06.14.2016
By John D'Antona

IEX Seen Getting SEC Approval, But Concerns Linger

IEX, the buy side-sponsored dark pool, appears to have cleared the final hurdle in its 10-month long sojourn to become a public exchange.

Today, the U.S. Securities and Exchange Commission’s staff charged with completing the review of the ATS’ exchange application has recommended that IEX be approved as the U.S.’s 15th public stock exchange.

In its review of the IEX application, the SEC focused on IEX’s proposed POP/coil structure speed bump mechanism and how it affects market quality and should it be considered an automated quotation under Reg NMS.

IEX’s POP and coil infrastructure is how traders and others would connect to the venue. By traveling through the POP/coil route, IEX Users sending non-routable orders to the venue would have a delay, or latency, of 350 microseconds, both ways.

Now with the staff’s approval a matter of record, the SEC commissioners will be certain to vote their formal approval Thursday, June 16, when they are scheduled to meet.

Themis Trading released a statement this afternoon applauding the SEC’ staff and reiterating the firm’s stance that if has been supportive of IEX becoming an exchange and that it will be a “great benefit to long-term investors.”

David Weisberger, head of trading at Markit and a long-time critic of IEX’s displayed order treatment under Reg NMS, said that while having IEX as an exchange might be a good thing in terms of promoting competition between the exchanges, he still thinks the market structure debates and issues raised by its application still bears scrutiny.

“IEX’s dark pool could continue to provide the benefit of protecting those orders without protection under Reg NMS,” Weisberger said. “They could become an exchange without their lit quotes being protected or they could retool the delay to apply only to dark orders, where the delay actually provides a benefit.”

That said, he thinks the SEC could separate the exchange application and approve IEX but still continue to review the status of IEX’s displayed orders under Regulation NMS.

“While I don’t have a strong view on the exchange application generally, the answer to the ‘protected quote’ question should be ‘No’,” he said. “Deeming an intentional delay acceptable would set a precedent which would decrease incentives for providing the firm orders that are critical to price discovery.”

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