New York: The new IEX stock exchange, aimed at levelling the field for investors disadvantaged by high-speed traders, opened for business on Friday in a potent challenge to Wall Street’s old guard.
After a long fight for approval against resistance from the New York Stock Exchange and the Nasdaq exchange, IEX’s public trading platform began trading in an initial two stocks, with plans to handle all 8,000 listed firms by the end of a two-week ramp-up.
Already some 130 broker-dealers have signed up for trading, including the 40 top ATS members, the company told Markets Media.
That demonstrated the attraction of IEX’s key feature, a 350 microsecond ‘speed bump’ on all orders that effectively prevents lighting-fast, computer-driven high-speed traders from cutting in front of slower orders and forcing up their costs.
That issue had driven former Wall Street trader Brad Katsuyama to seek an alternative to the main exchanges that had increasingly allowed high-speed traders to dominate market action, leading to charges of unfairness from other market mainstays like pension and mutual funds.
Katsuyama, whose fight against the high-speed traders was chronicled in the 2014 Wall Street best-seller ‘Flash Boys’ by Michael Lewis, initially launched a private ‘dark pool’ exchange with the automatic delay in trades, called ATS, that grew to capture up to two per cent of total US market volume.
In June, the Securities and Exchange Commission approved the IEX application to turn ATS into a public exchange over the opposition of NYSE and Nasdaq, saying it would “promote competition and innovation.”
Volume in the two companies first quoted on IEX, Vonage Holdings (VG) and Windstream Holdings (WIN), was relatively small at midday on Friday, less than two per cent of total volume for the same companies on other exchanges.
Over two weeks, the company will steadily begin adding quotes for other listed companies, and expects to have fully migrated ATS business over to the new IEX by September 2, according to spokesman Gerald Lam.
Some around Wall Street view IEX as a curiosity for now, but with the potential to disrupt the broader system if it catches on.
IEX could be a catalyst for change but its larger rivals will fight back if they lose significant market share, according to Morningstar analyst Michael Wong.
“If it turns out that IEX becomes a competitive threat and starts gaining material market share from the other exchanges, I think the other exchanges would be quick copiers,” he said.