The seal of the United States Securities and Exchange Commission hangs on the wall at SEC head office in Washington, June 24, 2011.
The U.S. Securities and Exchange Commission is preparing to act upon a questionable request by brand-new trading group IEX Group Inc to introduce a new U.S. public stock exchange, and has gotten a recommendation from its personnel that it approve the exchange, according to a Wall Street Journal report on Tuesday. The proposed exchange from IEX, made famous by the Michael Lewis book “Flash Boys: A Wall Street Revolt,” is significant since it would be the only one in the United States to include a so-called “speed bump” – a 350 millionths-of-a-second delay in all inbound and outgoing orders. According to IEX, that secures financiers from high-frequency traders who can detect trading signals and use much faster innovation to digitally front-run slower financiers. Other exchanges, consisting of Nasdaq (NDAQ.O), the New York Stock Exchange (ICE.N) and BATS International Markets (BATS.Z) have been vocal in their opposition to an IEX approval. Nasdaq has suggested any SEC approval might be challenged. The SEC has a June 18 deadline to act on the proposal. An internal source informed Reuters the commission wanted to see competitors to the existing design of electronic trading and order execution, and was not likely to miss that deadline. The WSJ report stated the commission was likely to vote on the order on Friday and to authorize it. An SEC spokeswoman declined comment the commission would satisfy that day. Any brand-new exchange indicates exchanges would get a smaller share of the market data income from trade individuals. In addition, IEX’s speed bump could dampen trading volumes, which would likewise drag on exchange profits.
Critics from competing exchanges and elsewhere have said the speed bump is counter to the SEC’s own regulation prohibiting deliberate hold-ups of rate display screens, likewise referred to as Policy NMS, for National Market System. Contending exchanges have also grumbled about IEX requesting discretion to send out orders to other exchanges without a speed bump. That would provide IEX excessive discretion to decide how specific trades are made, critics state, with some trades carried out on stale quotes while others were carried out right away. “Opposing arguments are self-serving statements from those who profit by the way that trades are intermediated today,” said IEX president and co-founder Ronan Ryan. If the SEC authorizes, IEX anticipates to implement all stock signs on Sept. 2, ceasing operations of the IEX Option Trading System (ATS), likewise called a dark pool, according to its website.
If the SEC desires an extension of the June 18 due date, it would need to request one from IEX. A denial would certainly delay IEX’s schedule, leaving it with the choice of attempting to acquire approval again or deciding to stay an ATS. “We have a number of choices but it’s premature to hypothesize exactly what we would do next,” IEX spokesman Gerald Lam said. SEC staff currently has sent its recommendation to the commission, the internal source confirmed to Reuters.
Nasdaq has said the speed bump “would be unlikely to endure judicial examination” in a remark letter crafted by law practice Gibson Dunn, which has actually successfully challenged the SEC numerous times. IEX initially filed its application in mid-September, triggering a torrent of more than 460 comments. IEX has because changed its proposition five times. The Financial Market Regulatory Authority (FINRA) has voiced support for the application. Tom Gira, executive vice president for market regulation at FINRA stated it must move on, “in the interest of allowing innovation to continue to exist,” at the Reuters Financial Regulation Summit in May. Jamil Nazarali, head of Castle Execution Services at Castle Securities, one of the biggest personal U.S. trading places, was blunt during a panel conversation on equity market structure at a Sandler O’Neill conference recently. “We just think this would be bad for the markets, it’s unjust, and it doesn’t belong as a public exchange,” he stated. (Added reporting by Herb Lash; Modifying by Chizu Nomiyama and Linda Stern).