IEX Group, Inc.

24 Pages Posted: 30 Sep 2019

See all articles by Marc L. Lipson

Marc L. Lipson

University of Virginia - Darden School of Business

Aaron Fernstrom

University of Virginia - Darden School of Business

Abstract

At the start of 2018, Brad Katsuyama and his leadership team at the Investors Exchange (IEX) had much to be proud of - and much to worry about - as they contemplated the rollout of their latest innovation in equity trading. In a trading landscape increasingly defined by issues related to speed, IEX was building a reputation as a thoughtful innovator trying to level the playing field for its clients. In many ways, the short history of IEX and the longer history of its founders were at the center of the often baffling and complex repercussions associated with the advent of electronic trading. Now, IEX was about to implement a “Crumbling Quote Remove Fee” that would help protect clients from predatory trading strategies designed to exploit speed-induced market distortions. Katsuyama and his colleagues hoped this would increase fairness in the market, but at the same time were concerned about copycats, potentially negative reactions from market participants, and whether the new Remove Fee would actually accomplish its goal of creating fairer markets.

Excerpt

UVA-F-1876

Sept. 13, 2019

IEX Group, Inc.

The U.S. stock market was now a class system, rooted in speed, of haves and have-nots. The haves paid for nanoseconds; the have-nots had no idea that a nanosecond had value. The haves enjoyed a perfect view of the market; the have-nots never saw the market at all.

—Michael Lewis

Innovate or die.

. . .

Keywords: Equity trading, fair markets, innovation, electronic trading, algorithmic trading, automated trading, data fees, market inefficiencies, speed of execution, market fragmentation, resting orders, market predation, stale quote arbitrage, crumbling quote arbitrage, intermediation, stock market regulation, order routing, dark pool, stock exchange, colocation, NYSE, alternative trading system, ATS, buy-side, signal fee, speed bump, National Best Bid or Offer, arbitrage, high-frequency trading, Crumbling Quote Remove Fee

Suggested Citation

Lipson, Marc L. and Fernstrom, Aaron, IEX Group, Inc.. Darden Case No. UVA-F-1876. Available at SSRN: https://ssrn.com/abstract=3460757

Marc L. Lipson (Contact Author)

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Aaron Fernstrom

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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