7 ms·

IEX Group Gains Approval for Stock Exchange

85 points by anotherhacker 10y ago

vasilipupkin 10y ago
Nothing to see here. The only people affected are other exchanges who get more competition
vermontdevil 10y ago
Opponents of IEX, including the other stock exchanges, have argued that the structure of the new exchange will add unnecessary new complexities into an already complex stock market, and potentially end up hurting small investors. Yeah they are really looking out for the small investors. How very considerate.
- torkins 10y ago
  Liquidity in instruments other than equities (options/futures/futures options) is getting worse, not better. Wider spreads and less liquid markets actually do disproportionately affect smaller investors who are doing anything other than straight equity buying and selling. HFT isn't hurting liquidity and isn't nearly the problem it once was, and this doesn't do anything to address the actual problems in dark pools or auctions or the non-transparent part of the market.
- Lazare 10y ago
  It may seem counter-intuitive, but...yes? Small investors benefit from HFT and related technologies, which is why, eg, Vanguard is pro-HFT. Investment banks are harmed by it, which is why, eg, Goldman is anti-HFT.
  - vostok 10y ago
    I have a pet theory that the articles about HFT are actually placed [0] by big financial interests. I have personally seen a trader at a bank feed a story to a reporter in a different product. That article was pretty fair, but it was on an uncontroversial topic. I don't think the goal is to be deceptive, but the biases of the source are going to come through. Traders at banks are going to much more charismatic and gregarious than traders at HFT firms so it's not surprising that their story rings louder. [0] I'm not talking about explicit quid-pro-quo arrangements, but something along the lines of http://www.paulgraham.com/submarine.html http://www.paulgraham.com/submarine.html
  - vermontdevil 10y ago
    Maybe. But how about letting the investors and market decide? These exchanges do not want competition and are hiding behind the "protect the small investors" schtick.
    - evanpw 10y ago
      > how about letting the investors and market decide? I basically agree with you, and the market has been deciding; IEX is currently the #2 ATS (colloquially "dark pool", but IEX has been publishing quotes). However, now that IEX is an exchange, their quotes become "protected", and all market participants are legally required to send orders to IEX if they're displaying the best price. It's now illegal to decide that you value a quick response or a higher chance of getting a fill over price and choose not to trade on IEX.
    - deleted 10y ago
      [deleted]
danielvf 10y ago
The original plan for IEX sounds like a wonderful extortion racket. By law, you cannot buy or sell stock on someone else's behalf unless you check with all major US stock exchanges first to verify that you are getting your client the best price. IEX intentionally, massively delays answering back unless you pay them buckets of money. Thus, unless you pay IEX buckets of money, you are at a huge disadvantage on every stock market, not just IEX. Quite a racket. Has anything changed with either the laws or IEX's plan since then? Update: IEX did indeed change their proposal to remove the favored order routing. Which still affects trades in other exchanges, and still affects negatively effects traders on all markets, but at least its "fair" now.
- ikeboy 10y ago
  What are those buckets of money? Also, IEXs delay is less than the delay between existing exchanges because of speed of light limits, so massively seems inappropriate.
  - lpage 10y ago
    You might be surprised (when talking about the U.S equities exchanges at least): http://anova-tech.com/wp-content/uploads/2014/09/market-data-chart.jpg http://anova-tech.com/wp-content/uploads/2014/09/market-data.... The LoS distances in NY are on the order of 5-30mi and the lowest latency links are over microwave and laser.
    - evanpw 10y ago
      The Chicago Stock Exchange is 15 milliseconds away from all the others. There isn't much trading volume there, though [1]. [1] http://batstrading.com/market_summary/ http://batstrading.com/market_summary/
      - encoderer 10y ago
        Derivatives are traded in massive volume on the Cboe which is why the time between New Jersey and Chicago is so important
MichaelGG 10y ago
Can someone tell me if the view in "Flash Boys: Not So Fast" is accurate on IEX? In "Flash Boys" Brad Katsuyama says some ridiculous things, showing he doesn't know how exchanges work. In fact, the entire book is basically complaining that they can't trade large blocks without changing the price. Is IEX actually doing things in good faith or are they just playing off of people that are scared?
- buttershakes 10y ago
  It is mostly complete BS. They can't even begin to stop the numerous ways that HFT and sophisticated traders can play with the market, and are putting substantial road blocks that will actually decrease liquidity and increase complexity at the exchange level for basically no reason because of reg NMS integration.
- jegutman 10y ago
