Tuesday 24 October 2017

Upstart IEX applies for stock exchange status with SEC

Upstart trading venue IEX Group has filed to become a registered US stock exchange
Upstart trading venue IEX Group has filed to become a registered US stock exchange

John McCrank

Upstart trading venue IEX Group - the star of Michael Lewis' bestselling book Flash Boys - has filed to become a registered US stock exchange. If the application is approved by regulators, IEX will begin operating as 'The Investors Exchange' in the mid-to-late first quarter of next year.

IEX, which launched in October 2013, calling itself a fairer market for investors, would be the 12th US stock exchange, competing against more established market operators, such as BATS Global Markets, Nasdaq and Intercontinental Exchange's NYSE unit.

IEX and its chief executive officer Brad Katsuyama were thrust into the spotlight in March of last year as the heroes of Lewis's book, which claimed the market was rigged in favour of high-speed traders.

The book chronicled IEX's efforts to develop an exchange that would feature an electronic "speed bump" that they said would level the playing field for all investors.

The technology is designed to delay electronic trading by tiny fractions of a second in order to block so called "front-running", the controversial ability of big banks to profit by leap-frogging smaller investors' online trades.

Irishman Ronan Ryan is IEX's chief strategy officer and one of the central characters of Lewis' book.

Last year Newry-based First Derivatives won a contract to provide the exchange with software to help monitor suspicious trading activity.

First Derivatives chief executive Brian Conlon labelled the win "a bit of a coup".

Nearly all exchanges are fully automated now and that should have significantly lowered costs to market participants, but fees levied by exchanges for private data feeds and technology offerings have had the opposite effect, Katsuyama said in a letter to IEX clients on Wednesday.

"IEX believes data and technology should be provided at a reasonable cost or no cost at all," said Katsuyama, a former head of electronic trading at a unit of Royal Bank of Canada.

"We firmly believe that IEX can be an agent of change to address these issues, and many more, in pursuit of creating more efficient capital markets, where exchanges fully commit to serving issuers, investors, and their agents, while charging a reasonable and transparent fee for services provided."

IEX currently matches up shares for buyers and sellers of stocks as an alternative trading system, a trading platform that has less onerous regulatory obligations than an exchange.

As such, it has reached a market share of nearly 2pc and on its busiest day traded 414 million shares.

If the exchange filing is approved by the US Securities and Exchange Commission, IEX will be able to compete against Nasdaq and NYSE for corporate listings.

It will also receive a cut of the fees charged to market participants for a consolidated feed of trading data from all exchanges.

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