IEX, the buyside-sponsored alternative trading system, is on the verge of becoming a full-fledged exchange.
As first reported by the Wall Street Journal citing sources close to the venue, the upstart trading venue which has become a sort of media darling thanks to its inclusion in Michael Lewis book “Flash Boys” and stand on countering the effects of high speed trading strategies, is going to file an application with the Securities and Exchange Commission to become a bonafide stock exchange in the next two weeks.
The SEC would then make the application available for public comment before deciding whether to approve it.
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IEX would then go toe-to-toe with the well-established exchanges such as Intercontinental Exchange Inc.’s New York Stock Exchange, Nasdaq OMX Group. and BATS Global Markets.
After enjoying much success thanks to its veteran Wall Street team, led by former RBC executive Brad Katsuyama, Ronan Ryan and others, the venue has made no bones about its desire to become a public exchange over the last three years. It has expanded its market share to just over 1% of all stocks traded in the U.S., thanks to support from the buyside and sellside, as well as its constant push for transparency via several initiatives.
IEX plans to challenge its bigger rivals with its own IPO listings business and aggressive growth campaign. The company told potential investors last year it aims to achieve 8% of market share by 2017, the Wall Street Journal previously reported.
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The U.S. equity market remains the most fragmented in the world, with 11 public exchanges and over 40 private or dark trading venues vying for an ever-shrinking piece of the equities trading pie.
Most exchanges operate under a pricing ystem known as “maker-taker”-by which they make money by paying a rebate to certain traders and charging a slightly higher price to others-a system designed to encourage more trading.
The Journal reported that during negotiations with the SEC over the past year, IEX decided to eliminate one feature of its platform called “broker priority,” people familiar with the matter said. The feature allows brokers to jump to the front of the queue and execute trades free if both an open buy and a sell order originate from the same broker.
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The idea was designed to encourage brokers to send more orders to IEX, Mr. Katsuyama told the Journal last year.
During negotiations with the SEC over the past year, IEX decided to eliminate one feature of its platform called “broker priority,” people familiar with the matter said. The feature allows brokers to jump to the front of the queue and execute trades free if both an open buy and a sell order originate from the same broker.
IEX is removing the feature to speed its application. To get the SEC to sign off on the feature, IEX would have had to demonstrate that queue jumping would generally benefit investors, a hurdle that could delay any approval, according to people familiar with the application. The SEC has yet to weigh in formally on whether the concept is a net positive, a person familiar with the matter said.
IEX has several novel features that distinguish it from rivals. It slows trading information in an attempt to eliminate advantages for high-speed traders and it charges all buyers and sellers the same fee.
“Given that broker priority has been invoked on only 0.2% of IEX volume while brokers internalizing trades is 1.9% of IEX volume, we decided to remove this feature from our exchange application in hopes of expediting the approval process,” an IEX spokesman told the Journal said in a written statement.
