominick Paniscotti as chief technology officer, Louise Curbishley as chief financial officer, Lindsay Gilliam as chief people officer, Anders Franzon as general counsel, Colin Clark as head of business development, and Nicholas Ciarleglio as head of member experience.

Kellner says that the exchange expects to launch with 49 employees. Included in the next round of hires will be a chief information security officer (CISO), developers, network and infrastructure specialists, market and trade operations professionals, as well as additions to finance, legal and compliance, and member experience.

The Big Build

That leaves technology. MEMX is building its matching engine internally, outsourcing surveillance to an as-yet-named vendor, and “talking to all the cloud providers,” according to Kellner as it looks to deploy a multi-cloud strategy.

Fay says that the whole point of the exchange is the data—“it’s really not about algorithms anymore,” he says. “If one views an order as the primitive order type that drives the entire ecosystem, you can actually architect a system around availability and visibility of that data, and that’s what we’ve done.”

MEMX has looked to unlock the value of that data for customers by building a system that doesn’t need to be run inside a traditional data center for post-trade processing and analytics. “That was a different way to look at the problem rather than: Hey, everybody’s got to go to where the matching engine is. It’s more like: bring your compute to the data,” Fay says.

The exchange is also looking to a build a switching infrastructure with a smaller IT footprint than what’s seen at the bigger, established exchanges. MEMX has partnered with Intel, using its Optane Memory offering, which is the seventh generation of Intel’s Core-series processors.

“We’re going to be able to run the entire exchange in a single rack of computers—what we call a hyper-converged infrastructure—and still maintain N+1, and in some cases N+2 redundancy through that entire stack,” Fay says. “That smaller footprint decreases risk for the industry, but also increases determinism performance because we don’t have this layer upon layer of bloat at the infrastructure side. So literally, there’s just a couple of switches between a client and our matching complex.”

One of MEMX’s founding pillars is the promise of low fees for participants. Indeed, the issue of cost is inextricably linked to the creation of MEMX. But, fees can be a zero-sum game as lower fees by one exchange tends to beget lower fees from the others. In order for the exchange to be successful in the long-term, it will need to build a reliable trading ecosystem, which is why both Kellner and Fay are keen to talk about determinism—getting the same response from the exchange regardless of trade volume. That requires consistency when it comes to latency and jitter.

By shrinking the exchange’s IT footprint, they hope to achieve those latency and jitter reductions while maintaining a stable environment.

“Investors talk about increasing determinism; if you’re more confident in the outcome, you’re willing to make better markets,” Kellner says. “If you’re a market-maker and you want to bid or offer, and you know that you will get a cancel when you send a cancel, you may be more willing to narrow a spread or put more size out there. If you’re writing an institutional algo, and you have a model, and you know that when you make a correction to that order or you make a cancel, you’re going to get that response back in a specific period of time. You’re going to be able to work on your models better and hopefully improve performance for your clients.”