06.09.2016

IEX’s Pursuit of Market Fairness May Backfire, Bats CEO Says

This article first appeared on Bloomberg

IEX Group Inc. wants to bring greater fairness to the U.S. stock market, but its plan might actually help the traders it’s trying to curb, according to the head of one of the company’s competitors.

The centerpiece of IEX’s plan is a technique of slowing down orders by a fraction of a second, but that speed bump may empower strategies the company wants to thwart, according to Bats Global Markets Inc. Chief Executive Officer Chris Concannon. High-frequency traders can thrive on quirks like intentional delays, he said.

“Who takes advantage of anomalies like that? It’s not going to be buy-side traders,” Concannon said at the Sandler O’Neill Global Exchange Conference in New York on Wednesday. “Their exchange will be riddled with HFT.” If IEX ends up helping the firms it planned to blunt, “there’s great irony in that,” he added.

IEX is seeking regulatory approval to convert its dark pool into a full-fledged stock exchange. The U.S. Securities and Exchange Commission — where Concannon used to work before years later joining automated trader Virtu Financial Inc. and then Bats — is due to rule on the application by June 18. Bats runs four stock exchanges.

IEX contends that its speed bump curbs predatory high-frequency trading strategies. Its potential competitors in the exchange world — NYSE Group Inc., Nasdaq Inc. and Bats — have said that if the company is allowed to become an official stock exchange, this will encourage the other exchange groups to put delays in some of their trading systems, too.

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