  Well to be fair, those were Michael Lewis's second hand telling. I personally know the author of FB:NSF, but haven't spoken to him in a while. I think I agreed with 95% of what he wrote. I think IEX will likely stumble, but will continue. The problem is not that IEX is doing something bad, but they're just not different enough to be meaningful. They have been very good at marketing though and brought up a lot of issues, but definitely raised some that are not accurate. The unfortunate problem (that's hard to resolve) is those executing on agency will always be at a disadvantage to those executing on principal. For example if someone wants to buy 5000 shares, they can route in a way that risks them buying 8000 to get better prices (by sending extra orders to dark pools, etc), someone executing on agency can never do that and so it might not make sense for them to route to dark pools, but almost all of the routers do that (fidelity, schwab, etc) so they disadvantage some of their customers (although they do advantage the smallest customers). Basically I think ultimately the reg-nms order protection is probably a little too rigid of a structure to fit the diversity of behavior into. I'm not really sure what they're long term hope is. I do find equities to be basically the most fair trading ground on the exchange (which is why they had any foothold at all). It would be nice if they were trying to disrupt the really expensive trading markets like fixed income where the spreads are much wider compared to the risk being exchanged and the dealers have so much leverage that they won't support anybody who is trying to cut into that spread.
grondilu 10y ago
If the goal is to avoid high-frequency trading, why not use a blockchain-like technology?
- mooneater 10y ago
  Not the simplest way to solve the problem. May have many other effects.
- deleted 10y ago
  [deleted]
- Lazare 10y ago
  When writing a comment about the blockchain, it's always useful to mentally replace it with the words "distributed database", and see if still makes sense. "If the goal is to avoid high-frequency trading, why not use a distributed database"? Maybe because that would have absolutely zero impact whatsoever on high-frequency trading? (Also, the goal isn't really to avoid high-frequency trading, and it's quite likely IEX will create more opportunities for high-frequency trading, not fewer, but that's another matter.)
- cloudjacker 10y ago
  What specific aspect of blockchain technology? It's slowness? The transparency of the consolidated order book? I place orders on Counterparty a lot, which offers a decentralized asset exchange that settles to the bitcoin blockchain. It would be nice settle stock trades on something like that, slow, too slow, but it would be a nice option.
randomname2 10y ago
Citadel is not happy: “Today’s decision will test and potentially reverse the gains in fairness, efficiency and transparency that have been made to our markets over the last decade. We must be vigilant to identify unintended consequences, and firm in our commitment to equitable and consistent treatment for all investors.” [1] [1] http://www.reuters.com/article/us-usa-sec-iex-idUSKCN0Z32NM http://www.reuters.com/article/us-usa-sec-iex-idUSKCN0Z32NM
randomname2 10y ago
The SEC’s decision may not be the end of the fight. Last month, attorneys for Nasdaq argued that the SEC could be sued if it approves IEX, saying the SEC would first have to change its own rules to explicitly allow for a speed bump. To this, the SEC issued an interesting response: addressing concerns about the legality of speed bumps, the SEC separately said that delays of less than one millisecond are consistent with its Regulation NMS. According to the SEC [1], IEX's 350 microseconds delay is negligible, and thus the market is automated and the quote is protected. The practical interpretation is that the SEC has set a ceiling for what it deems the speed race among HFT firms (with fiber optics, microwaves, lasers...) So with this decision, the SEC has capped what technological advancement in trading can achieve going forward, as now a 350ms delay will become the norm, while anything below 1 millisecond is deemed a "de minimis" delay. Which is no good for HFTs, where microseconds can mean all the difference between profit and loss. [1] https://www.sec.gov/divisions/marketreg/automated-quotations-under-regulation-nms.htm https://www.sec.gov/divisions/marketreg/automated-quotations...
- evanpw 10y ago
  The IEX delay is uniform and deterministic, so if you're faster than your competitors by 1 microsecond in sending an order to IEX in response to an external event, you still win. The race that you can't win anymore is with IEX's pegged orders, which re-price without the delay (but they're always non-displayed).
  - ycombobreaker 10y ago
    To add to your comment here, IMHO the situation is now worse from a technical perspective on multiple fronts: * IEX is still FIFO, as you point out about the race in response to external events. If Katsayuma really wanted to wipe out latency arb, he should have introduced some randomization and batching into the matching engine. I'm not sure how that would hold up from a regulatory perspective though. * IEX quote updates will be 350us slower than any other update because of the additional input latency, which means that their protected quotes will always lag behind the market on a price flip. The amount of time that a price level is still protected on the SIP, yet practically gone, will increase as a result. This will increase the amount of time that DAY ISO orders are necessary for establishing the new price level, and therefore will benefit the HF shops which can leverage DAY ISOs the best. This also possibly creates a moral hazard for noncompliance. * Other exchange owners have expressed interest in adopting a shoebox-like system, because of the expectation that delayed quotes will _force_ more market participants to trade on that exchange. If multiple systems start generating lagged quotes, the first problem continues to get worse. * IEX's pegged order type relies on the SIP. But now that IEX itself will become a part of the SIP, the shoebox delay will have a feedback effect of lagging its own peg updates. Likewise, if other updates start delaying their output, IEX pegs may become less useful. I'm not exactly sure what the net effect of this will be (after a few years of other exchanges adapting)... but I don't expect it to be "good" for the system as a whole. In general, I believe that artificial introduction of latency into the National Market System seems only to serve special interests: advanced technological traders (usually HFT itself), and the exchanges which enact the artificial latency.

