Oct. 22 (Bloomberg) — IEX Group, a dark pool partly owned by money managers, is breaking with tradition by publicly releasing the normally private regulatory filing that explains how it operates.
IEX, which opens for business on Oct. 25, yesterday put its Form ATS on its website, detailing how requests to trade are prioritized, the types of orders available, price structure and ways to access the market.
New York-based IEX is redacting some information to protect users security, chief executive officer Brad Katsuyama said during an interview.
Almost 40 percent of U.S. stock volume now takes place privately on venues such as dark pools, spurring requests from public exchanges to curb the trading and new disclosure requirements from the Financial Industry Regulatory Authority.
By revealing its trading rules, IEX hopes to push other alternative trading systems, or ATSs, to reveal more information, Katsuyama said.
ModernNetworks IR LLCs Tim Quast said he cannot recall another dark pool taking this step. Its a good development, and I cant think of much bad that will come of this, said Quast, the Denver-based president of ModernNetworks IR, which provides market-structure analysis to public companies. The decision helps IEX beat back accusations from exchanges that dark pools arent transparent enough, he said. Doing this could go some distance to allay the fears, and its a way for ATSs to defend their fort.
By releasing the Form ATS, we plan on blazing a trail and challenging other ATSs to follow, said Katsuyama, 35, who served as head of global electronic sales and trading for Royal Bank of Canadas RBC Capital Markets LLC before founding IEX with ex-RBC executives Ronan Ryan, John Schwall and Rob Park. Understanding how a market works is critical to building trust that a market is truly operating in your best interests, Katsuyama said.
The IEX trading platform, in development since March 2012, is pitching itself as a haven for long-term investors from predatory traders. IEX wont pay firms to buy or sell shares, shirking a practice that many markets use to lure business from high-speed traders. Amid industry concern markets are more vulnerable to mistakes because trading has sped up, IEX will mandate a 350-microsecond delay between requests to trade and executions. IEXs backers include Capital Group Inc., which manages the American Funds mutual funds, and Brandes Investment Partners LP.
Earlier this month, Finra issued proposals for ATSs to release more information about themselves, including weekly volume reports and how much trading of each stock they handle. While that will shine some light on dark pools, Katsuyama called for even more disclosure. If youve gone out and tried to Google search any of them, you might come up with a handful of hits, he said. Some of the ATSs, if you go to the brokers website, it wont even come up with a search result.
