NEW YORK (Reuters) - If major exchanges such as NYSE Euronext (NYX.N: Quote, Profile, Research) are going to survive in the long run, they'll have to turn into eBay-style companies, shedding brick-and-mortar costs to make trading cheaper, the head of a leading electronic platform said on Tuesday.

"You got to get out of the physical presence and get rid of a tremendous amount of overhead and look more like eBay (EBAY.O: Quote, Profile, Research)," Liquidnet Chief Executive Seth Merrin told the Reuters Exchanges and Trading Summit, referring to the online auction company. "If you reduce the cost of trading, the axiom is that there will always be more trading."

Merrin said exchanges' traditional revenue streams -- transactions, listings and market data -- have come under attack over the past decade as advances in technology and rule changes opened the door to alternatives and competitors.

"There's been a 180-degree change. Before, you had to go to the New York Stock Exchange to trade a New York-listed stock or to the NASDAQ to trade NASDAQ," Merrin said. "Then in 2000, the ECNs got together and within a year and a half, NASDAQ lost 75 percent of its market share."

Electronic communications networks (ECNs) are alternative trading systems that match buy and sell orders among subscribers.

For Merrin, the exchange business is a bad one to be in. With the emergence of electronic platforms, traders have multiple options when buying and selling shares. In addition, as exchanges consolidate across borders, companies can look beyond national exchanges to list their shares.

Exchanges also face shrinking margins thanks to increased competition from rivals who have used technology to lower their transaction and clearing service costs.

For brokerage firms, one of the major sources of trading business, exchanges have become the last resort, Merrin said. Brokers will generally first try to trade on their own internal systems, then turn to ECNs, and finally trade on exchanges only when those methods fail, he said.

Once the biggest customers of exchanges, Wall Street firms have invested in their own alternative trading platforms to bypass them. Merrin believes brokers, formerly partners of the exchanges, are now some of their toughest competitors.

Wall Street heavyweights such as JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), Deutsche Bank (DBKGn.DE: Quote, Profile, Research), Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research), Goldman Sachs Group Inc (GS.N: Quote, Profile, Research), Citigroup Inc (C.N: Quote, Profile, Research), Morgan Stanley (MS.N: Quote, Profile, Research), Credit Suisse (CSGN.VX: Quote, Profile, Research) and Nomura (8604.T: Quote, Profile, Research) have all invested in alternative trading networks like Chi-X, BATS, and Turquoise.

(Reporting by Steven Bertoni; Editing by Braden Reddall)

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