85 points by anotherhacker 10y ago

Nothing to see here. The only people affected are other exchanges who get more competition

Opponents of IEX, including the other stock exchanges, have argued that the structure of the new exchange will add unnecessary new complexities into an already complex stock market, and potentially end up hurting small investors. Yeah they are really looking out for the small investors. How very considerate.

torkins 10y ago
Liquidity in instruments other than equities (options/futures/futures options) is getting worse, not better. Wider spreads and less liquid markets actually do disproportionately affect smaller investors who are doing anything other than straight equity buying and selling. HFT isn't hurting liquidity and isn't nearly the problem it once was, and this doesn't do anything to address the actual problems in dark pools or auctions or the non-transparent part of the market.
Lazare 10y ago
It may seem counter-intuitive, but...yes? Small investors benefit from HFT and related technologies, which is why, eg, Vanguard is pro-HFT. Investment banks are harmed by it, which is why, eg, Goldman is anti-HFT.
- vostok 10y ago
  I have a pet theory that the articles about HFT are actually placed [0] by big financial interests. I have personally seen a trader at a bank feed a story to a reporter in a different product. That article was pretty fair, but it was on an uncontroversial topic. I don't think the goal is to be deceptive, but the biases of the source are going to come through. Traders at banks are going to much more charismatic and gregarious than traders at HFT firms so it's not surprising that their story rings louder. [0] I'm not talking about explicit quid-pro-quo arrangements, but something along the lines of http://www.paulgraham.com/submarine.html http://www.paulgraham.com/submarine.html
- vermontdevil 10y ago
  Maybe. But how about letting the investors and market decide? These exchanges do not want competition and are hiding behind the "protect the small investors" schtick.
  - evanpw 10y ago
    > how about letting the investors and market decide? I basically agree with you, and the market has been deciding; IEX is currently the #2 ATS (colloquially "dark pool", but IEX has been publishing quotes). However, now that IEX is an exchange, their quotes become "protected", and all market participants are legally required to send orders to IEX if they're displaying the best price. It's now illegal to decide that you value a quick response or a higher chance of getting a fill over price and choose not to trade on IEX.
  - deleted 10y ago
    [deleted]

