IEX Sees Winning Enough Volume to Muscle Into Top Exchange Ranks
This article by Annie Massa for Bloomberg may be of interest to subscribers. Here is a section:
Now that IEX Group Inc. has the same coveted regulatory status as the New York Stock Exchange, Nasdaq Inc. and Bats Global Markets Inc., the company’s chief executive officer plans to steal a significant chunk of business from them.
?As a dark pool, IEX handles less than 2 percent of U.S. stock trading; NYSE, Bats and Nasdaq each process roughly 20 percent. But the Securities and Exchange Commission on Friday gave IEX a regulatory upgrade, clearing the way for it to open a new stock market, called the Investors Exchange, in August.
“There are limits to how big dark pools can grow, and we no longer have a limit to how large we can grow,” IEX Chief Executive Officer Brad Katsuyama said Monday in a Bloomberg Television interview. “It will take some time, but we are confident that we can become one of the largest markets.”
IEX pitches its platform’s 350-microsecond speed bump on orders as an antidote to speed-driven trading strategies it views as predatory. It’ll be the only U.S. stock exchange with an intentional delay.
The company may attempt to bring its business model to other asset classes and countries, though for now it’s focused on U.S. stocks, Katsuyama said during the interview. He declined to identify those other areas. “There’s a void of trust in different markets,” he said.
IEX is not publicly traded, yet, but it represents a major challenge to the profitability of established exchanges. Leasing space in data centres has been big business for exchanges who have been courting high frequency trading groups. However it has been a challenge for funds and pensions who have seen liquidity improve but slippage costs have increased as computer programs pre-empted trades. The imposition of a speed bump is very attractive for the buy side which has led to the growth of IEX’s venue and could represent a continued growth model.
In the absence of regulations to force all exchanges to impose speed bumps more established venues are unlikely to disturb their largest fee paying clients by removing the competitive advantage they provide.
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