"Flash Boys" hit the stands on Monday and unleashed a fierce debate
over the fairness of the U.S. stock market, which the book
characterized as rigged in favor of high-speed traders who use their
advantages to bilk the system for billions.
The book also thrust IEX, and its CEO, Brad Katsuyama, former head
of electronic trading at a unit of Royal Bank of Canada, in New
York, into the spotlight.
"We've been getting interest from corporate clients about listings
and I think that definitely increases our interest in looking at
becoming an exchange earlier than thought," Katsuyama said in an
interview. He would not specify a time frame.
IEX is currently registered as an Alternative Trading System (ATS),
or what is commonly called a "dark pool."
Dark pools are more lightly regulated than public stock exchanges,
allowing them to pick who gets to trade inside of them. Investors
remain anonymous, stock orders are not displayed, and the rules can
be kept secret.
IEX does not quite fit that mould. It offers all brokers access, its
subscribers are listed on its website, and out of 45 active ATSs, it
is the only one to make its rules public.
The company has said it planned to become an exchange once it hits 5
percent of U.S. stock volume, which would make it more financially
viable to take on the costs of the additional regulatory burden of
being an exchange.
Since the release of Lewis' book, IEX's trade volume has doubled to
as much as 24 million shares a day, or around half-a-percent of U.S.
stock volume. That might seem like a drop in the bucket, but it
makes it bigger, on any given day, than four of the 13 public U.S.
If it were to become a stock exchange, IEX could challenge the New
York Stock Exchange and Nasdaq OMX Group for corporate listings. The
last exchange to attempt to do that was BATS Global Markets in May
2012, but it experienced a software problem during its market debut
on its own exchange and pulled the IPO. It currently only lists
exchange traded products.
ICE OFFERED TO BUY IEX
There may have been an easier route to becoming an exchange.
In "Flash Boys," Lewis said IntercontinentalExchange Group, which
bought NYSE Euronext last year for $12 billion, offered to buy IEX
before it even opened, but Katsuyama turned down the offer.
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ICE declined comment.
ICE Chief Executive Officer Jeff Sprecher, has been a vocal critic
of the overall stock market, saying it is too complicated and rife
with conflicts of interest.
Katsuyama would not comment on whether ICE had tried to buy his
company. But he did say: "We're very aligned in philosophy and I
have only good things to say about Jeff."
Around 2006-2007 when high-frequency trading began to flourish,
Katsuyama found himself suddenly unable to place a large order for
the stock price he saw quoted on his screen. This prompted him and
his team to take a critical look at the structure of the market.
What followed led to the opening in November of IEX, which stands
for Investors' Exchange.
IEX developed an electronic speed bump to take away any advantages
of high-speed traders. It does not pay rebates to entice order flow.
It has only four order types versus hundreds at some exchanges, and
it is owned by fund companies and individual investors, not by banks
"You can build a fair market where computers, floor traders, retail
and institutional, they can all be a part of the same trading
eco-system," Katsuyama said. "You want the market to be random and
you want people's investing or trading abilities to determine who
wins and loses, not some loophole or inefficiency in the market
(Reporting by John McCrank; editing by David Gregorio)
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