(updated with correction)
The addition of IEX Group as the 13th U.S.-registered stock exchange could have an impact on how asset owners and other institutional investors trade large blocks of stock.
But what the exact impact on block trading will be when dark pool operator IEX — which employs a 350-microsecond delay or speed bump for all trades — begins operating a lit exchange in September depends on whom you ask.
IEX's entry into the fully transparent exchange field “will reduce a lot of the noise around arbitrage and aggregate real liquidity and get a better fill done,” which will benefit block trading, said Joseph Saluzzi, partner, co-founder and co-head of equity trading at Themis Trading LLC, Chatham, N.J. “If IEX is disruptive, so be it. Everyone wants less noise, more liquidity — if it works, going lit throws a monkey wrench in the high-speed game.”
Countered David Weisberger, managing director and head of the trading and quantitative services product group at Markit Ltd., New York: “IEX will continue to be a good dark pool and may even get better, but if the impact of the decision is increased market complexity by enabling more order types and variations of speed bumps from other exchanges, it could hurt asset owners. This is due to the fact that proprietary trading firms always benefit when markets undergo structural changes, since they are quicker to exploit the inefficiencies created by complexity, than the firms that trade on behalf of asset owners.”
IEX gained fame as the subject of the 2014 Michael Lewis book “Flash Boys,” which focused on the negative impact of high-frequency trading on the U.S. equity markets. The book argued that how IEX's speed bump to delay such trading would make trading fairer for all equity investors by barring high-frequency traders from using predatory techniques to read the market in advance of trades.
The use of a speed bump was prominent in IEX's proposal seeking Securities and Exchange Commission approval to operate a registered stock exchange, which IEX received on June 17. Other registered U.S. exchanges do not use speed bumps.