danielvf 10y ago

The original plan for IEX sounds like a wonderful extortion racket. By law, you cannot buy or sell stock on someone else's behalf unless you check with all major US stock exchanges first to verify that you are getting your client the best price. IEX intentionally, massively delays answering back unless you pay them buckets of money. Thus, unless you pay IEX buckets of money, you are at a huge disadvantage on every stock market, not just IEX. Quite a racket. Has anything changed with either the laws or IEX's plan since then? Update: IEX did indeed change their proposal to remove the favored order routing. Which still affects trades in other exchanges, and still affects negatively effects traders on all markets, but at least its "fair" now.

ikeboy 10y ago
What are those buckets of money? Also, IEXs delay is less than the delay between existing exchanges because of speed of light limits, so massively seems inappropriate.
- lpage 10y ago
  You might be surprised (when talking about the U.S equities exchanges at least): http://anova-tech.com/wp-content/uploads/2014/09/market-data-chart.jpg http://anova-tech.com/wp-content/uploads/2014/09/market-data.... The LoS distances in NY are on the order of 5-30mi and the lowest latency links are over microwave and laser.
  - evanpw 10y ago
    The Chicago Stock Exchange is 15 milliseconds away from all the others. There isn't much trading volume there, though [1]. [1] http://batstrading.com/market_summary/ http://batstrading.com/market_summary/
    - encoderer 10y ago
      Derivatives are traded in massive volume on the Cboe which is why the time between New Jersey and Chicago is so important

MichaelGG 10y ago

Can someone tell me if the view in "Flash Boys: Not So Fast" is accurate on IEX? In "Flash Boys" Brad Katsuyama says some ridiculous things, showing he doesn't know how exchanges work. In fact, the entire book is basically complaining that they can't trade large blocks without changing the price. Is IEX actually doing things in good faith or are they just playing off of people that are scared?

buttershakes 10y ago
It is mostly complete BS. They can't even begin to stop the numerous ways that HFT and sophisticated traders can play with the market, and are putting substantial road blocks that will actually decrease liquidity and increase complexity at the exchange level for basically no reason because of reg NMS integration.
jegutman 10y ago
Well to be fair, those were Michael Lewis's second hand telling. I personally know the author of FB:NSF, but haven't spoken to him in a while. I think I agreed with 95% of what he wrote. I think IEX will likely stumble, but will continue. The problem is not that IEX is doing something bad, but they're just not different enough to be meaningful. They have been very good at marketing though and brought up a lot of issues, but definitely raised some that are not accurate. The unfortunate problem (that's hard to resolve) is those executing on agency will always be at a disadvantage to those executing on principal. For example if someone wants to buy 5000 shares, they can route in a way that risks them buying 8000 to get better prices (by sending extra orders to dark pools, etc), someone executing on agency can never do that and so it might not make sense for them to route to dark pools, but almost all of the routers do that (fidelity, schwab, etc) so they disadvantage some of their customers (although they do advantage the smallest customers). Basically I think ultimately the reg-nms order protection is probably a little too rigid of a structure to fit the diversity of behavior into. I'm not really sure what they're long term hope is. I do find equities to be basically the most fair trading ground on the exchange (which is why they had any foothold at all). It would be nice if they were trying to disrupt the really expensive trading markets like fixed income where the spreads are much wider compared to the risk being exchanged and the dealers have so much leverage that they won't support anybody who is trying to cut into that spread.

grondilu 10y ago

If the goal is to avoid high-frequency trading, why not use a blockchain-like technology?

