A Theoretical Model of the Investors Exchange
36 Pages Posted: 15 Jul 2017 Last revised: 3 Oct 2017
Date Written: July 8, 2017
Investors’ Exchange LLC (IEX) is a newly approved public exchange that is designed to discourage aggressive high-frequency trading. We explain how IEX differs from traditional continuous double auction markets and present summary data on IEX transactions by trader class and order type. Our primary contribution is a simple analytic model of IEX as a constrained version of the continuous double auction. The model predicts that IEX will generally improve price efficiency and lower transactions cost while increasing delay costs. A subset of the model’s predictions are testable in the field or in a laboratory environment.
Keywords: Market design, IEX, lab experiments, high-frequency trading, continuous double auction.
JEL Classification: C91, D44, D47, D53, G12, G14.
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