IEX trading group restructures system to gain SEC approval

The private US stock trading platform, IEX Group has already amended its exchange application. This move will address a practice that critics view as an unfair speed advantage.

According to John Ramsay, the chief market policy officer at IEX, they think that this move will erase the last objection that would speed up the approval of their application. In September, IEX has applied to be a public stock exchange which prompted over 400 comment letters to the US Securities and Exchange Commission.

A high number of regulators have been critical of the firms upstarting. They complained that IEX slows done incoming and outgoing order confirmations by a mere 350 millionths-of-a-second which in turn block the outbound orders which routes other exchanges because of the speed limitations as per Reuters.

According to IEX, this practice prevents predatory high-frequency traders from getting trading signals and use their faster technology to get ahead with the orders via electronics which was also showed in the movie the Flash Boys. But critics, on the other hand, argued and said that the router of IEX has an unfair advantage.

IEX claimed that it has fixed the system and only outgoing orders traded through the IEX system will only be the one to be transmitted through the speed bump which will be used as a solution to prevent predatory practice. This system will send outgoing orders to all exchanges simultaneously.

The Citadel LLC which is a trading and market making firm that also uses high-frequency trading strategies has sent four letters to SEC. According to the Financial Times, Jamil Nazarali, the head of the execution service at Citadel said that the move of IEX to give up their advantage which was used by their routing broker is a good thing but their application should still be denied.

Nazarali added that giving the IEX quotes protected status would definitely damage the integrity of the NBBO. This damage will make the market less transparent, fair and efficient. As reported by Bloomberg, IEX has operated as a dark pool, a known private venue where trades are not disclosed until they already happened. This mainly depends on brokers and traders to send business its way.

IEX has become the second largest trading system since 2013. If the approval will go its way, the exchange status would let IEX compete with firms like NASDAQ Inc., Bats Global Markets, and the Intercontinental Exchange Inc.

Tags

IEX, IEX trading group, IEX trading advantage, IEX applications, US SEC, Citadel, John Ramsay

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