IEX: An Intriguing Wrinkle in the National Market System (By Andrew Upward, Weeden & Co.)

Terry Flanagan

IEX’s speed bump is a clever innovation that protects hidden liquidity providers from trading at stale prices. The benefits to the liquidity provider spill over to the liquidity-taking side of the trade, which is where we think institutional investors will find the most value. We applaud this effort to enhance market structure for the benefit of institutional investors. Displayed liquidity on IEX is a different story. It’s tougher to figure out what types of traders will make use of it, and in what scenarios. Granting tradethrough protection to these orders presents costs that must be weighed against the benefits of allowing IEX to compete as a full-fledged exchange. Valid counter-arguments notwithstanding, we feel that the costs outweigh the benefits, and that the rules suggesting that IEX’s quotes should be denied tradethrough protection should be upheld.

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