Interactive Brokers has recently announced that they are switching their listing venue from NasDaq in October, becoming the first company to list its stock on the new fledgeling IEX exchange.
However, who on earth is IEX and why would any company risk ditching the two all-powerful US exchanges?
From Dark Pool To World Fame
IEX, known as the Investors Exchange, started life as a dark pool private stock exchange. The founding group formed in 2012 with a mission to fight against trading inequality, and it seems that they are about to succeed.
The biggest criticism surrounding the US stock market has always been that it is incredibly fragmented, providing an unfair advantage to speed traders. The chance to invest between the different exchanges, using high technology, provides a massive advantage over slower investors.
IEX rose to fame initially when author Michael Lewis profiled its team as crusaders, in his book Flash Boys: A Wall Street Revolt. Following substantial public interest, IEX gained in popularity and sought SEC regulatory approval to transition to a public stock exchange in June 2016. Today, they average $8 billion every day in equity trading.
Is All The Fuss Warranted?
Well yes, it certainly is, as IEX believes that all investors should have an equal right to fair trading terms, and is trying to protect them from high-speed predatory traders.
The ethos behind the creation of IEX was the fundamental principle of giving retail traders the chance to mitigate the market advantages that investment banks and other institutional investors have.
Firms and traders that use high-speed algorithms on powerful computers which are located throughout the many stock exchange blocks are therefore able to enter and exit positions in the blink of an eye! IEX is working to even the playing field on this point.
IEX developed a 350-microsecond “speed bump” delay which it employs on its trading platform. It doesn’t sound much, but in the world of trading, it is an eternity, levelling the playing field between Wall Street and Main Street traders and effectively neutralising all high-frequency trading.
IEX is focussed on pioneering technologies and is now supported by many of the world’s most conscientious traders and investors. They are set firmly on a mission to enable and develop fairer markets.
Exchanges Are Fighting Back
As anticipated, the established traditional exchanges are not too happy about the threat that IEX poses, and are fighting back with no holds barred.
This May, the new NYSE American exchange sought approval to implement an almost identical “speed bump” rule, and the Chicago Stock Exchange and NasDaq seem to be following suit.
In the upheaval of all this rivalry, Nasdaq is also suing IEX for infringements on its electronic trading technology patents. It claims that seven patents were developed for millions of dollars and that previous employees of Nasdaq were more than familiar with these technologies. IEX fervently disputes this claim against its trading operation, citing that some of its similar features are purely based on an extensive review of the processes employed by Nasdaq.
So What Does The Future Hold?
The entire exchange world has been in flux as electronic trading has gradually taken over during the last ten years. IEX now seems firmly on track to shake it up even more.
IEX has emerged as a proactive new concept, offering to save brokers valuable money and providing traders and investors with a much better deal than the other exchanges.
Tuning out the high-frequency trading signals, that are purely focussed on short-term gains, also enables the provision of better information for longer-term investors. The fierce competition is set to continue, with IEX issuing a recent statement accusing NasDaq of trying to block their previous application process, and now attempting to obstruct an innovative new competitor with their lawsuit.
However, if IEX continues to provide “a fair, simple and transparent stock exchange dedicated to investor and issuer protection”, as it states on their website, then it will also continue to stoke the competitive flames. This is an innovative company that is committed to its vision and more than a massive threat to the traditional exchanges.
Pay very close attention to it!