U.S. regulator approves IEX as national stock exchange
The U.S. Securities and Exchange Commission has approved alternative trading group IEX Group Inc's request to launch a new U.S. public stock exchange, in a move likely to intensify arguments over current market structure.
IEX, made famous by Michael Lewis' 2014 book "Flash Boys: A Wall Street Revolt," is notable because it would be the only exchange in the United States to include a so-called speed bump - a 350 millionths-of-a-second delay in all incoming and outgoing orders.
According to IEX, that delay protects investors from high-frequency traders who can pick up on trading signals and use their faster technology to electronically front-run slower investors.
The SEC approved the speed bump under what it called an interpretation of Regulation NMS, for National Market System, which disallowed intentional delays of price displays.
Despite that regulation, the agency said it had determined that "a small delay will not prevent investors from accessing stock prices in a fair and efficient manner."
"We are grateful and humbled by the support we've received from the investor community, without it, we may have faced a different result," said Brad Katsuyama, co-founder and chief executive of IEX.
"This is a milestone for all of those who have supported IEX and we look forward to becoming a stock exchange, which will provide us the opportunity to have an even greater impact on the markets."
In related decisions, the SEC said it will now consider delays of less that one millisecond at a "de minimis" level and will also conduct a study within two years to determine the effect of intentional delays on market quality, including asset pricing.
A source familiar with the voting process said Chair Mary Jo White, Commissioner Kara M. Stein and Commissioner Michael S. Piwowar voted in favor of the application.
Due to the speed bump, the Commission ruled on what is known as a protected quote, which states a quotation must be "immediately and automatically accessible and be the best bid or best offer of a national securities exchange or national securities association." On that issue, the Chair and Commissioner Stein voted in favor of while Commissioner Piwowar voted against it, according to the source.