America is getting a new stock exchange from the most prominent critics of high-frequency trading.
After months of delays and a brutal lobbying battle that divided Wall Street, the IEX Group won approval on Friday from the Securities and Exchange Commission to become the nation’s 13th official stock exchange.
IEX is run by the people at the center of the Michael Lewis book, “Flash Boys: A Wall Street Revolt,” which profiles the early efforts of the IEX team to create a trading exchange that would be somewhat shielded from high-frequency traders.(...)
The most novel and controversial feature of the IEX exchange is a so-called speed bump that would slow down trading slightly to throw off traders that rely only on speed.
The speed bump slows trades down by only 350 microseconds — or millionths of a second — but that is an eternity in a stock exchange universe in which computers can buy and sell stocks in nanoseconds — or billionths of a second.
The Nasdaq, and other existing exchanges, have said that the IEX’s speed bump will violate rules mandating that exchanges make their prices available to all parties at the same time.
IEX’s critics have also said that the speed bump could add new complications into a stock market infrastructure that is already criticized for its complexity.
In a statement, the S.E.C. said that the commissioners “determined that a small delay will not prevent investors from accessing stock prices in a fair and efficient manner.”
The S.E.C. did say, though, that within two years it will do a study to examine whether the delays lead to problems in the markets.
If nothing else, the approval of the exchange will provide an opportunity to test the many competing theories about what impact the IEX’s speed bump will have on the pattern of trading.
The IEX has been a flash point in the broader debate over technological changes that have altered the basic functioning of the American stock markets over the last two decades. (...)
In addition to the speed bump, the IEX has said it will not offer the same fees or rebates that other exchanges do to attract traders, a common practice at other exchanges that has been criticized for distorting trading incentives. The IEX also offers fewer complicated ways to enter trades than other exchanges, in an effort to simplify trading.
Mr. Katsuyama has argued throughout the application process that IEX would provide a market-based solution to the problems created by high-frequency trading rather than requiring the S.E.C. to change the rules governing the markets.
The other exchanges have complained that the IEX was essentially asking to be exempt from rules that governed them.
After months of delays and a brutal lobbying battle that divided Wall Street, the IEX Group won approval on Friday from the Securities and Exchange Commission to become the nation’s 13th official stock exchange.
IEX is run by the people at the center of the Michael Lewis book, “Flash Boys: A Wall Street Revolt,” which profiles the early efforts of the IEX team to create a trading exchange that would be somewhat shielded from high-frequency traders.(...)
The most novel and controversial feature of the IEX exchange is a so-called speed bump that would slow down trading slightly to throw off traders that rely only on speed.The speed bump slows trades down by only 350 microseconds — or millionths of a second — but that is an eternity in a stock exchange universe in which computers can buy and sell stocks in nanoseconds — or billionths of a second.
The Nasdaq, and other existing exchanges, have said that the IEX’s speed bump will violate rules mandating that exchanges make their prices available to all parties at the same time.
IEX’s critics have also said that the speed bump could add new complications into a stock market infrastructure that is already criticized for its complexity.
In a statement, the S.E.C. said that the commissioners “determined that a small delay will not prevent investors from accessing stock prices in a fair and efficient manner.”
The S.E.C. did say, though, that within two years it will do a study to examine whether the delays lead to problems in the markets.
If nothing else, the approval of the exchange will provide an opportunity to test the many competing theories about what impact the IEX’s speed bump will have on the pattern of trading.
The IEX has been a flash point in the broader debate over technological changes that have altered the basic functioning of the American stock markets over the last two decades. (...)
In addition to the speed bump, the IEX has said it will not offer the same fees or rebates that other exchanges do to attract traders, a common practice at other exchanges that has been criticized for distorting trading incentives. The IEX also offers fewer complicated ways to enter trades than other exchanges, in an effort to simplify trading.
Mr. Katsuyama has argued throughout the application process that IEX would provide a market-based solution to the problems created by high-frequency trading rather than requiring the S.E.C. to change the rules governing the markets.
The other exchanges have complained that the IEX was essentially asking to be exempt from rules that governed them.
By Nathaniel Popper, NY Times | Read more:
Image: Cole Wilson
