New York: When IEX Group Inc won approval to become a full-fledged US stock exchange last year, detractors were shocked the small, upstart firm pulled off the feat.

Now, IEX is engaged in an even more challenging venture: It wants to lure corporate listings away from two entrenched giants, the New York Stock Exchange and Nasdaq.

IEX rode to prominence in Michael Lewis’ 2014 book Flash Boys, which cast its leaders as heroes in a stock market rigged against small investors. It’s using a similar marketing pitch as it moves to open a listing business as soon as October. Last week it edged a step closer when the Securities and Exchange Commission allowed it to run opening and closing auctions. That’s a key feature for a listing exchange.

But there will be considerable obstacles. NYSE Group Inc and Nasdaq Inc each have expansive global listings divisions, with more than 2,000 public companies apiece, hundreds of millions of dollars in revenue and legions of salespeople. They are home to the most valuable, recognisable companies in the world.

“This is a really, really difficult area to break into,” said Justin Schack, managing director at Rosenblatt Securities Inc. “Of all the things that exchanges do, listings is probably the most brand-sensitive business they’re in.”

Undeterred, IEX hired an ex-Morgan Stanley managing director, Sara Furber, to spearhead the listings push. Furber and her team spent the better part of the past year zipping around the country trying to convince companies of varying sizes and industries to move to IEX. It’s offering lower listing fees and what it claims is a better auction process.

“There is more than enough room for a third choice who is offering something different,” Furber said. “The reality is that a lot of companies are frustrated with the way they’ve been underserved.”

In the US, stock exchanges don’t have to host companies to win business. Because the law requires trades to take place on whatever market has the best price at any time, a listings-less exchange can still make money. But having listings virtually guarantees a slice of the lucrative auctions that open and close each day, plus an exchange can charge their companies fees for ancillary services.

Success will depend on IEX’s ability to get its message to resonate with big corporate brands. The exchange made its name arguing the $27 trillion (Dh99 trillion) US stock market is plagued with conflicts of interest. It pillories mainstream exchanges including NYSE and Nasdaq for selling proprietary data at a premium and using incentive payments to attract trading volume.

Speed bump

IEX holds itself up as a model of better behaviour. It has its 350-microsecond speed bump on orders, which it says dulls the advantages of high-frequency traders. (NYSE recently introduced a speed bump of the same length on its smallest market, dubbed NYSE American.) IEX doesn’t charge for its trading data.

Still, it’s a small fry in the overall market. IEX’s Investors Exchange handles about 2.3 per cent of US trading volume, compared with about 20 per cent each at NYSE and Nasdaq. Bats Global Markets Inc., the second-largest operator of US stock exchanges, which handles 10 times the market volume IEX does, never veered into listing other companies. Instead it sticks to listing exchange-traded funds, another NYSE stranglehold.

IEX has at least one stalwart supporter in billionaire gambling mogul Steve Wynn, chairman of Wynn Resorts Ltd. An investor in IEX, Wynn has said he’d like to list his company with the firm, two years before it even became an exchange.

Listing requirements

For all its image as a maverick, IEX has no intention of toughening listing requirements to satisfy shareholder-rights advocates. The world’s biggest index companies are starting to exclude companies that use multiple share classes. But exchanges, including the NYSE and Nasdaq, allow companies with such arrangements. IEX’s listing rules hew closely to those two exchanges. If IEX’s policies departed from competitors, it could find itself forced to turn away potential corporate customers.

IEX is betting its early investor protection message will strike a chord with corporate boards. According to Furber, they value that above the accoutrements that come with other listing outlets, like ringing NYSE’s famous bell or seeing their company logo splashed across Nasdaq’s midtown Manhattan offices.

“It’s not about competing for eyeballs in Times Square,” Furber said.