Intentional Access Delays, Market Quality, and Price Discovery: Evidence from IEX Becoming an Exchange
63 Pages Posted: 27 Jun 2018 Last revised: 15 Jun 2019
Date Written: March 15, 2019
This paper exploits the staggered securities phase-in when the Investors Exchange (IEX) becomes a national securities exchange to study the effects of intentional access delays on market quality including price discovery. IEX introduces exchange trading---and therefore its 350-microsecond speed bump---alphabetically by stock symbol name. Using first-differences and difference-in-differences regressions I show that trading costs decline on average, with larger decreases for stocks with higher historical average trading activity on IEX. Adverse selection decreases, consistent with theory on speed and "quote sniping." Results on price discovery are mixed---price discovery improves on average, but return autocorrelations increase for stocks with high historical IEX trading activity. I find plausible evidence that these changes may be related to a reduction in "sweep risk" after IEX becomes an exchange.
Keywords: IEX, speed bump, Rule 611, Reg NMS, dark pool
JEL Classification: G14, G18
Suggested Citation: Suggested Citation