Recently, NYSE announced it was going to introduce a speed bump exchange called NYSEAmerican. Critics jeered that NYSE just blatantly copied IEXs market structure. And it is true that the bump is going to be 350 microseconds, just like IEX. It will have a complex discretionary pegged order type, just like IEX. And it will have a pricing model that charges both sides of the trade, just like IEX.
But unlike IEX, NYSE American will also haveHFT DMMsproviding continuous liquidity and stable prices. The same HFT DMMs weblogged abouta few days ago that NYSEcredits withproviding superior market quality to its listed companies. Hmm, do you get the feeling this is about issuers more than trading? Suddenly the copycat looks more like the Cheshire Cat.
Unfortunately, a lot of the coverage and discussion was distracted by a rehash of the misconception that NYSE/ICE Chairman Jeff Sprecher had once called IEXs business model Un-American.Sprecher actually said that for the SEC to give IEX (or presumably anyone) an exclusiveregulatory exemption would be Un-American, a fair point.
The real focus should be thatNYSE is using the new modelas an important way to leverage HFT DMMs and attract listings to a new exchange. IEX believes there is a large, untapped pool of company listings just itching for the protection afforded behind the new speed bump model now blessed by Regulators.
So, NYSE American now sees your speed bump and raises you electronic DMMs using high frequency trading tools that will keep continuous watch over the smooth trading of listed companies stock. Not to mention, a marble podium, iconic bell and historic trading floor. That goes double if Nasdaq throws its hat in the speed bump ring, offering companies a long history of electronic trading by technology-driven intermediaries. Not to mention the offer of a companysname in lightsin Times Square and the cool factor of sharing an exchange with Apple, Facebook, Amazon, Tesla, and Alphabet. Then theres the world-class investor relations and marketing services these two exchanges bring to the table.
As for NYSE American, its move to mimic IEXs fee structure could also be a shrewd set up for a plan to undercut it. IEX currently charges nine mils per share to the buyer and the seller. Could NYSE American charge 8, or 5, or even 1? And how will that slice up the tiny two percent pie of speed bump trading IEX has been able to muster, uncontested, so far? The Cheshire grin grows wide.
The irony here is that the allure of HFT DMMs-the very HFT DMMs who also trade on IEX-could figure prominently in drawing listings to NYSE American. Thats right-the famous anti-HFT market already depends on HFT firms to provide much of its liquidity. Perhaps, if IEX had only publicly embraced HFT rather than vilified it, theyd be in a stronger competitive position today.
As the Cheshire Cat said Only a few find the way, some dont recognize it when they do – some… dont ever want to.
