07.28.2016

Nasdaq Gauges Market Appetite for Speed Bumps After IEX Approval

(This article first appeared on Bloomberg)

Nasdaq Inc. is talking with its customers about adding a “speed bump” to delay orders for one or more of its U.S. markets, a month before it faces competition from a new stock exchange.

Chief Executive Officer Robert Greifeld said that the company is asking clients what features or changes they would like to see, while it awaits IEX Group Inc.’s arrival as a more serious competitor. In June, the U.S. Securities and Exchange Commission approved IEX’s request to run a stock market with a 350-microsecond delay to orders — a speed bump.

“We are talking to customers about what they want and what they would like to see with respect to evolving market structure,” said Greifeld in an interview following the company’s quarterly earnings call. “So a speed bump is clearly one of the things we’re talking to them about.”

The exchange operator is contemplating its next move after opposing IEX’s efforts to win the SEC’s approval. Nasdaq was among the companies that warned IEX’s fraction-of-a-second delay on orders would complicate trading, and that intentionally slowing down orders breaches the SEC’s own rulebook. Nasdaq had cautioned that giving IEX the status of a stock market could be challenged in the courts.

The exchange operator sought to add its own programmed time delay to its PSX exchange in 2012. The proposed time delay — which Nasdaq ultimately withdrew — was a programmed feature in the trading software, unlike IEX’s speed bump, which comes from a coil of fiber-optic cable.

“We’re so emotionally upset and intellectually curious how the SEC went around the rule-filing process to approve this,” Greifeld said. “This is the first SEC ruling I’ve seen that falls against the rigor of the prescribed process. I’ve been here a long time and I’ve never seen anything like it.”

He added that while Nasdaq isn’t necessarily against the idea of speed bumps, he thinks that the language in U.S. market rules banning “artificial delays” is clear.

“That’s not lawyer speak. That’s plain English,” Greifeld said.

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