mooneater 10y ago
Not the simplest way to solve the problem. May have many other effects.
deleted 10y ago
[deleted]
Lazare 10y ago
When writing a comment about the blockchain, it's always useful to mentally replace it with the words "distributed database", and see if still makes sense. "If the goal is to avoid high-frequency trading, why not use a distributed database"? Maybe because that would have absolutely zero impact whatsoever on high-frequency trading? (Also, the goal isn't really to avoid high-frequency trading, and it's quite likely IEX will create more opportunities for high-frequency trading, not fewer, but that's another matter.)
cloudjacker 10y ago
What specific aspect of blockchain technology? It's slowness? The transparency of the consolidated order book? I place orders on Counterparty a lot, which offers a decentralized asset exchange that settles to the bitcoin blockchain. It would be nice settle stock trades on something like that, slow, too slow, but it would be a nice option.

randomname2 10y ago

Citadel is not happy: “Today’s decision will test and potentially reverse the gains in fairness, efficiency and transparency that have been made to our markets over the last decade. We must be vigilant to identify unintended consequences, and firm in our commitment to equitable and consistent treatment for all investors.” [1] [1] http://www.reuters.com/article/us-usa-sec-iex-idUSKCN0Z32NM http://www.reuters.com/article/us-usa-sec-iex-idUSKCN0Z32NM

randomname2 10y ago

The SEC’s decision may not be the end of the fight. Last month, attorneys for Nasdaq argued that the SEC could be sued if it approves IEX, saying the SEC would first have to change its own rules to explicitly allow for a speed bump. To this, the SEC issued an interesting response: addressing concerns about the legality of speed bumps, the SEC separately said that delays of less than one millisecond are consistent with its Regulation NMS. According to the SEC [1], IEX's 350 microseconds delay is negligible, and thus the market is automated and the quote is protected. The practical interpretation is that the SEC has set a ceiling for what it deems the speed race among HFT firms (with fiber optics, microwaves, lasers...) So with this decision, the SEC has capped what technological advancement in trading can achieve going forward, as now a 350ms delay will become the norm, while anything below 1 millisecond is deemed a "de minimis" delay. Which is no good for HFTs, where microseconds can mean all the difference between profit and loss. [1] https://www.sec.gov/divisions/marketreg/automated-quotations-under-regulation-nms.htm https://www.sec.gov/divisions/marketreg/automated-quotations...

evanpw 10y ago
The IEX delay is uniform and deterministic, so if you're faster than your competitors by 1 microsecond in sending an order to IEX in response to an external event, you still win. The race that you can't win anymore is with IEX's pegged orders, which re-price without the delay (but they're always non-displayed).
- ycombobreaker 10y ago
  To add to your comment here, IMHO the situation is now worse from a technical perspective on multiple fronts: * IEX is still FIFO, as you point out about the race in response to external events. If Katsayuma really wanted to wipe out latency arb, he should have introduced some randomization and batching into the matching engine. I'm not sure how that would hold up from a regulatory perspective though. * IEX quote updates will be 350us slower than any other update because of the additional input latency, which means that their protected quotes will always lag behind the market on a price flip. The amount of time that a price level is still protected on the SIP, yet practically gone, will increase as a result. This will increase the amount of time that DAY ISO orders are necessary for establishing the new price level, and therefore will benefit the HF shops which can leverage DAY ISOs the best. This also possibly creates a moral hazard for noncompliance. * Other exchange owners have expressed interest in adopting a shoebox-like system, because of the expectation that delayed quotes will _force_ more market participants to trade on that exchange. If multiple systems start generating lagged quotes, the first problem continues to get worse. * IEX's pegged order type relies on the SIP. But now that IEX itself will become a part of the SIP, the shoebox delay will have a feedback effect of lagging its own peg updates. Likewise, if other updates start delaying their output, IEX pegs may become less useful. I'm not exactly sure what the net effect of this will be (after a few years of other exchanges adapting)... but I don't expect it to be "good" for the system as a whole. In general, I believe that artificial introduction of latency into the National Market System seems only to serve special interests: advanced technological traders (usually HFT itself), and the exchanges which enact the artificial latency.