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Investors Exchange: The Fair Stock Exchange

In September 2015, Investors Exchange (“IEX”), a company that became a symbol of the fight against high frequency trading submitted a proposal to the Securities and Exchange Commission (“SEC”) to create the first new American stock exchange in five years.1 This proposal has created a fierce debate over how to solve problems created by increasingly complex and high-speed stock markets.2 How does IEX as an exchange plan to battle the high-frequency trading problem? IEX “intends to use a 350-microsecond ‘speed bump’ to stand in the way of traders that place and cancel orders more frequently than that.”3 The speed bump causes a delay by sending messages through a coiled optical fiber equivalent to 38.07 miles in distance to slow down the high- frequency traders.4 The overall goal of IEX is to level the playing field between hyperfast traders and ordinary traders.5 These hyperfast traders are “proprietary traders who’d front-run the big money orders to other exchanges, and market makers who’d adjust their quotes to get out of big money’s way.”6

As expected, the IEX proposal has been heavily criticized. The harshest of criticisms have come from Citadel and the New York Stock Exchange (“NYSE”). Citadel, which is one of the largest companies handling retail stock trades from ordinary investors based out of Chicago, stated that IEX’s proposal “will introduce one more complex wrinkle that will end up benefiting one set of market participants over another, rather than leveling the playing field.”7 Similarly, the NYSE echoed Citadels negative feedback and said the IEX speed bump would “result in the investors receiving stale and misleading quote information.”8 Why would Citadel be so against IEX’s proposal? Because “if IEX becomes an exchange, SEC rules will require Citadel and other trading centers to send customer orders to IEX whenever IEX quotes the best price.”9 Conversely, IEX has obtained strong backing from Goldman Sachs, Greenlight Capital, Teacher Retirement System of Texas, and T. Rowe Price Associates. 10

On March 18, 2016, the SEC stated that it will delay IEX’s bid to become a full-fledged stock exchange and pointed to a recent tweak to its business model as the reason.11. The SEC has until June 18, 2016 to either approve or deny the IEX proposal.12 Additionally, the SEC said that it is evaluating the revised proposals that were sent in by IEX in response to the SEC’s comments on the proposal. In performing this review, the SEC will be focusing on “whether [the IEX proposal] constitute[s] unfair discrimination, or impose[s] an unnecessary or inappropriate burden on competition.”13 Furthermore, the SEC has called for more public input into IEX’s application, which has already brought in more than hundred comment letters.14

  1. Nathaniel Popper, Plan for New Stock Exchange Stirs Furious Debate, n.y. times (Nov.16 2015), 

  2. Id

  3. Id

  4. Matt Turner, The Heroes of Flash Boys Took a Huge Swipe at the New York Stock Exchange, business insider (Nov. 24, 2015), 

  5. Id

  6. Bill Alpert, SEC to Decide on IEX Group Stock Exchange, Barrons (Mar. 5, 2016), 

  7. Popper, supra note 1. 

  8. Turner, supra note 4. 

  9. Alpert, supra note 6. 

  10. Id

  11. Kevin Dugan, SEC Delays IEX Bid For Stock Exchange Status, n.y. post (Mar. 18, 2016), 

  12. Id

  13. Id

  14. Id