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FLASHBACK FRIDAY: IEX'S Katsuyama Pegs Exchange Launch Date in Q1 2016

Flashback Friday sponsored by Instinet

Traders Magazine Online News, November 30, 2018

John D'Antona Jr.

A lot can happen in just two years. Just ask anyone at The Investors Exchange, more commonly known as IEX – the newest and perhaps most outspoken public stock exchange – the times are changing and so is the exchange model. Birthed from a buy-side focused ATS, the exchange has risen from dark pool to trading exchange to now listings exchange.

Let’s recall its history:

  1. OCTOBER 2013 - IEX launches as an off-exchange marketplace (ATS)
  2. MARCH 2014 - Flash Boys by Michael Lewis published, featuring IEX’s founding story
  3. SEPTEMBER 2014 - IEX Group raises $75 million funding round to drive growth
  4. NOVEMBER 2014 - Launch of the IEX Signal, a proprietary model used to protect orders on IEX
  5. AUGUST 2015 - IEX files to become a national stock exchange
  6. JUNE 2016 - IEX approved as a national stock exchange
  7. SEPTEMBER 2016 - IEX launches as a national stock exchange
  8. FEBRUARY 2017 - IEX launches stock market data API
  9. MAY  2018 – Public pensions and institutional investors band together to voice support for the SEC Transaction Fee Pilot, joining IEX, the only exchange to support the pilot.
  10. JUNE 2018 – SEC economist finds that the IEX speed bump helps protect investors. 
  11. OCTOBER 2018 - IEX lists its first public company, Interactive Brokers

The list is impressive given the exchange’s short life and some of the hurdles it has had to clear. Starting with the vision of creating a more fair marketplace and turning the industry on its ear wasn’t quite what founding fathers Brad Katsuyama, Ronan Ryan, John Schwall, and Rob Park set out to do. Their credo, “to build fairer markets, whether that is through developing innovative technology designed to protect investors on IEX or identifying new areas where our technology and philosophy can contribute to a fairer marketplace,” still remains true to this day.

Starting from zero, IEX’ market share now stands at 2.867% for November (through 11/28); 2.542% in October; and has a single-day market share record on November 1 at 3.079%.

And this is just the beginning, IEX says. There is more to come, IEX says.

To that end, the exchange has made some key hires to look into the future starting with Boris Ilyevsky. Brought on in July, his mission is to evaluate a range of segments where IEX’s technology and philosophy could contribute to the development of fairer markets for investors and brokers. 

“Boris is an important strategic hire for us at IEX,” said Ronan Ryan, co-founder and President of IEX. “He brings invaluable expertise from a broad range of businesses, and his dedicated focus on exploring and critically analyzing new opportunities will open up new growth areas for IEX while allowing the executive team to maintain focus.”

And let’s not forget IEX has made the jump into the lucrative listings business. In October, just three years after filing to become a public stock exchange Interactive Brokers Group, Inc. (NASDAQ GS: IBKR), an automated global electronic broker, was the first company to list its stock on IEX. Interactive Brokers' common stock, which was listed on the Nasdaq Stock Market, changed to the new bourse. And it is just the beginning.

“It’s an exciting time at IEX. Our strong momentum in both trading and listings shows that we’re giving companies and investors the alternative they've been waiting for – a high-quality exchange built on fairness and transparency,” Ryan added. “To drive our next phase of growth, we’re continuing to innovate to protect investors and build fairer markets both in and outside of our core exchange business.”  

 

 

The following article originally appeared in the November 2015 edition of Traders Magazine

IEX'S Katsuyama Pegs Exchange Launch Date in Q1 2016

By John D'Antona Jr.

And the countdown has started in earnest towards full-fledged exchange status at buyside-sponsored trading venue IEX.

According to memo sent to its clients and shared with Traders, chief executive officer Brad Katsuyama said the venue planned to begin operation as a full-fledged exchange in late Q1 2016.

Katsuyama wrote that the Securities and Exchange Commission published IEX's exchange filing on sec.gov today and in the coming weeks it will publish the filing to the Federal Register, triggering a 45-day period of public comment and an additional 45 days of Commission review.

"This puts potential approval squarely in the midst of the holiday season. We understand the constraints and concerns with a new exchange launch during that time frame and the likely "code freeze" that many industry participants abide by," Katsuyama. "We are excited to get moving, but we also want to avoid overburdening the industry during the holidays, and as such, we plan, pending Commission approval, to begin operating as an exchange in mid to late Q1 2016."

He added that there are few notes clients should note that are in and excluded from in IEX's exchange filing:

1. "POP" (Point of Presence). "We feel confident that a uniform distance imposed equally on all IEX participants, via a physical cable, creates a level playing field that allows IEX to protect orders from being disadvantaged by those who may have access to faster market information and connectivity."

2. Listing Standard Rules are included. "It is important to note that IEX will not be operational as a listing exchange at launch. We are including listing standards, which have already been approved by the Commission for other exchanges, in our initial filing in order to begin certain administrative/regulatory processes and to provide optionality after our launch. We are honored to be receiving significant inbound inquiries from public companies regarding our intention around listings and while our focus so far has been to build a market that better serves the investor, we strongly believe we can help issuers improve their experience with the markets as well."

3. No Broker Priority. "We initially designed our Broker Priority model to maximize the chance that a single broker, with both a buyer and seller of the same security, could first look to match those orders on IEX at no charge, before trading any residual shares against other IEX participants. The ability for brokers to "internalize" when they have earned an order from both the buyer and seller of a security is the primary reason for broker dark pools and is an outcome that cannot currently be achieved on any U.S. exchange. Given the rise of off-exchange trading volume and Broker ATSs (dark pools), we felt that this feature would allow IEX to be a neutral place for brokers to send orders without missing opportunities they have earned to internalize. While novel, Broker Priority did not have a statistically material effect on our business (trading less than 1% of IEX volume on a daily basis), so we decided to defer pursuing this feature and have removed it from our exchange filing. We still plan to charge no fees when a broker trades with itself, pending filing of our fee schedule with the Commission, and we may consider refiling to request SEC approval to add Broker Priority in the future as we believe it would benefit the broader market and its participants."

Furthermore, Katsuyama added that IEX by becoming an exchange looks to affect systemic change to the current market structure.

"When we look at the state of today's market, we do not see exchanges fulfilling this role (capital formation) effectively, but we do see an opportunity to honor key tenets within the Securities Exchange Act of 1934, mainly 'the protection of investors and the maintenance of fair and orderly markets'."

"IEX believes that technology and increased industry sophistication should have significantly lowered the costs that exchanges impose on our industry. When considering the evolution of market data and technology fees levied by the incumbent exchanges, the opposite effect has occurred as the fixed-cost burden on industry players, especially brokers and market makers, continues to rise. Rather, IEX believes data and technology should be provided at a reasonable cost or no cost at all, with the goal of institutionalizing fairness for the greatest number of market participants. This continues to be the philosophy that drives our business decisions."

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