Speed-bumpy start: IEX
Posted by hkarner - 20. August 2016
Source: The Economist
A new American stock exchange opens today, having been approved in June by the Securities and Exchange Commission. In existing markets speed is of the essence, but IEX deliberately slows transactions by routing signals through 61km of optical fibre, adding a “speed bump” of 350 millionths of a second. That prevents high-frequency traders from extracting risk-free profits at the expense of slower investors. Mutual funds, pension funds and retail investors see IEX as a fair-market crusader; critics such as Citadel, a financial-services outfit, say that slowing trades violates the SEC’s long-held tenet that they should happen wholly unimpeded. But IEX is gathering pace: already operating as a private venue, it accounts for about 1.5% of daily trading volume in American equities. NASDAQ, another exchange, is seeking approval for a new order type that matches quotes based first on price and then on arrival time. It’s an idea whose time has come.